If you’re contemplating a new construction home for you, I’m going to go over all the major pros and cons for you to think about when it comes to new construction homes.
I’m also going to share with you some typical pricing all the way from entry-level to luxury.
My name is Marcus Auerbach. I’m a local realtor with Keller Williams, here in the Milwaukee area and today I’m out here on the west side of Mequon, in a brand new, small, and very exclusive subdivision, the Farm Dale Estates. We are here at one of my favorite model homes from Victory Home Builders.
We’re going to go over the pros and cons of new construction.
Pro number one, without a doubt, is a modern floor plan and a modern layout. In these modern homes, you have very tall ceiling heights and that just gives you this grand feeling that you have when you walk into a new construction home. This is something that you cannot replicate, even with an extensive remodel on an existing home, you cannot create this feeling of space, grandness and openness.
The main living area of these modern homes is always designed to be very open and very inclusive. You have the kitchen, the dining area, the hearth room, and the great room are all combined in one big area, and everybody can hang out here and socialize with each other. On the other hand, if you want your privacy, you have the master suite, very private, on one end of the home, and you have all the other bedrooms on the other end of the home.
They all have their own bathrooms and enormous walk-in closets. This home also has a four car garage, so if you happen to have three vehicles, you have plenty of room there. You can park your three cars in there, and you’ll still have a fourth bay for your additional toys or any equipment that you have.
New construction is becoming bigger again. When you go back into the 1980s, we have seen a lot of very large new construction homes and then over the next decades, homes got smaller and smaller and with that, more efficient and more economical to build.
But as of late, we are seeing very large new construction homes again. The reason for that might be COVID, because people are spending more time in their homes, so these features that a large home will offer are coming back in style, or I should say, they are becoming more important again.
People need space to hang out all day and a lot of people are also working from home. So with that, you need one or two home offices so not everybody’s getting cabin fever; it’s good if you have a large basement that is finished, where you can hang out as well, where you can play. Maybe you have a rec room or a home theater or a large yard. All of these large features are becoming much more important again.
This brings me to con number one.
If you enjoy living in walking distance to a bakery or a coffee shop, then most likely you’re not going to find it with new construction. City lots can usually not accommodate these sprawling layouts, so usually you will be somewhere in the suburbs, which means that you need a car and you need to drive a few minutes before you get to your next grocery store or to a coffee shop. Because new construction generally happens in new subdivisions, that means it will be a few years before your lawn and landscaping is fully grown in, and even longer before you see some mature trees.
Not living in the city has also a major financial advantage, which brings me to a pro number two, which is property tax savings.
As you know, every municipality has their own way of how to calculate your property tax rate, usually based on the value of your home, but they’re all using a different method, a different mill rate to calculate the actual annual property tax.
If you live in a luxury home, the difference can be as much as a $1,000 per month or more. So when you’re going from, let’s say a over $20,000 tax bill to under $10,000 tax bill, that is a substantial saving every month. If you are financing your new construction home, that can either mean a substantial break in your monthly payment or with the same monthly payment, you can afford a much more expensive or much bigger home based on those tax savings.
This brings me to con number two, which is going to be higher price.
It is nice to move into a brand new home where nobody else has lived before you. It even smells brand new, just like a brand new car would. Of course, it’s nice to enjoy all that square footage, the different features, all these additional rooms that you have, the tall ceilings that grand feeling when your friends come over. But as you have certainly expected, it comes at a higher price.
So how much? On an apples to apples comparison, when you’re looking at an existing older home that has been updated to a kind of newer standard and has the same square footage, you’re still looking at about 20% to 30% in price difference. You should also know that the cost of a new construction home is usually not negotiable with the builder. This is different than what you’re used to from buying an existing home, where sometimes you can negotiate the price a great deal.
Builders are operating in a very competitive space and the cost of new construction is driven by the cost of land, the cost of labor and the cost of materials.
Material costs have gone up significantly in the last year, since the start of COVID, the cost of lumber, for example, has almost doubled. This is the case for the lumber package that you need for your structural lumber, as well as for everything that you have in a house when it comes to trim, millwork, doors and cabinetry. So, builders are operating on a very tight margin and the price of a new construction home is usually not very negotiable.
Here’s another price related issue that I would like to address real quick. People are always asking me, how much is new construction going to cost in price per square foot. Now, price per square foot is really not a good metric when it comes to comparing new construction homes and here’s why.
