Is it cheaper to build or buy a house?

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If you’ve been touring homes for sale, you might find yourself asking plenty of questions about how you might change them to better suit your style. What would it take to add another bathroom? Why did the seller choose those cabinets and that flooring for the kitchen? Could the deck be converted to an enclosed porch?

As you consider making changes, you might also be considering whether you should build a home instead of buy one, and how much it would cost. Here’s a breakdown comparing the two options.

Is it cheaper to buy or build a house?

If you’re focused solely on initial cost, building a house can be a bit cheaper — around $7,000 less — than buying one, especially if you take some steps to lower the construction costs and don’t include any custom finishes. The median sales price of an existing home was $309,800 as of December 2020, according to the National Association of Realtors, while the average cost of building a house is $302,817, HomeAdvisor reports.

Don’t let that fool you, though. Building a house is still a very expensive endeavor that requires finding a loan (which will likely have a higher interest rate than a conventional mortgage) and paying for permits. Depending on where you’re building and what kind of home you want, it can be much more costly than buying one. Consider some of these common costs:

Source: HomeAdvisor
Construction cost Price range
Buying land $3,000-$150,000
Clearing land $1,500-$5,000
Framing $20,000-$50,000
Plumbing installation $1,500-$20,000
Electrical wiring $20,000-$30,000
HVAC $1,500-$13,000
Slabs for the foundation $4,000-$7,000
Roofing $5,000-$11,000
Windows $3,000-$9,000
Exterior painting $2,000-$4,000
Interior finishing $50,000-$175,000

As you can see, these figures can vary widely based on where you want to live and the kind of house you want. The price for land alone can be really cheap — $3,000 in remote rural areas — or really pricey in areas with limited supply. There’s a difference between the price of raw land and the price of a lot or site,  as well. The latter, which typically includes all entitlements, access roads and utilities, can cost two to four times more. You might also need to pay for other expenses such as a garage, fencing and a driveway.

Beyond the upfront cost, it’s important to look at the long-term expense of owning a home. According to a 2021 analysis by the National Association of Home Builders, the operating cost on a new home — which includes property taxes; utilities, water and trash; maintenance and homeowners insurance — is lower than that of an older home. Homes built after 2010 have operating costs equal to around 3 percent of the home’s value, while the operating costs on homes built before 1960 are more than 6 percent, according to the NAHB. If an older home has been upgraded to today’s standards, however, the operating costs might not differ substantially.

Should you build or buy a house?

In addition to cost, there are some crucial components to consider when weighing whether to buy or build a home.

“The cost of new construction and the buyer’s moving timeline are some of the factors to consider, but also the area [and] location that they are looking to move into,” explains Rose Kemp, a Realtor with RE/MAX Town Centre in Orlando, Florida. “In some cases, there is better value in a new home for the purchaser versus resale. Also, sometimes the resale homes in an area may be older.”

Pros and cons of building a house

Pros Cons
  • Get exactly what you want
  • Avoid the hassle of competing offers
  • Peace of mind
  • Wider market appeal
  • More time
  • More decisions
  • Contractor challenges
  • Cost overruns

Pros

  • Get exactly what you want – Building means customizing. Instead of wishing your home had a certain kind of flooring, a sunroom or some other special amenity, you’ll be able to tailor the property to your exact needs. You also won’t be limited to a specific location or neighborhood.
  • Avoid the hassle of competing offers – When you build a home, you can take the back-and-forth with other buyers out of the equation.
  • Peace of mind – When everything in your home is new, you shouldn’t have to worry about any major repairs (at least at the outset). “The buyer may find better value and peace of mind with a new home because the home will be warranted by the builder,” Kemp says.
  • Wider market appeal – Your home is ultimately an asset, and when it comes time to sell, a newer structure could give you a competitive advantage.

Cons

  • More time – While you’ll save time on attending open houses and scouring online listings, you’ll have to wait to move into your brand-new home. It takes around seven months from start to completion to build a single-family home, according to 2019 data from the U.S. Census Bureau. If you’re paying rent for those seven months, that’s an extra cost to consider, too.
  • More decisions – A blank canvas means you can customize your home, but it also means you’ll have a lot of decisions to make. If you’re busy with work and family, it can be challenging to focus on every piece of the construction process.
  • Contractor challenges – Delays, miscommunication and issues with subcontractors — there are plenty of hiccups that can happen while building a home. Be sure to vet a few different builders to understand their work approach and timeline, and be prepared for speed bumps. Include time of essence, continuous manning and right to remove clauses in your contracts with the pros you hire — these can help protect you in the event of delays or non-performance.
  • Cost overruns – While you’ll have a budget in mind at the beginning of the project, there will almost always be expenses you didn’t anticipate, or materials you end up spending more for, that can add up to well above what you first set out to pay. Be aware of change orders, which could be a sign of an unscrupulous contractor. Make sure you understand the builder’s plans, finishes and specifications.

Pros and cons of buying a house

Pros Cons
  • Faster move-in time
  • Potential bargaining power
  • Older appliances and infrastructure
  • Potential market competition

Pros

  • Faster move-in time – Buying an existing home means you can put a move-in date on the calendar much earlier compared to constructing one from scratch.
  • Potential bargaining power – With existing real estate, you may be able to leverage data to get a better price. For example, if a home you like has been on the market for more than 30 days, the seller may be willing to come down on price, or if a similar property in the area is priced lower, you can use that to justify a lower offer.

Cons

  • Potential market competition – That bargaining power mentioned in the pros? It might be zero, depending on where you’re looking. According to the most recent Confidence Index from the National Association of Realtors, sellers received an average of about four offers. In a hot seller’s market, buying can feel like being at an auction as others drive up the price.
  • Older appliances and internal systems – It may be a new house for you, but it’s technically been used. Depending on the age of the property, you may need to pay for repairs sooner than you expect. Your insurance rates will likely be higher than what you would pay to protect a new home, too.

Bottom line

As you consider whether building or buying a home is right for you, it’s important to recognize that both processes include plenty of costs and potential stressors. The end result, though, should feel well worth it. Think about the existing properties you’ve toured, your timeline for moving in and your expectations of this new home. If building is your route, enjoy watching that dream home slowly come to life. If buying seems like the better move, follow this guide on how to get the best mortgage rate. 

Learn more: 

Written by
David McMillin
Contributing writer
David McMillin writes about credit cards, mortgages, banking, taxes and travel. David's goal is to help readers figure out how to save more and stress less.
Edited by
Mortgage editor
Reviewed by
President, Real Estate Solutions
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