Build or buy?

With high inflation (though it's cooled a bit) and rising interest rates, the cost to buy or build a home is an issue of concern. Let's explore the comparative cost and advantages of building a custom home vs. buying a pre-built, conventional or modular build.

A study by NAHB (National Association of Home Builders) found the cost to build a home in the median-value range is $34K greater than buying a pre-built home (Houzeo).

However, a recent StorageCafe (Yardi) study reported that the cost to build a new single-family, median-value home in Delaware is on average, $96K less than to buy, making it the 6th most cost-effective state for homebuilding.

Generally, developers have a cost efficiency due to the scale of their operations. Though this isn't always the case, as the research above suggests. Developers have the leverage to buy everything involved in large quantities or at wholesale value. Whereas, if you're building a house, you may have to pay more for many aspects of the project, including:

• Architectural and engineering fees.
• Land acquisition.
• Permitting and surveying.
• Construction labor and management.
• Materials.

Luxury home construction typically ranges between $400 to $600 per square foot. Of the total development costs, you can generally expect to pay about 30-60% for labor, 40-50% for materials, and ~10% for design, permitting, and other soft costs. On top of that, it's a good idea to reserve a 20% cushion to cover unexpected expenses.

Another thing to consider is time. If you're looking for a first-time or replacement primary residence or moving from out of state, time may be of the essence. Depending on the size of the home and labor availability, it could take 6-12 months or more to complete the build. If you need to move quickly, buying a pre-built home is likely the best option, costs aside.

For time- and cost-efficiency, modular homes are a viable option to look at. As the components of the structure are already pre-designed and factory built, the manufacturer can pass on the savings afforded by the scale/volume of their operations. Once the foundation is laid, the home can be assembled in a short amount of time.

Yet another alternative is buying an existing home that needs improvements and renovating it. While your design options might be a little more limited than spec (custom) building, renovating can take less time, consume fewer materials (supporting sustainability), and cost less to finish.

Additionally, some loan programs allow you to roll these costs into the purchase with favorable terms and interest rates compared to construction financing. Another benefit is that local and federal tax incentives could be available for green renovations and historic reuse.

There are advantages of buying pre-built or customized homes from a new home builder. If the house isn't already in existing inventory, new home builders can typically put together your house with your preferred options in less time than it takes to spec build a home. Builders often offer price breaks, financing incentives, and free upgrades depending on demand factors. With interest rates on the rise, there may be opportunity to negotiate favorable terms and pricing.

All these strategies are feasible, and the best approach is unique to the home buyer's needs, preferences, and goals. My team and I have experience with each option and will guide you toward the right fit and give you an idea of relative cost and time requirements. Reach out to me for an informal consultation.

View our active listings below. I'm available if you have any questions or wish to schedule a meeting. -Henry