Comparing the Cost of Building a House vs. Buying
Determine which option is best for you
As a homebuyer, you have a few options for the type of home you'd like to purchase. Among those choices are buying an existing property or building one of your own.
Each of these two options has its benefits and drawbacks. The best choice for you will come down to your own preferences for cost, time frame, and a few other factors.
Comparing Sales Prices
New-home sales had a median sales price of $326,800 and an average sales price of $405,400 in September 2020, according to the latest joint data report from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development. New housing inventory at the time had a 3.6-month supply.
The sales price for all types of existing homes (condos, co-ops, single-family, and townhomes) was $311,800 during the same month, according to data from the National Association of Realtors (NAR). This represents a 14.8% increase compared to September 2019.
On the surface, we see that new homes have a bigger price tag than existing ones. But the whole picture is a little more complicated than that.
Building Your Home
Per the U.S. Census, the median sales price of new single-family homes in 2019 was $321,500, while the average sales price was $383,900. The median size of a new single-family home sold in 2019 was 2,322 square feet.
The following is a breakdown of many of the major categories of expenses involved in building a new home, based on 2019 data from the National Association of Home Builders (NAHB):
|Cost Breakdowns for Single Family Home Construction|
|Foundations||Excavation, concrete, and retaining walls||$34,850|
|Framing||Sheathing, trusses, etc.||$51,589|
|Site Work||Architecture, permit fees, inspections, etc.||$18,323|
|Exterior Finishes||Roofing, windows, and doors, etc.||$41,690|
|Interior Finishes||Drywall, flooring, insulation, paint, lights, appliances, etc.||$75,259|
|Major Systems Rough-Ins||Electrical, HVAC and plumbing||$43,668|
|Final Steps||Driveway, landscaping, clean up, etc.||$20,116|
|Other||Miscellaneous construction expenses||$11,156|
Don't forget the other important cost of buying the land you'd build on. The average price of a finished lot, including financing, was about $90,000 in 2019.
And, finally, there is the time involved in building a new home. The average length of time to complete construction on a single-family home is seven months, according to data from the Census Bureau's Survey of Construction. This doesn't include the month (on average) that it takes to authorize new construction.
Buying Your Home
The median price on an existing single-family home in 2019 was $274,600, according to the NAR's 2019 Housing Affordability Index. This was up nearly 5% from the same period in 2018.
One of the immediate benefits of buying an existing home is there is much less of a lag time between when you're preapproved for a mortgage and purchase your home. The average time to close is 51 days, according to the September 2020 Origination Insight Report from mortgage processor Ellie Mae.
Closing in less than two months might be attractive to a buyer who doesn’t have seven months or more to spare waiting for their new home to be built.
An existing home also comes with the benefit of having a searchable purchase history and comparable sales, something you miss out on when building a new home.
Other Factors to Consider
If you care about having creative control over many of the exterior and interior features of your home, including the floor plan, countertops, cabinets, backsplash, flooring, and more, it might make more sense for you to build your home from scratch.
It's possible to modify an existing home, but that can often translate into an involved home improvement project, which might prolong your move-in timeline. It also means more money. Remodeling costs can run between $10 to $60 per square foot, depending on the project and where you live, according to HomeAdvisor.
Keep in mind you'll likely have older appliances in an existing home to contend with, vs. a brand-new set in a house that you build. Overall, you should expect that your maintenance costs in an existing home could add up much more quickly.
The Bottom Line
A lot goes into purchasing a home, and each person's priorities, budget, and timeline is different. Your budget, aesthetic preferences, patience level, and willingness to take on your own remodeling projects—among several other considerations—will likely determine which direction you take on choosing whether to build or buy. Be sure you take the time to analyze all the factors before you make this important decision.