Is it cheaper to buy a house or build one from scratch?

November 14, 2005 11:14 AM

Is it cheaper to buy a house or build one from scratch?

As we all know, housing prices have shot up like crazy in the last few years. It seems like the cost of labor & materials can't have gone up as fast. Is it cheaper to build a house than to buy a pre-existing one? Is it difficult to find unused lots around major cities? How much do architects/contractors/etc. cost? Does anybody know some good resources for learning about the process? I'm in the market to get my first home soon, and it seems like it would be great to get exactly the layout & features I want instead of hunting around for an overpriced place that's "almost good enough." I'm not a handy person, so I don't think I'd want to be my own contractor, or remodel an existing home. If anybody has experiences with getting a home built, I'd love to know what you think the advantages or disadvantages are.

posted by designbot to home & garden (18 comments total)

ohh good question. i have a friend in minneapolis - that just bought a great lot for 60,000 and will be building a 300,000 house on the lot - it sounds like it will be an amazing place in a great location - there is no way he could come close to the proposed house at that location for the price (my guess is it will be worth 450,000 at least when he's done)... i would recommend www.dwellmag.com as a good starting point for current medium cost architecture - some of the prefab talk is interesting as well...
posted by specialk420 at 11:23 AM on November 14, 2005

It seems like the cost of labor & materials can't have gone up as fast.

Raw materials certainly have. And if you were worked on houses nowadays, wouldn't you start charging more?

How much do architects/contractors/etc. cost?

A lot. Then again, you can buy a house design/schematic for $200 off the Internet.

There are three questions you need to answer for yourself.

(1) Are you ok with a septic tank and a well, or do you need city water/sewer?

(2) Do you know exactly what you want, or do you need someone to help you find out?

(3) Can you do any of the work yourself (in particular, the general contracting), or will you be paying someone to do it all?

If you answer the latter for any of these questions, then, yes, it is cheaper to buy an existing home.
posted by deadfather at 11:25 AM on November 14, 2005

My experience is one-sided - I bought an existing home and did an extensive remodel, and I've never built a home. If I had it to do over again, I would buy a lot and build myself. You have just as many headaches, but in the end you have something closer to what you want.

The bottom line will depend so much on where you live. I'm in one of the most expensive markets in the country, so I could have saved money by building modestly. Just keep in mind that building costs are outrageous these days. It will easily cost you $200-250,000 to build a modest home, aside from land costs. However there are more and more interesting options in the pre-fab world these days - real homes, usually modern in style, which are built well and sustainably for less money than site-constructed homes.

Finding a lot in a major city can be nearly impossible, depending on which city. Land isn't so expensive in the mid-west and plains states, but on the coasts it's crazy. One option is to buy an existing "tear-down" home, and just start over. This is done frequently with homes which are not worth fixing. They will be cheaper because of this. Just remember to figure in deconstruction costs, which can be expensive.

Also check into permitting costs. Depending on the area, these can be crippling.

I would say that one thing is imperative, whether you build or remodel: spend money up front by hiring a great architect to design your home/changes. It will pay off immensely.
posted by shifafa at 11:33 AM on November 14, 2005

If you're in LA area California, the same size house that you could buy for oodles runs for pennies comparably, here. It seems like you could have a $50,000 house built here, and have it hauled by truck to California for less than the price if you bought it outright, there (just guessing).

On a recent TLC show about house renovations, I saw a guy buy a molded out, stank, horrendous 3-bedroom house in California for like, $450,000! That's a crazy price, compared to here (Wichita Falls, TX). For that condition at that size, you could probably get it for $70,000 tops. $120k-200k here gets you a brand new, brick, 3-4 BR w/2-car garage in a rich neighborhood. One of my best friends, currently in school in California, pays $1200 rent for a 1-bedroom apartment -- that you could get for $250/mo here.

