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 a house of your own.
Each of these two options has its benefits and drawbacks. Building a home, for example, can be time-consuming and expensive. When you buy a home, you're limited to the available inventory. The best choice for you will come down to your own preferences for cost, time frame, and a few other factors.
What's the Difference Between Building a House and Buying One?
|Building a Home||Buying a Home|
|New homes have a median price of $372,400||Existing homes have a median price of $341,600|
|On average, it takes seven months to build a home||It takes almost two months to close on an existing home|
The Cost of Building a Home vs. Buying
New-home sales had a median sales price of $372,400 and an average sales price of $435,400 in April 2021, 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 4.4-month supply.
Per the U.S. Census, the median sales price of new single-family homes in 2020 was $336,900, while the average sales price was $391,900. The median size of a new single-family home sold in 2020 was 2,333 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|
|Site Work||Architecture, permit fees, inspections||$18,323|
|Exterior Finishes||Roofing, windows, and doors||$41,690|
|Interior Finishes||Drywall, flooring, insulation, paint, lights, appliances||$75,259|
|Major Systems Rough-Ins||Electrical, HVAC, and plumbing||$43,668|
|Final Steps||Driveway, landscaping, clean-up||$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 for 22,000 square feet of land (about half an acre) in 2020.
In contrast, the median sales price for all types of existing homes (condos, co-ops, single-family, and townhomes) was $341,600 during the same month, according to data from the National Association of Realtors (NAR). This represents a 19.1% increase compared to April 2020. That's less than the cost of building, especially when you consider the cost of land.
The median price for an existing single-family home in 2020 was $300,200, according to the NAR's Housing Affordability Index.
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.
Building a new home takes time. The average length of time to complete construction on a single-family home is almost 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.
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.
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 when you purchase your home. The average time to close is 51 days, according to the April 2020 Origination Insight Report from mortgage processor ICE.
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 from $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, versus 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, budgets, and timelines are different. Your budget, aesthetic preferences, patience level, and willingness to take on your own remodeling projects will determine which direction you take in choosing whether to build or buy.
U.S. Census Bureau. "Monthly New Residential Sales, April 2021," Page 1.
Census.gov. "Characteristics of New Housing."
National Association of Home Builders. "Cost of Constructing a Home."
National Association of Realtors. "April 2021 Existing-Home Sales Drop as Home Prices Rise and Inventory Shortage Continues."
National Association of Realtors. "Housing Affordability Index."
U.S. Census Bureau. "Average Length of Time From Start to Completion of New Privately Owned Residential Buildings," Page 1.
ICE Mortgage Technology. "April 2021 Origination Insight Report," Page 4.
HomeAdvisor. "How Much Does It Cost to Remodel or Renovate a House?"