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Building or Buying a Home: Which is More Affordable?

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Are you in the middle of buying a new home? Have you decided whether to build a new home or buy an already built one? If you already have a land to build on, building from scratch is the more cost-efficient option. But if you need to buy the land and the house, purchasing an already built one is more pragmatic.

Unfortunately, it isn’t as simple as that. You have to consider more things to help you make an informed decision. In building a new home, you may need foundation solutions that will cost significantly more than buying an already built house. But you’ll be more confident with the integrity of your home’s foundation.

Why an Already Built Home Can Cost More

Obviously, the decision depends on how much your budget is and what kind of house you want. The National Association of Home Builders (NAHB) said that the average price of a new home in the US was $301,400 in February 2016. For existing homes, the average price was $212,300. But the difference in price can be attributed to the fact that new houses are bigger and more luxurious.

In 1979, the median size of newly constructed homes was 1,645 square feet. In 2014, that size grew by almost 50% at 2,453 square feet. A home that’s almost 50% bigger at a time when materials are more expensive is going to cost more. It’s as simple as that.

Why Building a Home Cost Even Higher

architect and contractor working on plan of house

Experts suggest that even with the NAHB figures, constructing a new home costs more on the front end. Contractors need to make a profit from your home. Their profit is significantly bigger than the cut that most real estate brokers expect. Homeowners who want to sell their house will have already profited from the value of appreciation in the years since the construction of their homes.

Another reason is that new homes have to follow more stringent building codes and energy policies. Although building energy-efficient homes will pay off in the long run, they also cost more upfront. You may need to invest in new technologies that do not fit your current budget for a house.

The cost of the land and materials is another consideration. Building a new home means looking for the perfect plot of land first. That can be expensive, depending on the location and the size of the home you want to build. Highly in-demand areas can cost tens of thousands of dollars per square foot.

The same can be said for building materials. You can save on buying an already built home because construction materials were inexpensive 10 or 20 years ago. Building materials and labor costs keep on increasing. Even building permits, which you have to get from the local government, are more expensive now.

In the end, it all depends on your priorities and your budget. If you prioritize having a hand at designing your new home, then you should go with building it from the ground up. It might cost more upfront but if you’re happier with the results, there’s no comparison to that. But if you’re frugal and want to save, you should take a look at already built homes since you can negotiate the selling price.

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