I was going to have my own first house built, and was saving up to pay it all out flat (appx 35-40k) but I decided to get a house that was similar to what I wanted and used my $12k savings to put down $10k and pay out the rest ($38k house). I would suggest hunting down a good starter first, and think about building later. Don't get an apartment, though, because you don't get anything back for all you've paid. With a house you can settle for, you get all that money back and more when you leave.
posted by vanoakenfold at 11:35 AM on November 14, 2005

This may seem kind of obvious, but your question presupposes the availability of land on which to build a house. This may be a legitimate question in suburban or rural areas, but in urban areas the only way to get a piece of empty land is to tear down a house first.

Also, you only need an acre or two for the average homeowner, but it's not that easy to buy an acre or two. Most people selling land probably have a larger piece to sell and it's easier to deal with a single buyer, like a developer, instead of subdividing.

I live in downtown Toronto, so my reaction to your question is pretty biased. Even so, in areas outside of Toronto I don't hear about many people building their own houses because of the lack of appropriately sized lots. Frighteningly, there seems to be no shortage of people in some neighbourhoods of Toronto who will buy a more-or-less fine house, pull it down and build a brand new house (often to within an inch of the property line on each side). I don't think they do this as a cost-saving measure though - for some reason, this happens more often in high-priced areas as opposed to areas with cheaper homes.

Finally, having been through a home renovation, contractors and trade people can be difficult to deal with. Not that they're bad or dishonest, but the general contractor (which may be you) has to find them, vet them, juggle multiple schedules and verify that the work was done correctly. It is a non-trivial process.
posted by GuyZero at 11:42 AM on November 14, 2005

It all depends on the market.

Where I own, the market value of my house is about 70% of replacement cost. Most high-population areas the replacement cost will be lower than market value. A quick call to a trusted homeowner's insurance agent will tell you what the situation is in your target market.

Building materials are currently above normal cost. This should correct within a year. In most urban areas, it's a contractor's market, so labor will be costly as well. This is not likely to change soon.

Negotiating financing for building a house is often more cumbersome than for buying an existing house, and can increase costs. You'll essentially be paying for the house long before you can actually live in it.

For a first-time buyer, I'd stick to buying an existing house.
And, of course, buy less than you can afford.
posted by yesster at 11:43 AM on November 14, 2005

One of the corollaries of building is that you need to be able to pay the architect & contractor their fees (or make payments on your loan) as well as paying your rent throughout the design/construction process. There may be loan options to allow a gentler transition (talk to your bank), but that is a significant cashflow issue to be aware of.
posted by misterbrandt at 11:51 AM on November 14, 2005

Thanks for all the input so far. If it's helpful, I currently live in Fullerton, CA. It's not even an option to get a place here. $450,000 for a stank, horrendous 3-bedroom house would be a absolute steal where I live.
I'm planning to relocate soon (largely because of the housing market). I'm looking at a few areas, including Austin, Portland, and Seattle. The housing prices are still way higher than seems reasonable, but they are at least slightly less insane.
posted by designbot at 11:51 AM on November 14, 2005

A friend of mine has helped his dad build homes a few times. His dad isn't a builder, he just builds the occasional home, lives in it for a couple years, then sells it. They always build rather simple single floor homes (I don't know what type - I don't know what makes a ranch a ranch) and they pull in around $100,000 profit. The homes are generally around 1400 or 1800 square feet and he always puts them up in the less in demand areas (where land is cheap)

This is in Windsor, ON. Housing costs aren't insane so I would imagine that you could do substantially better in California. My friend literally does most of the work though. They hire somebody to dig the basement, a few general labourers to assist with framing and a few other things.
posted by substrate at 11:58 AM on November 14, 2005

There are a lot of variables here. In my part of the country (Austin TX), there are empty lots in relatively central areas, and I was considering both build/buy options.

In my neighborhood, there's an empty lot on the market for $160,000. This is probably overpriced--it's been languishing for some time. At $120,000, it'd get snapped up right away. So let's go with that.

Houses in my neighborhood are usually in the 1,000-2,000 sqft range. Builders and architects I've spoken to have told me that building a new home costs anywhere from $85 (very optimistic) to $200 (pretty lavish)/sqft. $125 sqft seems to be the conservative low-end price.

So if you bought a lot for $120K and built a 1,500 sqft house on it at $125/sqft, you'd wind up paying $307,500.

