Purchasing a newly constructed home is a dream of many a home buyer. This is especially true with a custom home, where you get to pick pretty much everything you want, from the ground up.
How can anything be wrong with a new home ? For one thing, it is NEW ! Plus, everything will be just as you want it. You will have exactly the color walls you desire. Your kitchen will be everything you had dreamed, including 2 vegetable sinks.. Your built in cabinetry in your new home office will be the envy of all.
Well…….
As we tell all out clients, while you must love your home (new or otherwise) it really is a good idea to still pay attention to the fact that it is a monetary investment as well. A purchaser of a new home may pay a COST of, say, $600,000, for a brand new home. Heck, it appraised for $700,000. The bank appraiser said so. What could be wrong ?!!
See what happens when you go to sell it in, say 3-5 years. To you, the house WAS new. That had to have been one of the most attractive features of it when you bought it. Right ? However, when you put it on the market, it is now USED.
Especially in this price range, those who can purchase that price of a home can also probably afford NEW. So, why would someone necessarily purchase your USED home when that same buyer can buy in that same plan, or nearby, and build NEW ? Sure, it may cost a bit more, but the NEW house will be just the way s/he likes it.
So, especially for someone trying to sell what was once a NEW home early on in that subdivision’s existence, that Seller may have to sell the home for LESS than the original purchase price. I am staring at a real life example as I write this, January 16, 2014.
There is a 1 year old USED home for sale in one of the northern suburbs of metro Pittsburgh. The original owner paid $570,160, in 2012. 6 months later, the owner was transferred. So, in June, the home was listed for $634,900. Give it a shot, right ? In September of that same year, the list price was dropped to a more marketable $599,000.
In August, 2013, MORE THAN a year later, it was relisted at $550,000. Then, in October, it dropped to $535,000. November, it was down to $519,900. By December, 2013, it had dropped to $499,900.
That is nearly $70,000 LESS than the original purchase price NEW. This particular original owner had the backstop of a relocation company who was able to take it over. However, who is always guaranteed that ? Plus, regardless as to who controls it now, what does this say about the “value” of that new home, nearly 2 years later than when it was built ?
Is purchasing a newly constructed home always a bad idea, then ? Absolutely not. We have helped a number of clients purchase new homes; including those that are speculative as well as those built from the ground up. However, with us involved at the very beginning, we do our level best to position our clients to minimize, if not eliminate, being placed in a scenario as noted above.