“It’s Too Expensive” and Other Construction Myths

Many potential home buyers shy away from buying new construction homes because they have bought into the pervasive myths about the cost and process. But building a new home is less expensive and less stress-inducing than you might think. Here is the truth about common new construction myths.

“It’s too expensive”

The idea that new homes are more expensive than existing homes is easily the most common myth about new construction. New homes get this reputation because they are typically larger than existing homes. Your builder can design a home that fits your budget. Plus, most new homes are much more energy efficient so you will save on your energy bills in the long run. You also don’t have to worry about the unexpected expense of repairing a leaky roof or decrepit plumbing.

“You Can’t Build in Winter”

Yes, winter construction is a thing. No, building materials won’t get destroyed by snow; they’re treated to withstand the elements.  Yes, concrete treated with calcium chloride to help it cure in cold weather is just as strong as concrete poured in warm weather. All concrete must meet strict building code requirements so you shouldn’t be concerned about the quality of concrete surfaces. As long as the foundation is in place before the ground freezes, you can still complete a project in winter months.

New Homes Lack Character and Charm”

A new home doesn’t need to look like a cookie-cutter house. Custom homes can be designed to include beautiful and unique architectural details, tall ceilings, wood-burning fireplaces or other charming features that make it yours.

Builders Never Finish on Time and Always Go Over Budget”

While there is not much builders can do about Mother Nature, most reputable homebuilders today have processes in place to ensure that your home is built in a timely manner and under budget. Your builder should provide you with a detailed pricing sheet that lays out the costs for labor and materials. He should also communicate regular updates so you understand the process and timelines.

NAIHBR is a not-for-profit trade association brings together homebuilders, contractors, real estate professionals, lenders and suppliers to promote development of new construction and home renovations. Our members have a strong interest in building value in their local communities. For more information or to join NAIHBR contact us at 855-733-8100.

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Identifying a Complete Home Cost

Many buyers are intimidated by the construction process because there is a concern that there are unknown costs and that these costs can easily get out of hand. Real estate professionals working in the NAIHBR program should be aware of the costs that make up a complete new home price, and be able to walk clients through the different pieces that make up the total cost. These costs fall into 3 categories - the lot cost, hard costs and soft costs.

Lot Cost

The lot cost is very straightforward, it is the cost of the property itself. It may be a vacant lot or have an existing home on it, but the property as it is being conveyed by the seller as-is, is the lot cost.

Hard Costs

Hard costs are the cost for building the home itself. It consists of the “sticks-and-bricks” and entails all the actual material and labor to build the physical home.

Soft Costs

Soft costs consist of an array of additional expenses associated with the build. Many of these costs are specific to the site itself, like the cost to demolish the current home or remove trees that are in the area of construction. Other site specific soft costs include the engineering of the new home on the site and installation of utilities to the new home, like new sewer & water service, gas service and electric service. There are also soft cost expenses that are specific to the type of home being built, and the municipality where it is being constructed. These expenses include the permits, impact fees, bonds, as well as other specific requirements for new home construction that may be required in that particular town. An example of this would be the interior sprinkler systems that a handful of municipalities now require.

There are also soft cost expenses that are specific to the type of home being built, and the municipality where it is being constructed. These expenses include the permits, impact fees, bonds, as well as other specific requirements for new home construction that may be required in that particular town. An example of this would be the interior sprinkler systems that a handful of municipalities now require.

Summary

Coming up with an accurate soft cost number in not an easy process, and typically takes several days for a builder to provide. It requires research, as well as the bids of several subcontractors to help identify these specific costs. NAIHBR provides models and pricing for the hard costs (sticks-and-bricks) and adds them to the lot cost for the property in question. Then, this price is marketed on the MLS with the disclaimer that the soft costs are not included, and an analysis of these costs can be provided by the builder when requested. A buyer or their agent can make this request through NAIHBR, and the results of this request would need to be added to the advertised MLS price for a complete home cost.

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3 Key Ingredients to Spur New Construction

Dallas, Texas is on track to build 48,772 new homes in 2017 while Allentown, PA will build only 436. So, what causes some cities to build so aggressively while others stagnate? The size of the city plays a part, of course but according to a recent study by Trulia, job growth, income growth and home price appreciation are the three key ingredients needed to spur homebuilding.

Job Growth

Increases or decreases in job creation have the strongest impact on demand for new construction. As people move to a new city for jobs they will need housing, of course. A steady income makes them feel financially secure enough to buy a new home. According to the study, for every 1% increase in job growth, there is a 5% increase in home building permits. In Denver, for example, employment grew by 16.3% between 2010 and 2016 and homebuilding grew to 56.2% above its historical average in 2017. Had employment increased by an additional 1% to 17.3%, homebuilding would be more like 61.2% above the historical average.

Income Growth

There is also a strong correlation between income growth and increases in new construction. It makes sense that as people earn more money they can save more for a down payment and feel comfortable that they can afford upgrading to a new home. When the average income of a metropolitan area increases by 1%, you can expect the number of new construction permits to increase by 2.1%.

Home Price Appreciation

Rising home prices typically signals strong demand which incentivizes homebuilders to build more homes because they know that 1) homes will sell quickly and 2) they will earn lucrative profits. In fact, Trulia estimates that for every percentage point increase in home prices, there is a 1.2% increase in new construction. This only occurs, however, when incomes grow along with home prices. If incomes fall or stagnate while home prices rise many buyers are priced out of the market and construction permits slow.

NAIHBR is a not-for-profit trade association brings together homebuilders, contractors, real estate professionals, lenders and suppliers to promote new construction and rehabilitation. Our members have a strong interest in building value in their local communities. For more information or to join NAIHBR contact us at 855-733-8100.

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NAIHBR National Association of Independent Home Owners and Remodelers

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