It is very obvious when you are comparing, for example, one square foot of bedroom space that is going to be relatively basic and inexpensive with one square foot of bathroom space, where you have a lot of intricate tile work, plumbing, showers, bathtubs and features that go into a very small bathroom. Obviously, you’re going to end up with a much higher cost per square foot for a bathroom. So, when it comes to comparing new construction homes, it really depends on how many bathrooms and how many other features you are packing into that overall square footage package.
Pricing is a rather complex topic, and I will take it up on another YouTube video, but since I’ve got you now wondering what cost per square foot might be in new construction, I’m going to try and give you an answer the best I can, given all the variables that go into that number.
Generally when you look in the greater Milwaukee area, you look at new construction homes and you divide it up. You are going to find something anywhere between $150 and $250 per square foot. That’s a very wide range, of course, because it really depends on the square footage of the home and on all the features and materials that are going to be packed into that home. But if you want to do some quick math, just to ballpark the cost of a new construction home, you can roughly use the number of $200 a square foot, but that is just a very, very rough ballpark number.
Let’s talk about another advantage-my pro number three, which is going to be much lower cost of ownership.
Cost of ownership is generally a topic that is overlooked by many homeowners, both for existing homes, as well as for new construction. For starters, one advantage that you have is that new construction homes are built a lot more energy efficient than existing homes. They’re more energy efficient in two ways.
Number one, the exterior envelope is a lot tighter, so that limits the air exchange that you have between the inside and the outside, especially when you have strong winds on the outside. It’s very important that you have a really tight envelope, that will make a big difference.
Secondly, it’s the amount of insulation and the quality of the windows that you have in a new construction home. Here in this particular one, we have about R50 up in the attic above us, that’s the blanket that is going over the living space and we have R23 in the walls. We have really good insulation and that makes for a really low heating bill in the winter and the low air conditioning bill in the summer.
The other major benefit that contributes to the lower cost of ownership is with new construction. Everything is brand new, so you generally don’t have to worry about replacing components, for example, putting a new roof on a house. This is a topic that generally home owners do not give enough consideration, both for new construction, as well as for existing homes. To take the example, if a roof on a ranch home on this size, you can easily budget about $20,000 to $25,000 for a roof replacement, which on average should be necessary every 30 years, so when you’re buying new construction, you don’t have to worry about that.
This is a 5,000 square foot home if you include the finished area in the basement. So just installing new floor coverings in here for 5,000 square feet, depending on the choice of materials that you make, can quickly cost you between $25,000 and $50,000, just for new flooring alone. Buying a new construction home has also the advantage of low cost of ownership because for the foreseeable future, you don’t need to worry about these major expenses.
Con number three, on my list are going to be upgrades.
I just want to prepare you a little bit for a potential sticker shock that you might be suffering once you start looking through a builder’s upgrade list. Every buyer wants their home to be configured differently. They have different preferences when it comes to floor coverings, material choices, paint colors, etc.
Builders try to maintain a very high degree of flexibility, and they start with a very naked, if you will, base price model and then allow you to configure and upgrade it the way you want. This way they’re maintaining a lot of flexibility.
So, upgrades can range from simple things like wall paint choices to floor coverings, different choices of carpeting or tile to upgrading to a different cabinet style. You can upgrade to more exclusive light fixtures, or it can be simple things. For example, upgrading from your standard knob on your shower door, to a much bigger and nicer D handle.
There’s a lot of possibilities to upgrade a new construction home. Expect to spend a lot of time looking through these upgrade lists, because you have things for every room that you can pick out all the way from the laundry room to exterior light fixtures.
When you’re pricing out, or when you’re thinking about the budget for your new construction home, keep in mind that you need a sizeable budget for those upgrades when you’re specing out your perfect dream home.
You also want to prepare yourself for a little bit of decision fatigue, because you have so many choices to make. For some people, it is a great joy to pick out materials and colors and finishes for their future dream home, but for others, it can evolve into a daunting task, because there’s so many rabbit holes that you can go down investigating materials and colors, wondering if they all fit together and if this finished works with that color, and which choices are the best for you and for your lifestyle.
In this situation, it can be really be helpful to have a trusted advisor, either your builder or your real estate agent, to either validate your choices or help you out with some suggestions.
Pro number four for new construction is going to be excellent resale value.
So, in a way, the real cost of ownership for a home is also defined between how much you pay for it when you buy the house, as opposed to how much you get for it when you sell the house. Most Americans are staying in a home roughly about 10 years now.
It used to be six years, but people are now staying longer, so about 10 years. A 10 year old, new construction home is still fairly young and at that point it will have excellent marketability. So whoever is going to be the second owner will know that there are still many years ahead before they have to do any upgrades and therefore you will achieve an excellent resale value.
