New Home: Build vs Used

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Andyrunner
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New Home: Build vs Used

Post by Andyrunner » Mon Sep 16, 2013 11:40 am

Hey everyone

So the wife and I are thinking of moving in the next few months. Not really many suburbs so the market is limited, especially as the city is expanding, basically there is a housing shortage. We live in the Midwest if that helps.
We met with some builders this weekend as they had a city wide bi-annual showcase event. One respected builder mentioned he would sell our current house at 4% commission if we built one with him, as he has a realtor license, most realitors charge 6-7%. Only issue we found is building has a premium cost to it, probably about 25-30k premium over buying a used house that is 10-15 years old is my guess.
Facts:
- 2 month old kid, main reason why we want to move. Our house is big enough, but a split level (which is a majority of our city’s houses) with only 2 bedrooms on one floor, if we had another (which we probably will), we would need to move and it’s easier to move now than before she knows how to crawl/walk.
- Gross income is about $150k, age 30, emergency fund set
- Current home mortgage is 110k would sell it for no less then $210k which is what we paid in 2009
- New build would probably cost about 290-330k our goal is to be under 300k for anything, but will pay more for a dream home.
- Wife doesn’t want to build, she is a very green environmental person and feels why not just buy a used one rather than use new resources, but is somewhat open to the idea as the way the market is
- We have about 16k in taxable investments I could use for a down payment on top of proceeds of about 90k from our current home. Emergency fund is set.
Questions:
- Builders selling your home? Is there any catch? I would assume he would either force us to a lowball price or something else. Salesmen always have a catch or something they aren’t telling you is my theory
- How much can you negotiate on a new build? My fear is if we negotiate 5% off, he will reduce his quality by 5%
- What are the pros/cons to building vs buying used (most homes would be between 15-5 years old)

scone
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Re: New Home: Build vs Used

Post by scone » Mon Sep 16, 2013 12:49 pm

I don't mean to put you off, but the questions you are asking are so broad, they need a book-length reply. If you are serious about the building option, you need to hit the library. That said, I personally would not build unless I owned the land myself, free and clear, and could get at least three bids on a plan with a comprehensive set of specifications. To do otherwise is to give up a huge amount of power to the builder. As part of the bid, I would want to see some proof of the builder's solvency. You need to know he or she has always paid off the subs.You also want to know how many times the builder has declared bankruptcy. Any builder who gets offended at this, and tries to b.s. you about how "respected" they are, should be dropped immediately.

This industry has some good people, but also a very large proportion of bad apples and incompetents. The most common thing I have run into, is good tradespeople-- with good intentions-- who are very bad businesspeople. That type of person is always going to pay the lumberyard-- next Tuesday. In the old days that sort of thing was somewhat tolerated, because the builder and the lumberyard guy went to the same high school, the same church, the same bar. But since the last crash, people aren't so willing to let their buddies chalk it up on the slate. Too many people crashed, got in the F150, and lit out for the territory.
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Andyrunner
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Re: New Home: Build vs Used

Post by Andyrunner » Mon Sep 16, 2013 12:59 pm

Points well taken. I figured it wouldn't be a clear easy answer. I agree, there would be a lot of power on the builder.

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Ged
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Re: New Home: Build vs Used

Post by Ged » Mon Sep 16, 2013 1:13 pm

I had a friend build a home. Lots of headaches including poor quality, house vandalized, construction finished 9 months late so his family had to move in with their parents during the process.

That's nothing though compared to the problems that happen sometimes with the builder going bankrupt during the construction and you losing your deposit.

MIretired
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Re: New Home: Build vs Used

Post by MIretired » Mon Sep 16, 2013 1:34 pm

Isn't the commission on the sale of a home(your current home)(6-7%) split by the selling agent and the buyer's agent? That's what I remember. Just a possibility.

