Pros and cons of new-construction homes

Just like buying a new car, purchasing a newly built home comes with the benefit of owning property in pristine condition. But there are drawbacks to new construction too, and it’s important to consider them as well. Here are the advantages — and disadvantages — of buying new construction.

The term “new construction” can include single-family, multi-family, condominium or townhome properties. It also encompasses “planned new construction,” in which a buyer might be part of the design and decision-making process.

“New construction appeals to seasoned homeowners and first-time buyers alike, and is a particularly good option during a heavy seller’s market,” says Jen Horner, a real estate agent with Masters Utah Real Estate in Salt Lake City. “New development has more flexible timing, is low maintenance, and no one else has lived in it.”

Pros of new construction

Brand new

One of the biggest benefits of freshly built homes is that everything is brand-spanking-new. You will be the first person to live there, the first person to use the appliances, flip the light switches, etc. Everything in the home will be in perfectly pristine condition — and it’s unlikely you’ll have to make costly repairs anytime soon.

Customizable

With some new-construction homes, you can choose everything from appliances to paint colors, tailoring the home to suit your needs and preferences. “Many of our Utah buyers find that established homes in their price range require significant updates and renovations to get them aligned with their expectations,” Horner says. “New-construction homes are desirable because you can customize as you see fit.”

Plus, considering the country’s current housing shortage, it can be hard to find an existing home that suits all your needs. Building a new one can help you get just what you want without waiting for it to come on the market — or worse, losing it to a higher bidder.

Energy efficient

Many new-construction homes use the latest energy-efficient building materials, which means you could save money on energy costs over time.

Low maintenance

New construction can lend you peace of mind, since there are no immediate projects that need doing. “Everything is turnkey, so no fixing up needed,” says Chuck Meier, senior vice president and director of mortgage sales at Sunrise Banks in Minneapolis.

Buyer incentives

Some builders offer financial incentives, including flexible financing options, to encourage buyers to purchase. These incentives — especially if they get the buyer a lower interest rate — could make a new-construction home more affordable in the long run.

Cons of new construction

Longer timeline

If you have a short window to move into a new home, buying new construction or a home that’s still being built might not be for you. “One of the biggest disadvantages is time to completion,” Meier says — especially if you’re designing it yourself. It could take three to nine months to get into a newly built home, he says.

Higher cost

There are also a variety of cost considerations to keep in mind when purchasing a new-construction home. To begin with, the median sale price of a newly built home as of November 2023 was a steep $434,700, according to the U.S. Census Bureau and Department of Housing and Urban Development. The average sale price was even higher at $488,900. This is due to the use of new materials, builder scarcity, market growth and home value increases, Horner says. The high market value of new construction homes may result in higher property taxes as well.

You’ll also want to be aware of features not included in the purchase price. “These hidden or future costs may require thousands of dollars more for things like a fence, sod or finishing the basement,” Horner explains. “Many of these property elements are included with established homes but not with new construction.”

Plus, while the option to customize is part of the appeal of purchasing a new construction home, customization will usually drive up your costs even more.

Decision fatigue

Unless you’re an experienced interior designer, it’s easy to get overwhelmed by all the choices out there, from tile and flooring to paint colors and light fixtures. Allowing yourself to get paralyzed by the options can slow down the process. In addition, while you may get to make selections on finishes, colors, appliances and designs, the “included” options are typically limited. “There are limitations to the customizations that can be done without increasing price,” Horner says.

Limited negotiating power

Don’t expect to haggle or talk the builder down when you’re shopping for new construction.  “The developer or builder is usually the seller of new construction and will want to ensure the project is profitable,” Horner says. “Rarely will they decrease the list pricing, and every upgrade will cost you, particularly in markets like we have today. Buyers of new construction should have their own real estate agent representation.”

Off-gassing

Sometimes referred to as “new house smell,” new homes often have a distinct scent, similar to that of a new car. This is due to the many building materials that are used, which emit chemicals called VOCs (volatile organic compounds). VOCs can be off-gassed by new flooring, carpeting, wood cabinetry and even fresh paint. They are associated with a variety of health issues; luckily though, these potentially harmful emissions reduce over time and eventually disappear.

Are new-construction homes cheaper than existing homes?

Typically, new construction homes cost more than existing homes. To wit: While the median price of a new home in November 2023 was $434,700, the median for an existing home during the same month was $387,600, according to the National Association of Realtors.

Newly constructed homes tend to be more expensive not just in list price but in price per square foot as well. What’s more, many builders include a clause that allows them to increase the purchase price if their material costs go up, Meier says. And it’s not unusual to go over budget. “Cost overruns happen quite frequently through unforeseen costs or changes made during construction,” he adds.

However, there are a lot of factors that go into home price — location, size, amenities, and more — and there may be some exceptions. Many builders and developers offer mortgage products with lower rates, or other financial perks, to incentivize buyers to purchase a new-construction home. So it’s possible that these benefits may offset the higher sticker price.

How to finance a new-construction home

If you’re purchasing a new-construction home from a developer, you can obtain a mortgage that meets your needs from the lender of your choice. However, Meier notes that you may need to look into a longer rate-lock period, since building timelines can be delayed.

On the other hand, if you own a plot of land and are completing the build yourself (or hiring a builder to work for you), you’ll need to obtain a construction loan. “The buyer will incur the interest payments on the loan throughout the process, and the mortgage company will control the draw process,” Meier explains. Construction loans can be much more involved and nuanced than traditional mortgages, so it’s important to engage the expertise of an experienced lender if going this route.

What to ask your builder

If you’re building a home from scratch, finding a builder you trust is the first step toward a smooth project. Here are some questions to ask before you hire one:

• What warranties do you offer? “Are they giving you options around protecting internal issues, short-term full structure warranty, as well as a longer-term exterior warranty?” Horner asks. These warranties help cover you, as the buyer, should anything need repair for a set amount of time.
• Can you share references of past clients? Horner suggests asking for a minimum of three references. “The quality and reputation of the builder is key,” she says, adding that having a trusted real estate agent in your corner can help as well.
• How is your credit? This might seem like an odd or invasive question, but Meier notes that a good credit score and ability to get funding can impact how quickly a builder can get supplies and workers to ensure your project is completed well and on time.