Updated: Jul 20
Why should Houston homebuyers build a home vs. buying a used home?
N.B. – First, homebuyers need to understand that building a new home is a financially viable option for the middle class. There is a misconception that building a new home is only for the rich, that the cost of building is more expensive than buying a used home. And that is simply not true.
Can you elaborate? Perhaps with an example.
N.B. – Absolutely. Let’s walk through an example based on the current, 2019, real estate market in the East End and Near Northside areas of Houston. These are highly desirable market areas for homebuyers looking to live inside the 610 Loop, near Downtown in up-in-coming neighborhoods.
Building a home involves 1) a lot to build on; and 2) a homebuilder to build on the lot.
A lot, meaning cleared land or land with teardown structures, is going to cost $20 to $25 per square foot in the East End and Near Northside. 5,000 square foot lots are the norm, meaning land cost ranges from $100,000 to $125,000.
As far as homebuilders, you have a range of options. Middle of the road pricing is $120 per square foot for these neighborhoods. This is an all-in price, including plans, permits and construction costs.
In total, building a new home on a 5,000 square foot lot with 3 bedrooms, 2 baths will cost a homebuyer $322,000 to $365,000 for an 1,850 to 2,000 square foot home with contemporary, above average finishes.
A quick search on real estate websites, like HAR.com, for new homes in these market areas will highlight the value of building, where similar homes are fetching sales prices in the high $300,000s and low $400,000s.
The math is straightforward, but how do homebuyers finance the construction of a new home?
N.B. – Banks are offering a range of financing options for homebuyers in Houston who want to build their homes. Just like a traditional mortgage, banks are offering loan products to cover the entire process of building a new home. So, in a single loan, homebuyers are able to purchase a lot and pay for the cost of construction. These loans automatically convert to 30-year mortgages without having to go through a costly refinance process.
Banks are looking at the same economics that I highlighted in my example and using pre-construction appraisals to validate the math that I walked through. Banks are in the business of lending money to markets that are predictable and have collateral to cover the money they lend out. So lending homebuyers $325,000 to build a home in Houston’s stable economy that is certified with an appraisal of $375,000 is good business and relatively low risk for banks.
And for homebuyers, building a home that includes an equity surplus above the cost to build is a fantastic investment.
What is the advantage of building a new home vs. buying a ready-built home?
N.B. – First, you get to choose what you want in a home. When looking at ready-built homes, even new ones, you have to hope that you can find one that includes most of the things you want in a home. But ultimately, you end up settling for a home that has less than what you are looking for.
When building a home, you decide what is included and what is left out. Want a larger family room? Higher ceilings? More cabinets in the kitchen? More storage space? Less grass to maintain? A gravel driveway? Specific fixtures? Flooring selections? Wall colors? You provide input into every element of your new home design.
Second, purchasing a new home is like purchasing a new car. A new car comes with a warranty and an initial maintenance agreement. If your new car has a problem, you take it to the dealership for a no-cost repair. When your new car needs its first oil change, it’s covered and performed by the dealership’s certified mechanics at no-cost. The same is true for a newly built home.
By law, newly built homes must be warrantied by the homebuilder. Typically, you will have a 1-year workmanship and materials warranty covering everything from paint touch ups, re-caulking, settling cracks and issues that arise in your first year. Then there is a 2-year warranty that covers your mechanical systems, including hot water, air conditioning, heating, plumbing and electrical systems. And, finally, a 10-year structural warranty covers the load-bearing elements of your home, such as the foundation, footings, floor framing, walls and partitions, roof framing, beams, headers and so forth.
The breadth of coverage and responsiveness associated with new home warranties simply does not exist for used homes. If there is a problem in your used home, you, the homebuyer, have to coordinate and pay for the fix yourself. If you are lucky, your used home came with a 1-year home warranty policy serviced by a third party. However, these policies tend to operate more like an insurance claim service with a gatekeeper that limits the fixes they perform and with longer wait times. In short, the quality of service between new and used home warranties simply does not compare.
How does CRV Homes work with homebuyers who want to build a new home?
N.B. – CRV Homes is one-stop shop for homebuyers in Houston who want to build a new home. Our end-to-end homebuilding solution is 100% all-inclusive: finding a lot, demolishing existing structures, designing floor plans, acquiring building permits, performing construction activities, and servicing warranties. For a single per square foot price, CRV Homes will take care of every component to building a home. This turnkey service is a unique, one-of-a-kind solution in the Houston market.
If you want additional information on our service offerings, give us a call at 888.993.7871 or come visit our website at www.BuildinHouston.com, where you can chat live with a professional from our CRV Homes team until 12AM daily. It would be our pleasure to answer your new home building questions.