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deanbrew
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Re: New Home: Build vs Used

Post by deanbrew » Mon Sep 16, 2013 4:09 pm

To the OP: are you looking at "custom builders" who build a few homes per year, or are you talking about tract builders who build hundreds of homes per year? There is quite a difference in how you buy depending on the answer to this question. From your original post, I was assuming finding a volume builder in a developing subdivision, but perhaps my assumption was incorrect, as other posters assumed custom building.
"The course of history shows that as the government grows, liberty decreases." Thomas Jefferson

Andyrunner
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Re: New Home: Build vs Used

Post by Andyrunner » Mon Sep 16, 2013 4:14 pm

Yes, one of the track builders. Not a custom build.

gerrym51
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Re: New Home: Build vs Used

Post by gerrym51 » Mon Sep 16, 2013 4:51 pm

Andyrunner wrote:Yes, one of the track builders. Not a custom build.

having had a house built 30 years ago-price every possible upgrade in and buy them. don't hesitate to ask for some changes in the house-as long as load bearing walls are not affected you can make floorplan changes.

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deanbrew
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Re: New Home: Build vs Used

Post by deanbrew » Mon Sep 16, 2013 4:52 pm

Andyrunner wrote:Yes, one of the track builders. Not a custom build.
OK, that removes a lot of the planning, risk and uncertainties from the equation. Large regional and national home builders know how to build homes and know how to make the process reasonably easy for buyers. They will step you through the buying process, and will take care of most of the details. FWIW, I don't work for any builders, but I've bought three new homes from large tract home builders, and was generally satisfied all three times. One thing I would suggest: if you get serious, visit the property several times, and ask to speak with the project supervisor or construction manager - the one who is overseeing all of the subcontractors and making sure homes are completed properly and on time. See if you get a warm fuzzy feeling from talking to the construction supervisor, or if it seems like he's fine with shortcuts and "that's good enoughs". I've found that a competent, hard-working supervisor makes a huge difference in making sure subs do things right. Like at different locations of a chain restaurant, though the menus are identical or highly similar, the quality of the food and dining experience depends on the manager and cooks, not just the "system".

My take on your questions:

1. A catch on the builder selling your home? Probably not, though you should also interview at least two other local agents to gain knowledge about your home's value and place in the market. If two or three other agents all suggest listing your home at $219k and the builder wants you to list it at $199, he's clearly looking for a quick sale. After you talk to two or three other agents, you'll be ready to discuss listing with the builder, or to choose one of the "regular" agents.

2. In general, you can't negotiate price much (if at all) with volume builders. They don't want you walking around telling anyone you paid under the advertised price. Instead, volume builders are sometimes willing to negotiate upgrades and options, such as a free upgrade on cabinets or countertops, or a finished basement. Often, you'll see these concessions on their website or in ads, but very seldom will you see price reductions. As for reducing quality by 5%, building a tract home is a lot like production on an assembly line. The builder has already decided on materials and workmanship, other than finishing items such as flooring, cabinets, counters, appliances, etc. that the buyer chooses.

3. Pros to buying new? Everything is new!! While you can have problems with new windows, HVAC systems, appliances, flooring, etc., they are all under warranty and the builder or manufacturer will fix them. The nice thing about buying new is that you will likely have little in the way of repairs for the first several to ten years, other than routine maintenance. Another pro is that you get to pick your appliances, cabinets, counters, faucets, carpets, paint colors, etc. (within reason and within price levels). Buy an existing home, and you get what is there.

Another pro, from my experience, is that you are moving into a new neighborhood with other people who will generally be of similar age and with similar interests, to a degree. My wife and I bought a new home in a new subdivision in 1992 and are still close friends with five families who moved in at the same time, even though we now live in three different states and only one family remains in that neighborhood. None of us knew each other, but quickly became friends due to parties and community dinners. If you move into an established neighborhood, you are the newcomer, as everyone else already has their relationships, and it can be harder to fit in and make friends.

Pros to buying used? You will pay less. You'll likely get more square feet for a given price. Most people prefer new or newer, so values decline on a relative level. Even a five to ten year old home is worth less than a new one, for many of the reasons I state above. A ten year old home might need a new water heater or garage doors. As you get to 15 or 20 years old, you're looking at roofing, HVAC systems and the like. Factor those things into the price you're willing to pay. You should be able to negotiate harder for an existing house, in terms of a price reduction, though that depends on how realistic the asking price is. A pro to an existing home is that the trees and shrubs are mature, and the neighborhood looks lived-in.

