Is it Cheaper to Build a House or Buy One?

Is it Cheaper to Build a House or Buy One?

Is it Cheaper to Build a House or Buy One?

It's important to get what you want when shopping for a home, but it's often impossible to find one that ticks off every box on your wish list. You can likely get more of what you want if you build a home, but your budget still may not allow you to get every single thing that your heart desires. The decision between building versus buying often comes down to money, with many homeowners wondering whether buying an existing home or building their own is cheaper.

Tip

While a lot of factors affect the answer to this question, it's generally cheaper to buy a home than to build one. In 2017, the median price to buy a home was $223,000 while the median to build one was $289,415. You can, however, play with these numbers a bit.

Why Size Matters

Building a home usually costs less per square foot than buying one. Homes built in the 1960s average around 1,500 square feet and cost about $148 per square foot to purchase. Custom-built homes cost about $103 per square foot, which should make them cheaper in theory. In reality, though, newly constructed homes average 2,467 square feet. This means they cost less per square foot but more overall.

You can use this to your advantage and build a less-expensive home by keeping it small. While you certainly don't have to hop on the tiny home craze, you can build for less if a cozy home works for your lifestyle.

Land Pricing and Location

When calculating the cost to build a house, remember that you'll need somewhere to put it. The price you pay for land will have a large impact on the overall cost of building the home. Land prices vary greatly from one area to another, but you'll typically pay less for land in a rural area where there is still plenty of it. If you're OK with a longer commute, a rural build could save you quite a bit of money. Exercise caution, however. If the land is too cheap, it may mean no one wants it. Find out why before making your purchase and make sure building on the parcel in question is possible. Take into account demolition costs if there is already a building on the site that you don't want.

Budget Challenges of Getting a House Built

If you choose to build a home, understand that your budget becomes a moving target. Even if you planned the build meticulously, surprises happen. Excavating the site may cause or uncover a sinkhole that needs to be repaired. A manufacturer may stop making the siding you chose, forcing you to go with a more expensive option. The list goes on. Even if you planned a relatively inexpensive build, cost overruns can send you over budget. When you buy a home, you and the seller agree on a price and you know exactly what you have to pay.

Building Materials and Practices

While it costs more to build a house than buy one, building could prove cheaper over time. The focus on environmental sustainability and energy efficiency have resulted in better building products. New construction standards now include better insulation as well as more energy-efficient windows, doors and appliances. Unless the current owner has made some upgrades, it may cost more to heat and cool an older home. Older appliances such as refrigerators and clothes dryers may result in higher energy bills if you don't replace them.

An older home may also affect your health in addition to your energy bills. A newly constructed home won't feature asbestos floor tiles or lead paint. It's also much less likely to have mold and mildew lurking in the shadows. Buying an older home won't cost less if you start racking up hefty medical bills, so make sure you have a thorough inspection done before buying a home.

Lessons in Landscaping

Landscaping is one of the reasons building a new home often costs more than buying one. When you buy an existing home, you're much more likely to enjoy a lush lawn, mature trees and proper drainage and grading. If you build a home, you'll start from scratch. You can plant trees, shrubs and grass by yourself, but it's a lot of work. It can also get costly. Grass seed is fairly cheap, but trees, shrubs and other plants sometimes come with a hefty price tag. You can save a lot by doing the work yourself, but an established landscape is more convenient and costs less.

Maintenance and Repairs

It may cost less up front to buy an existing home, but the tables can turn in a hurry if you get trapped in a money pit. The older the home, the more likely it is to have plumbing leaks, equipment failures, stained carpets and other signs of wear and tear. New homes, however, come with a warranty and brand-new everything. If something goes wrong, the builder will come and make it right. Giving an older home a bit of love is often quite rewarding, but factor those costs into the equation when determining whether buying or building is the most affordable for you.

But I Don't Want a Pool

If your desired neighborhood features upgrades you don't want, it may ultimately cost less to build than to buy. Buying is typically less expensive, but not if you pay for items you would rather not have. Swimming pools, for example, add value to a home in some areas. If you don't want a pool, however, having one only serves to inflate the price of the home. Another example is granite countertops. Although an attractive upgrade that will cost you more, granite countertops need to be sealed periodically to protect their porous stone surface. If you don't want granite countertops, you'll again pay more for the home to get features you don't want. In this case, building a home may actually save you money by allowing you to eliminate costly additions in which you have no interest.

Appreciation History and Likelihood

Your home is where you hang your hat, but it's also an investment. A home is the single most expensive item most people buy in their lifetime, and its value matters. As the housing market changes, the value of a home may go up or down. If things go well, you can sell your home in several years and make a tidy profit. If they go badly, you could find yourself upside down, owing more than your home is currently worth. In a free-market economy with no crystal ball, it's difficult to know whether buying or building will ultimately net you more and ultimately prove cheaper. You can hedge your bets, however.

When buying a home, you can look back over its sales history and see how it performed. While past performance isn't a guarantee of the future, a house that has continually increased in value historically is more likely to continue appreciating than one whose value has fluctuated widely. If you're building, protect your investment with practical decisions. While a custom home should absolutely fit your lifestyle, odd layouts and seemingly out-of-place features may turn off future buyers. You'll also struggle if you fill the house with expensive finishes in a lower-income neighborhood. The opposite is also true. Don't pinch pennies if every other house in the area is bathing in opulence.

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About the Author

Michelle earned her accounting degree summa cum laude and has extensive experience in business management and accounting. Entrepreneurship is in her blood, and her work focuses on helping small businesses successfully compete in a big market. Michelle also knows the value of a dollar and enjoys helping readers understand how best to maximize their money and enjoy a healthy financial life. Her work appears Chron's small business site. She has also worked on small business blogs for a national insurance chain.