Buying a home is a dance of many decisions, from the most basic questions, like how many bedrooms and baths, to far more complicated considerations, like what kind of kitchen works best for your lifestyle. The biggest decision many homebuyers face, though, is whether to buy an existing home or to choose a home that’s under construction or freshly completed.
There are benefits to both options, especially if the price difference isn’t enough to significantly affect your budget. If you want a very specific home and don’t mind waiting for it to go up, new construction can be a way to bring your dreams to life. But, if you need to move soon or are looking for a home in an area that’s largely built-up, an existing home might be the best choice.
What’s the Difference Between Existing Homes and New Homes?
It might seem obvious to anyone what constitutes a new home and a “not new” home, but there’s enough gray area that it’s important to be very clear. For most purposes, an existing home is a house that’s been occupied previously, even if it was only lived in for a month or a week. This home is complete, it’s had an owner besides the builder, and, if newer, it’s been officially issued a certificate of occupancy to prove it’s habitable.
A new home, then, is a home that’s new. It’s never been lived in, it might not have walls yet, or even have the foundation dug out. There are many stages of construction when a home is being built, but when you finally do move in, you will be the first to occupy the property.
Some new homes are built “on spec,” which means they’re started without having a contracted buyer because the builder knows someone will come along at some point during construction to purchase it. Others are considered “custom” and are built from the ground up for a specific owner and to their specifications.
Choosing Between Existing Homes and New Homes
It can be a tough decision to make when you’re faced with choosing between existing homes and new homes. Both have benefits and drawbacks. Let’s take a look at some of the biggest considerations homebuyers should keep in mind when shopping:
Different price points.
New homes are almost always going to cost more than an existing home, especially if you’re choosing a custom built home. According to the National Association of Realtors’ existing home sales data, the average sales price of an existing home in the United States in September 2022 was $391,000, based on data from over 4 million home sales.
New houses, on the other hand, averaged $517,700 in September 2022, according to Federal Reserve Bank of St. Louis data. That makes the average new home 32% more expensive than the average existing home during the same time period.
Different financial considerations.
Choosing an existing home is a pretty straightforward process for most buyers. You know exactly what your costs will be at the end of your transaction, and with some loan types, you can even ask for specific closing costs to be paid by the seller on your behalf. Existing homes make it much easier for many first- or second-time buyers, who may not have a lot of extra money to work with, to get into a home.
Buying from a builder can mean being responsible for a lot more expenses than you initially anticipated.
“A major drawback to new construction is closing costs,” says Zachary Staruch, broker with the Pelican Team at Nest Florida in Fort Myers, Florida. “In many areas, the seller is responsible for most closing costs but builders never pay these, so it can add tens of thousands of dollars to the price of a home.“
On top of having to anticipate the potential of considerably higher closing costs, choosing a custom build can add even more financial obligations.
“Most builders have a fairly hefty deposit schedule or earnest money compared to resale homes,” says Jen McConnell, owner and broker at McConnell Real Estate Partners in Isle of Palms, South Carolina. “Once you are in the upper end of custom home building, there is a significant amount of money that needs to be put down, sometimes in the form of land, in order for the builder to take on the build job.”
When you’re choosing a home, existing or new, you should also consider how long it might take to move into that home. Just because you have a contract doesn’t mean that your new home will be completed (or even started) at the time you agree to the purchase. It can be a struggle waiting for the walls to go up as you wonder what your home will become.
“The most stressful part of buying a new home is typically waiting to see it take shape,” says Chris Halstead, executive director of sales for Brown Harris Stevens in Greenwich, Connecticut. “Often, new homes are sold before they’re fully built. So, you’re waiting on the product to look like what you actually think you bought.”
On the other hand, there’s no question about what an existing home is going to be, since it’s a home that’s already complete. You can move in as soon as your paperwork is done, your mortgage closed, and the former occupants have moved out.
“One of the main benefits of buying an existing home is there isn't a wait time to get into your home,” says McConnell. “Typically you can close on your home two to six weeks after the contract is ratified, so it's a very quick turnaround.
New or Used? Which Home Is Best?
There’s no ultimate answer to which home is best for you and your family. You have to really look at all the fine details, from the financials to the practical parts of homeownership. Buying an older house can mean having to replace systems sooner, but a newer home might mean additional fees like paying dues to a homeowner’s association.
Existing homes can be in more desirable locations, since the neighborhoods are established and the quality of things like schools are already known. Although you can reasonably expect a new home to be pretty low-maintenance, once in a while you’ll be the one who gets to test the limits of the builder’s warranty while you work out the bugs in your never-lived-in abode.
In the end, the home you choose should be a home that you care about, because it really is a long-term relationship you’re cultivating. A house is more than just a building, it’s your home and a place where you’ll be making memories for a while.
“Whether buying a new home or old home, go with what speaks to you,” says Halstead. “You may be in the market for only new and come across an older house you unexpectedly love. Don’t discard it simply on qualification. Your house is going to be your home, no matter how old or new it is. Love it.”