I'm sure others will chime in, but some of the posts after your first were more pertinent to a custom home rather than a home built by a volume builder.
"The course of history shows that as the government grows, liberty decreases." Thomas Jefferson

Andyrunner
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Re: New Home: Build vs Used

Post by Andyrunner » Mon Sep 16, 2013 5:26 pm

Thanks!

Yeah I didn't think I had much pull with negotiating a price. With the demand and limited lots I have a feeling the supply/demand laws are in their favor.

My concerns with building is you don't know quite yet how the drainage will work or will the foundation settle over time? How do those hold up with warranty from the builder etc.

YttriumNitrate
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Re: New Home: Build vs Used

Post by YttriumNitrate » Mon Sep 16, 2013 5:30 pm

One piece of advice: If it's a track builder, take a look at some of the subdivisions they've built. If any of them don't have driveway cutout (meaning you have to go over a curb to get into your garage) run away from them as fast as possible. If they are willing to skimp on the most obvious part of the house, just think of the corners they cut that you can't see.

scone
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Re: New Home: Build vs Used

Post by scone » Mon Sep 16, 2013 5:51 pm

I've got 2 book titles for you, they will help whatever you decide:

Your New House by Alan and Denise Fields

This one will step you through the process, from site location to moving in. There is a lot about buying from a tract house builder. It also talks about getting the house inspected, which is important even if it's brand new.

Build It Right by Myron E. Ferguson

Here is a pretty comprehensive look at the details that make up a good house, from the big stuff to the little picky things that will drive you around the bend if they are not right.

And after everything I said above, it looks like I'm buying a piece of land-- the seller agreed to my price this evening. This will be my second new build. There's no trouble like that we make for ourselves! :oops:
"My bond allocation is the amount of money that I cannot afford to lose." -- Taylor Larimore

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frugaltype
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Re: New Home: Build vs Used

Post by frugaltype » Mon Sep 16, 2013 5:53 pm

Ged wrote:I had a friend build a home. Lots of headaches including poor quality, house vandalized, construction finished 9 months late
+1

stan1
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Re: New Home: Build vs Used

Post by stan1 » Mon Sep 16, 2013 6:01 pm

Drainage on the lot is actually a plus for a new home. A new tract home is generally going to be built on a lot that is graded to drain water away from the house and to the street/storm drain. Many drainage problems on lots are caused by landscaping added by homeowners. When you landscape a new lot make sure your landscaper puts in drains, maintains swales, etc.

A different issue is whether the new house is being built in a low lying area prone to flooding which can be an issue for old and new houses. For that you would want to look for creeks and other low lying areas near by, and make sure your house is higher than the surrounding land. Builders will usually grade the lot to make the house several feet higher than the street, but if there is a creek in the back yard there's only so much the builder can do to mitigate the risk of flooding.

New tract houses do also have the issue of builder upgrades. You may find that the flooring, countertops, and appliances included in the base price are very basic and you'll want to upgrade adding more $.

SteveB3005
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Re: New Home: Build vs Used

Post by SteveB3005 » Mon Sep 16, 2013 7:18 pm

I like used, the ability to select from finished and settled houses. Homes in that 15-20 yr range all would have the higher amp service panels, PVC sewer lines, and much of the same safety code as today.

And check those floodplain maps, in the last week I've seen places flood out in my town, that have totally surprised me.

YttriumNitrate
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Re: New Home: Build vs Used

Post by YttriumNitrate » Mon Sep 16, 2013 7:43 pm

SteveB3005 wrote:And check those floodplain maps, in the last week I've seen places flood out in my town, that have totally surprised me.
And take those floodplain maps with a grain of salt. In my area, the floodplain is now about 8 feet lower than what it was 100 years ago thanks to a couple dams. So, no one really knows the height of the floodplain based on historical data, it's just a guess. Also every road, parking lot, and impervious surface in the basin area raises that floodplain level a tiny bit.

magneto
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Re: New Home: Build vs Used

Post by magneto » Tue Sep 17, 2013 5:46 am

With a used home you can see what you are buying.
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eucalyptus
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Re: New Home: Build vs Used

Post by eucalyptus » Tue Sep 17, 2013 7:24 am

magneto wrote:With a used home you can see what you are buying.

