Should You Buy a Resale or New Construction?

Last week, a client asked me my thoughts on buying a lot and building a new home. Then a few days later, I was discussing homeowners insurance with my insurance agent and we started to discuss insurance coverage on homes. Both conversations got me thinking about buying or building a new home versus buying an existing home already on the market.

In my opinion, a buyer is much better off buying an existing home. My opinion is based on two things. The first is just my observation of being out in the market and seeing existing inventory.

It seems to me that a $250,000 resale home is much larger than a $250,000 new construction home. Common sense tells me that for a builder to come close to competing, that the home would have less amenities or have amenities of lower quality. My common sense was somewhat confirmed when I talked to the insurance agent. He said that a home purchased for $250,000 has to be insured for much more, because they cover the cost to rebuild the home. Meaning new construction costs more than existing inventory.

So for now, I am advising my buyers to look at existing inventory for making a purchase. If a client wants “new,” we will look at existing inventory less than five years old first. I believe this will be the case for several years to come as the foreclosures and short sales continue to dominate the market. For the builders out there now, they have to do more for less in order to compete.