Should You Buy New Construction or Custom Build Your Home?
Here in Minnesota, like so many areas in the country, we have really felt the impact of the housing shortage.
People hoping to find their first home are struggling to find options within their budget, and many looking for their second homes were seeing a lack of affordable options for a larger home.
With this market continuing, we have seen more people looking at new construction in areas slightly farther out from the city with more affordable new construction options.
Affiliate Disclosure: You should assume the owner of this website has an affiliate relationship and/or another material connection, to any suppliers of goods and services that may be discussed here and may be compensated for showing advertisements or recommending products or services, or linking to the supplier's website.
When considering new construction, many people are confused at the difference between buying a lot from a large builder, picking a house plan from the builder’s options and having them build a home versus purchasing their own piece of land and working with a custom home builder to build them a home on the land.
If you see a builder selling a lot and home package for $350,000, you might be thinking you can probably just build a custom home on any lot for the same price.
I am here to tell you, that is probably not the case, and here are some reasons why:
1. Developed Land
Not all lots are created equal. When you go into a model home for a builder who is building a neighborhood, usually you will see options for both lots and for homes that could go on each lot. If we continue using the $350,000 total price from above, let’s say it is a lot price of $70,000 and a home price of $280,000. So, what are you really buying with that $70,000 land price?
When you buy a lot from a large builder, generally they have already developed the land. Developing land can include: changing the natural landscape, testing the soil to make sure it is suitable to build, dividing it into lots, if necessary, and arranging to have the utilities run to the lots and roads paved.
If you purchase a piece of raw land to build a custom home, this is a very different situation. You might think you're saving a lot of money by buying 5 acres for the same $70,000 price tag as the half acre lot the large builder was selling, but its important to understand with raw land you will need to be prepared to take on the costs of the items the builder had already completed on their lot. Those costs can add up quickly.
Understand what will even be possible on a piece of land is all part of doing your due diligence prior to purchasing. This due diligence can take extensive research and understanding of building and zoning code in order to make a wise decision on whether or not a lot would be the right choice. This are where the additional costs can really begin to add up for the lot.
The additional costs include, but are by no means limited to, the following:
Well and septic testing and installation
Removing of trees, preparing land
That is not to say that you shouldn’t buy the piece of land you love, but it is helpful, if not necessary, to have a custom builder who is involved in the process with you before you buy.
As a custom builder, we think it is awesome when people want to build the home of their dreams!
It is also important for people to understand that this is an expensive process.
Generally, custom building a home is for people who have a lot of cash on hand, as many of the costs for preparing the lot and planning the home will need to come out of pocket. Consider the possibility that the $70,000 investment for the lot could potentially become $120,000 or more before it would be prepared to start building.
2. Volume = Discounts
Think of buying a new construction home from a large builder versus building a home with a custom builder in terms of grocery shopping at Costco versus Whole Foods. In short, when you buy in bulk, you can save money. The same is true for home construction.
If you work with a large home builder, generally you will go to their showroom and be given a few options for what to put into the home within specific price points.
Having limited items that a client can choose from allows the builder to have more control over the costs on both the materials and the labor to install it.
Often large builders are doing a large volume of homes and thus have leverage to negotiate deals on materials and labor with their subcontractors in order to get to a reasonable cost that will appeal to a wide variety of buyers and work for their bottom line.
Custom builders may also have options for designers they work with and even a showroom, but much of the benefit of working with a custom builder is having any and all options available to you.
It is important to remember that custom options generally means a larger price tag because the builder is probably not getting any volume discounts from their subcontractors or on materials.
3. Quality vs. Quantity
I want to be clear: Home building is a really complicated and difficult process! Large builders and custom builders have both gone through this process many times before. They know the order in which things must be decided, how one decision will impact another decision, ways to avoid larger problems in order to not blow the budget and how to keep on schedule.
That said, the major differences between these two types of builders are the amount of flexibility they have with design and the variety of custom options available to you as the homeowner.
Using a large builder is a a way to simplify the building process; there are less decisions that need to be made and they can usually build homes for a more affordable price point. Custom home builders are all about quality craftsmanship and creating a unique product to fit the client’s individual needs.
If custom is the way you want to go, be prepared to work with your builder from the beginning to make sure you have a shared vision and have an accurate sense of the cost and the timeframe needed to complete the work.
In general we would say, building a custom home is likely to cost quite a bit more than buying a new construction home from a large builder. Large home builders offer the benefit of fixed costs that can be more affordable, along with a simpler processes of making selections from a set number of items. If custom options for your dream home are a must-have, make sure to identify your custom home builder early and work with them to make sure custom building will work with your budget!
Are you considering building a new home? Will you go with a large builder or a custom builder?We love hearing from you!