Some of it, yes. But major defects can be invisible to both buyer and even a thorough home inspector.

Andyrunner
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Re: New Home: Build vs Used

Post by Andyrunner » Tue Sep 17, 2013 7:37 am

scone wrote:I've got 2 book titles for you, they will help whatever you decide:

Your New House by Alan and Denise Fields

This one will step you through the process, from site location to moving in. There is a lot about buying from a tract house builder. It also talks about getting the house inspected, which is important even if it's brand new.

Build It Right by Myron E. Ferguson

Here is a pretty comprehensive look at the details that make up a good house, from the big stuff to the little picky things that will drive you around the bend if they are not right.

And after everything I said above, it looks like I'm buying a piece of land-- the seller agreed to my price this evening. This will be my second new build. There's no trouble like that we make for ourselves! :oops:
Ha! Did you miss the part where I said I had the two month old? No time for reading! But I will make a valor attempt to check out the books. Or at least have my wife read them as she is on FMLA with the baby.

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deanbrew
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Re: New Home: Build vs Used

Post by deanbrew » Tue Sep 17, 2013 7:40 am

magneto wrote:With a used home you can see what you are buying.
With tract homes, you can see the finished model home as well as others in various stages of completion. You learn exactly what components, mechanicals, finishes and appliances are used. You can see your actual home being built and know exactly what is in it and where. I've felt much more confident buying new than used.
"The course of history shows that as the government grows, liberty decreases." Thomas Jefferson

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Re: New Home: Build vs Used

Post by carolinaman » Tue Sep 17, 2013 8:19 am

Tract home builders generally build lower quality homes than good local custom home builders. However, the quality and fiscal soundness of local builders varies a lot. You should be able to find good local builders with a little due diligence. They are sometimes more expensive because of their quality and reputation (they often use better subs who demand higher pay). It is worth checking this avenue out. My son is in the business and he has taken me through neighborhoods of homes 4 and 5 years old and pointed out the visible defects (from the street) of shoddy construction by tract builders.

Since you seem open to used homes, I recommend thoroughly checking them out before committing to build. It is a less expensive and safer route and also less time consuming because regardless of who your builder is, you will need to monitor construction regularly to make sure things are done right. You seemed strapped for time so the last point may be important to you.

I would be very cautious of having the builder sell your current home. Will he list it on MLS and will he aggressively try to sell it? You may be better off listing with a fulltime realtor at 6% who will aggressively try to sell your home. Best wishes.

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SnapShots
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Re: New Home: Build vs Used

Post by SnapShots » Tue Sep 17, 2013 9:50 am

We built our home and have never regretted it. It was cost plus 10%. The contract also had a cost over run guarantee, provided we made no changes from the approved plan.

It is VERY! important to know your builder's reputation. Look at homes he has built and talk to the homeowners. Did he go over project costs? Did he build on time? Ask about the quality of construction.

It takes a lot thought and planning to build a home.

We built a home because the used home we bought before building was a lemon. Looked great on the outside but underneath was poorly built and it cost us a fortune in repairs. After selling that home we were afraid of used homes.

Is there some reason you want to buy or build a Track Home?
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sls239
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Re: New Home: Build vs Used

Post by sls239 » Tue Sep 17, 2013 10:01 am

I would think location would be the biggest consideration and you really haven't provided information on that.

Be aware that if there are lots of houses being built, the school boundaries are likely to change.

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Re: New Home: Build vs Used

Post by Mingus » Tue Sep 17, 2013 10:11 am

Before I decided I wanted a cushy office job, I used to be in the trades. I worked on everything from tract homes to McMansions in high end sub divisions, and custom homes.

Honestly, from what I saw the construction quality difference between a low end tract home and a high end home really wasn't much. The biggest differences were the size of the homes, and the higher end ones had nicer finishes. But underneath those nicer finishes was the same lackluster chintzy construction.

Probably not pertinent to the OP, but if one wants a very well built home you need to go with a custom builder, and have a lot of contacts in the industry. There are exceptions, but there just isn't much pride in work anymore. Everything is about getting in, getting done, getting out, and getting paid.

