Buy a New or Fixer Upper Home

This article lists the pros and the cons of buying a new home or buying a fixer upper home. The first portion of the article addresses the question can one or should one be their own contractor and build their home.

My recommendation is do not try to be your own contractor; there are a host of reasons why not.

Function as Your Own Contractor If the Following are TrueBuild Your Own Home

  • You have Financing

  o   You have a lender that will allow you to be your own contractor.

  o   True construction financing.

  o   The lender does not require an inordinate amount of money as a down payment.

  • You are an experienced residential production or custom carpenter.

  o   You have built tract or custom homes, not watched them being built

  • Or You are a tradesman with a working knowledge of carpentry.

  o   Plumber

  o   Electrician

  o   Brick, Block or Concrete mason

  o   HVAC technician

  • Or You have an experienced resource / mentor

  o   You will need to call this person at any time for a solution when, not if, something goes wrong.

  • You can assemble and manage a crew of workers.
  • You are able to secure trusted and reputable sub contractors for each phase of the project.
  • You have enough leave time at your full time job to get the home under roof.

If you are not able to satisfy these conditions, then buy a home or have one built by a licensed builder.

Buy a New Home

The distinct benefit to buying a new home is that it is brand new, unscathed, and clean. Nothing needs repair; all components are in excellent working order.  There will be no additional maintenance costs for several years.



New homebuilders have relationships with mortgage lenders.  National or larger builders have their own mortgage company. They can offer financing incentives the individual seller is unable to offer.  Closing costs, points, buy downs are common marketing promotions used to attract and close potential buyers. Securing a mortgage is made “easy”.  Keep in mind that there is a cost for “easy”.

New Technology & Amenities

New homes come with new technologies and amenities. Smart homes HVAC, door locks, and video surveillance is controlled by your phone.  Solar panels, electric automobile charging stations and other energy saving devices are now in new homes.

These features save you money each year on utility costs because they are designed to be cost-efficient.  Federal taxation laws may even allow a tax credit. Furthermore, new homebuyers often can tweak the home they buy by selecting certain features, colors, styles, and have those changes financed into the mortgage.

When Supply is Greater than Demand

New housing developments contain a large inventory of homes to purchase.  The competition to purchase existing inventory is not as competitive as a small number of buyers vying for a single home in an established neighborhood.  This competition can and does drive up the existing home’s purchase price.

Lower Cost of Owning

There is less maintenance, lower insurance costs and as previously stated lower energy costs.

Build Equity Fast

If buying in a development consider that developers build in phases, one, two, three etc.

The cost of a home in phase 1 is less than the cost of succeeding phases.  The value of the home purchased at the lesser price has increased when compared to the same of similar homes purchased at the higher price.

Longer Building Lifespan

A house can survive for many years.  However, the components of the house are not as durable. The link to the International Association of Certified Home Inspectors life expectancy chart provides a guideline for the life expectancy of appliances, materials and other components of a home.


An unnamed national builder offers this type of warranty. Other builders have similar warranties.  The manufacturers of the components of the home warrant their products.

Transferable Warranty

10 Year

Covers the structural integrity of the home

5 Year

Covers various types of water filtration and internal leaks

2 Year

Cover the workability of plumbing, electrical, HVAC and other mechanical systems

1 Year

Covers materials and workmanship


Up Front Costs

The builder must make a profit to remain in business. So one reason a new home will cost more than an existing home because the profit margin will be added to the final cost.  Brand new homes can cost up to 20% more than a similar existing home.

  • Newer building codes and increased fees imposed by local governments will increase the builder’s cost of doing business. These costs as well as others will be a pass through cost to the buyer.
  • Energy efficiency certifications, flood zone contingencies and wind resistance construction add to building costs.
  • Land costs can involve lot premiums for more desirable locations in developments.
  • Material costs continue to rise, at one time in the recent past, metal framing cost less than wood framing. As fuel costs rise so do the cost of materials.

Note: Environmentally friendly, green homes may cost more upfront to build; in the long run, they could save more in ever-increasing energy costs.

Hidden Costs

There are known and universal costs that make building a new home more expensive. The price of building a new home can increase by overlooking seemingly hidden costs.  The emotional experience of buying a new home can cause the buyer to overlook obvious expenses that push the budget out of reach. The builder’s model is their showroom.  The showroom always looks luxurious.  The model will naturally  have all the upgrades the builder offers, from hardwood and tile floors, upgraded carpet, crown molding, granite or concrete counters to bay windows and oversized bathrooms and on and on. Most of the features and upgrades are not included in the basic home package. The price between the basic home package and the fancy model is considerable.

  • Window treatments are included with an existing home (per contract). A new home with 24 or more windows increases your after purchase cash outlay.
  • Landscape on some new homes only includes the front yard. (read the contract fine print)
  • Significant other expenses are always the unexpected costs. Hand tools, wheelbarrow to interior extras, cable outlets, electric outlets, garage door.
  • Furniture for a larger home is another expense. If you are downsizing then no problem, you may have some cash from your garage or yard sale. Even if you have older furniture, it may not work in your new digs.
  • Driveways in the city are part of the package. In the suburbs, on a country parcel they are not.  Even in a development the model may have concrete stamped driveway, an option that your desire.
  • Fences give privacy and security for children or you may have pets. On the other hand, if you are in the country your may need fencing for a horse.  In either case, fencing can add a thousand or several thousand dollars.
  • An alarm system, customer sprinklers and security lighting.

There is no limit to the optional extras; the list can go on with items you might find you need when you build a new home from scratch.

The Bottom Line

Build new or buy existing is not an answer that can be solve in this short article.  Many factors come into play.  Factors such as; location, size, type and what you can afford.

Do your due diligence first. Create a database and make some preliminary searches of existing homes. Record the features, prices, sizes etc. Then find a lot to build a similar home and cost it out the build and the lot. Compare the costs of building versus buying existing.  Even if your calculations are not spot on, which they may not be, you will have a reasonable comparison.

Then if you wish to proceed with the build option find a reputable contractor.  Talk to them about not only cost but also, permitting and their building schedule. Prepare intelligent questions that are project rather than cost focused.  As you get closer to making a decision, do not overlook the “hidden” costs.  Check and recheck your work even purchase or find a freeware application that details all of the phases of a home building project.

Be cautious of sales people, their job is to sell. The builder’s sales personnel represents the builder not you.  Even friends and well-meaning relatives may give you unsolicited and incorrect advice.   Calculate all of the numbers on your own, and then you can make an informed buy or build decision