Which is Better, Buying An Existing Home or Building New? – Central Arkansas 2023
You are ready to buy a home and you are suddenly faced with the question, is it better to buy an existing home or build new? It depends! Existing homes are less expensive up front and ready right now. Did I mention right now? Banks are more likely to provide loans as an existing home is less risk to the bank. Since it is lower risk, the bank may offer the opportunity of a lower or no down payment. The cons? Existing homes have higher maintenance cost than a new home, the floorplan and location are set, and during COVID-19 there was a sharp decline in building new homes and with the increase of population, the US is almost 1 million homes/apartments behind the growth, this means less houses to choose from. Less houses mean higher prices. Let’s talk about these higher prices. An example: In 2020, let’s say there is a home selling for 60k, but needing 40k in repair. After the repairs, the home would be worth 140k. A family could purchase the home with the bank paying 100% of the cost and repairs because the loan to value was less than 80%, the bank was willing to take all the risk. If the family turned around and sold it immediately, they could have an immediate profit. In 2021, there was a huge spike in demand for homes. All of a sudden, that same home that would have sold for 60k in 2020, was having offers for 100-120k because there were not enough homes on the market. And don’t forget about the additional 40k in repair costs required. If that house was sold at 100k, plus the 40k in repairs, a family might be required to pay a 5-20% downpayment to reduce the bank’s risk. By the time it was all said and done, many of the homes on the market were being sold only slightly less than the price of a new home. As families realized this, they started looking for builders. County Population Increase Since 2010 Population Pulaski 6% 404,039 Lonoke 11% 75,713 Saline 20% 128,308 Table 1 – Central Arkansas has grown dramatically over the last 10 years, requiring a demand on new homes New construction takes between 6 to 12 months to complete a home on average. New construction is higher risk for a bank so they will often require a down-payment, higher interest rates during the construction loan (typically 12-months long), and higher closing fees. Sounds like a lot, so why build new? With the increase of demand, new homes are only slightly more than the cost of older homes, without the repair cost. And the best part? You get to build your dream home. Where you want it! Building your home is exciting, taking your dream from paper to reality. So how much does it cost to build in 2023? Average cost to build a home ranges from $140/sq-ft to $200/sq-ft. The larger the home, the lower the cost per square-foot. Following assumptions are made on the table below: 2-car garage, brick exterior, reasonably flat land, granite counter-tops, 70 sq-ft driveway, and land is already owned. Size Sq-Ft Average Cost 1000 $180-210k 2000 $300-325k 3000 $430-460k Average cost to build in central Arkansas in 2023. In conclusion, purchasing an already-built home can save you time and money, but has a risk of high maintenance cost and repairs. During COVID, building slowed and the US is over 1 million homes behind the demand required for the growing population making it harder to find a good home at a good price. New builds cost more and take more time but offer families the opportunity to build their dream home, where they want it, at prices only slightly more than already-built homes. And the best part? Building a home allows families to be part of the solution to resolving the growing need of new homes.