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deanbrew
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Re: New Home: Build vs Used

Post by deanbrew » Tue Sep 17, 2013 10:53 am

Building a custom home is FAR more difficult, and involves several times the time, effort and risk, than buying a new tract home. And a custom home will cost significantly more than a new tract home. Yes, the quality will probably be better, should be better, but you will pay for it. Your local builder simply can't negotiate the price of materials and labor as low as a volume builder.

The OP has stated that he doesn't have the time to read a couple of books, and yet posters are suggesting he build a custom home? That's nuts. I've bought both new tract homes and also had a custom home built. The cost, time and stress level were multitudes higher with the custom build. Whether it's worth it is certainly debatable, but one has to honestly acknowledge the difficulty, risk, time, effort and costs involved.
"The course of history shows that as the government grows, liberty decreases." Thomas Jefferson

Andyrunner
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Re: New Home: Build vs Used

Post by Andyrunner » Tue Sep 17, 2013 11:18 am

Agreed, a custom home would cost way more than I am willing to spend. I would love a custom home, but I want to be able to retire and not be house poor.

Funny I never actually heard the term tract homes. I just used the term "Cookie Cutter Homes" basically the same thing.

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deanbrew
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Re: New Home: Build vs Used

Post by deanbrew » Tue Sep 17, 2013 12:24 pm

Andyrunner wrote:Agreed, a custom home would cost way more than I am willing to spend. I would love a custom home, but I want to be able to retire and not be house poor.

Funny I never actually heard the term tract homes. I just used the term "Cookie Cutter Homes" basically the same thing.
While the "cookie cutter" description has some merit, not all bakers are the same. Though the same recipe and ingredients might be used, the baker has a huge influence on the end result. As I posted earlier, when you get serious about one or two projects/builders, ask to speak with the site manager, site supervisor or whatever the builder calls the guy who supervises all of the excavation and construction. A good one will greatly improve the end product, while a lazy one will allow subs to cut corners. The salespeople in the model home? They are sales people, not builders. They can help make the buying and borrowing process smoother, but they will not be able or willing to answer construction questions.
"The course of history shows that as the government grows, liberty decreases." Thomas Jefferson

Mike Scott
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Re: New Home: Build vs Used

Post by Mike Scott » Tue Sep 17, 2013 2:56 pm

I would pick the general location first and then look at all the homes for sale in that area. You may end up with a new or used one depending on what is available, price etc. If you "want" a custom built home then you have to do more work and it will almost certainly cost more than an existing one.

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Watty
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Re: New Home: Build vs Used

Post by Watty » Tue Sep 17, 2013 4:27 pm

eucalyptus wrote:
magneto wrote:With a used home you can see what you are buying.

Some of it, yes. But major defects can be invisible to both buyer and even a thorough home inspector.

With a home being built you can have an inspector check it at several key points druring the construction. This is something that you would want agreed on before you sign the contract and since the builder knows that it will be inspected during the construction will likely help you get better construction quality

One often overlooked advantage of buying in a new subdivision is that the first owners tend to be in the same stage of life and have kids that are the same age and everyone is looking to make new friends. There is often a bond of the people in a new subdivision that can last a lifetime and sociologist has written about the dynamics of how the people in an American subdivision go through several cycles as the original owners age and then are eventually replace with future generations.

My family lived in two new subdivisions when I was growing up. My siblings and I don't really keep in touch with people from back then but my parents had friends from both subdivisions for the rest of their lives.

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Re: New Home: Build vs Used

Post by SimonJester » Tue Sep 17, 2013 5:11 pm

My dad has been in construction for 40 + years... The trend as he has seen it, is that the materials being used today as of a far lower quality then in the past. Even on high end custom houses. Builders are squeezing every possible dime out of every item, and then most everything is an upgrade.

Even down to the basic 2x4 lumber has become less dense then in past decades as the industry is harvesting smaller younger plantation grown trees.

Track house layouts are vastly different today the in the past. The trend is a bigger house on a smaller lot with more houses packed into the subdivision. Older houses usually have larger lots with established landscapes.

If I had things to do over again I would look for an existing house with some bit of acreage around it.

I would not build unless I could take the time off and GC the project myself.
"They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety." - Benjamin Franklin

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