Looking at realty listings, this is more than a comparable existing house would cost, by a margin of 10-20%, I'd guess. However, you'd be getting exactly the house you wanted (given the limitations of the site and your budget). Since the new house would be, well, new, it would be better than the older neighboring houses in some ways (esp energy efficiency) and worse in others (esp charm).

Another expense is that you'd be paying for a place to live while the house was being built--which takes a minimum of 9 months, almost certainly over a year. If you're renting a place for about $1000/mo, that's another $12K+ to add to your budget.
posted by adamrice at 12:28 PM on November 14, 2005

Inhabitat prefab.
posted by hortense at 12:34 PM on November 14, 2005

It seems like the cost of labor & materials can't have gone up as fast.

Oh, you'd be surprised. One, there's a shortage on materials, which obviously drives up the cost. Reasons for the shortage are various: Katrina, major construction in China (my contractors routinely complain about suppliers not being able to obtain containers or steel and concrete raw materials being eaten up by China), and a general construction boom. Materials costs have actually gone up quite a bit the last few years.

Labor is also suffering a shortage, just because there's so much work to be done. Superintendents complain about having to pay through the nose for substandard work, and then not being able to keep the workers on the job site because they'll run off to other jobs. One of the consultants I work with is doing some of his own construction, and was paying a couple of plumbers $80/hr. and he had to keep constant watch over them to make sure they didn't screw something up.

Is it cheaper to build a house than to buy a pre-existing one?

That really depends on what kind of house you want to build, and how custom it ends up being. If you want just a totally basic house and are happy to let the contractor design it for you, it could quite easily be cheaper than buying an existing home.

Is it difficult to find unused lots around major cities?

Typically, yes. In some older cities, you may be able to find lots with existing construction that are essentially being sold as tear-downs, but that's not the case in my area (SoCal).

How much do architects/contractors/etc. cost?

Again, that really depends on what you want to do. Most contractors we work with do jobs on a "cost plus" basis, where they'll charge you exactly what they pay for labor and materials, and then add a markup to it, typically 15% (I may be fuzzy on the details here). Typically, simple home construction in my area will end up being $200-$250 a square foot. The cost shoots up with special features and finishes.
posted by LionIndex at 1:35 PM on November 14, 2005

I should also mention that my architectural firm typically expects to make about 12% of the final cost of construction for designing a house, with variations due to certain permit processes and hyper-aggressive neighborhood and homeowners boards. My firm does almost all crazy-high-end custom residential work, so my frame of reference is somewhat off, but I typically hear of architects expecting to make 5% of construction cost. Houses I work on generally end up costing $1-6 million + just for construction, on lots that would cost a million or two in a completely undeveloped state.
posted by LionIndex at 1:47 PM on November 14, 2005

I live on the eastside of Seattle. There is a whole lot of custom building going on around here, as well as many planned developments. Custom costs more unless you are doing a lot of the design and construction work yourself. Think twice as much. Empty lots are available, more common in the outer 'burbs. To build a new house within the city limits of Seattle, you would almost certainly need to tear down an old one.
posted by richg at 2:09 PM on November 14, 2005

Don't underestimate the costs of building permits, getting all the various types of inspector to do the necessary surveying or compliance certifying, etc. Likewise, if a neighbour opposes the project and has either money or connections to throw into a fight, the cost can go way up.
posted by -harlequin- at 2:12 PM on November 14, 2005

Good lord, I say typically a lot.
posted by LionIndex at 2:56 PM on November 14, 2005

There are empty lots available for ~$10,000 in Richmond, in neighborhoods in the city, where 100+ year old houses haven just fallen down. At that cost, it is probably cheaper to build new.
posted by john m at 5:03 PM on November 14, 2005

We hired a contractor for an extensive rennovation and the cost, with us doing all the finish carpentry, paint, and tile was $90 per ft². This is probably the way to go in terms of figuring out the cost difference. You might also want to consider prefabs, for which there are some pretty fabulous designs (compared with 1 decade ago at least).
posted by plinth at 6:09 PM on November 14, 2005