Finally, let’s talk about time. How long does it actually take to build a new construction home? In my experience, this is something that people tend to underestimate a little bit. It may take you as long as about 18 to 24 month from the very first decision that you want to build a new construction home until it is finished, you got keys in hand, and it’s ready to move in.
That time period really breaks down into three distinct segments. The first one is going to be finding a suitable building lot. So for example, if you want to build a ranch with an exposed basement like this one here, you will have to find a lot that can accommodate that. Not only are you looking for the right neighborhood and the right subdivision, but you also need the right lot to accommodate the type of building that you are looking to build.
Once you’re under contract with the suitable piece of land, now you are entering phase number two, which is all about planning and making design choices. Depending on how that piece of land is situated, you and your builder may make some final adjustments to the floor plan. For example, you may want to flip the garages to the other side of the house, or you want to decide that you need an additional bedroom, a sunroom or another bathroom. The builder is going to work with you through the final design changes and understand developing the final set of drawings, which are going to be handed in for the approval that you need from your municipality in order to get building permits. Because most municipalities are only meeting once a month, this can also take a few months by the time the architect is done with the revised plans and you actually have building permits that are approved, it can easily be three to four months.
By the time you have acquired a piece of land, the builder has finalized the drawings which have been approved by the municipality, and you have your building permits, you can easily be six to 12 months into that project. Now you have a shovel ready project and as soon as weather is permitting, the builder can start breaking ground and your actual new home construction can start. New home construction in the Milwaukee climate may take around, I would say, six to nine months on average.
It can be a little bit faster, but it can also take considerably longer depending on the house that you’re building and the configuration and the finishes that you have chosen. As you can see, 18 to 24 month is not completely unrealistic, it may even take you a little bit longer. If you don’t have the patience for that, there is a way you can also shortcut the process and you can look for what is called a spec home.
Spec actually stands for speculation because the builder is starting to build a home he does not have a customer for. He’s speculating on the fact that there will be somebody buying that home and most builders will put a spec home on the market, as soon as it’s roughed in and you have to drive all the sheet rock in there so people can walk in and actually get an understanding of the size and of the layout of the home. If you’re buying a home that is in that stage, a spec home that has been rocked, then I would say, you have typically about three months, maybe four months from that point until the build is finished.
As the builder is wrapping up construction and the home has been completed, now is the time for a final walkthrough. This is when you go through the home with your agent and you look at everything and make sure that everything is done correctly. There’s always a few things that we find and usually the builder is very happy to put that on their final punch list as they’re going through the house and they’re correcting minor imperfections that are still there from the construction process.
Now you can move into your new construction home, but you’re still not quite done, because you may not have a driveway or a front walkway or a concrete patio, for that matter. It is in our climate, usually a good idea to wait until you go through one frost, thaw cycle, through one winter and allow the stone base of the driveway to settle down before in spring and summer, you are going to pour a concrete driveway over this. Now in spring and summer is also a good time to do your finish grade. Bring in some top soil, have some lawn installed and also do all your landscaping, plant some flower beds, some trees and some bushes. This is usually not included in what the builder is doing on a new construction package. It varies a little bit from builder to builder, but this is usually not included. You also have to allow some time and some budget at the end of the process for everything that you’re going to do on the exterior.
How much does new construction actually cost? Well, it depends, but the range is surprisingly wide. You can get started at about $350,000 to $370,000 if you’re willing to travel a little further away from the city and if you’re okay with the smaller home, let’s say between 1200 and 1400 square feet. The general entry-level segment is in the mid-four hundreds, which gets you a little bit of a bigger home. In my neighborhood here in Mequon, most spec homes are selling about $550,000 to $700,000, and that gets you about 2,200 to 2,600 square feet.
If you’re looking for a bigger home, there is not going to be as many spec homes anymore. Most of those bigger ones are going to be custom built and then because of the square footage, over 3,000, you will be looking at about $700,000 or $800,000. The luxury segment as we’ve seen today is about a million to a million and a half. Of course, there is no top end on how much you can spend or how big you can build.
This was a quick overview about the pros and cons of new construction. If you have any questions, please feel free, put them in the comments below. I usually try to answer those questions within 24 hours. I will be making more videos on the subject of new construction, so if you’re interested in this, then please subscribe, give the video a thumbs up. It helps with the YouTube algorithm. And with that, thank you very much for watching and I’ll see you at the next one.
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