There are many reasons for the popularity of new homes. Only with a new home can you choose the floor plan, colors, appliances, and fixtures you want. You get peace of mind knowing you haven't bought someone else's problem, and if anything goes wrong it is likely covered by an extensive home warranty. And on top of it all, there is just something really cool about being the first and only person to use your new house.
With all the positives of buying new construction, why would anyone even consider buying an older home? Must be because the new homes cost so much more than their 10 year old counterparts, right?
Like all commodities, home prices are largely a function of the supply vs. the demand. The lesser the supply or the greater the demand – the higher the price. While the inventory of resale homes is also pretty substantial – there is an important distinction in pricing strategies between builders and homeowners.
When a builder sets pricing for a community, the pricing is typically related to cost of materials, labor, land, and a profit margin. If the resulting price does not land squarely in the real market value for those homes, the homes will not sell and the interest and marketing costs will quickly erase any profit and turn into loss.
When a homeowner sets the price for their home, the price they select may be influenced by what they owe on the home, the equity needed for them to afford their next home, the perception that their home was built with golden screws, and sometimes based on what those in the industry like to call the "bigger fool" principal. Every time somebody over pays for a house, that selling price becomes the new benchmark price for everyone in the neighborhood who has a comparable home. This is not to suggest that all resale homes are overpriced, many represent a very good value – but taken as a whole, new homes are typically priced closer to their real market value than resale homes.
According to Capt. Edward A. Murphy (the namesake of Murphy's law), if something can go wrong it will. According to most homeowners, if something can go wrong it will, but not until after you move in. And all those ‘somethings' going wrong can get really, really expensive. Furnaces, dishwashers, water pipes, and garage door openers all possess an amazing ability to fail at the most inconvenient and infuriating time possible.
For new home buyers, not only is the likelihood of their brand new furnace going on the fritz extremely low, but if something does go wrong, it is a matter of calling the warranty department and not an issue of writing a check.
Mechanicals and appliances built in the last decade are relatively high in quality and can provide a very long service life as a whole. But once a home reaches even just 8-10 years of age – many of the components in the home are at a point where a costly repair is not to be unexpected. The number of possible gremlins is nearly limitless, but the following list contains some common repairs you may not be thinking about when looking at that home built in the early 2000s. It is easy to see how the cost of unexpected repairs can add up quickly.
Some common repairs you might not think about but should not be surprised to see in a 10 year old home:
•Furnace hot surface igniter replaced: $120
•Garage door cables and rollers replaced: $100 per door
•Door hardware – new lockset installed $100-$400 per door
•Dishwasher – replace leaking main seal: $80
•Replace hot water heater $250-$500
•Washing machine belt or drive motor replaced: $75-$200
*Cost estimates include both parts and labor.
Home is not where you hang your wallet.
Ultimately, the decision between new and used homes is not purely a financial one. A house needs to have certain intangibles to make it a home - and those are things that are mostly subjective. For one person, the slightly crooked cabinets and leaky faucet are all part of the character that makes a 1920's bungalow feel like home. For another it is the gleaming new hardwood and granite countertops that put them at ease.