Some of the Pros and Cons of a New House versus Resale

Buyers often tell me that they think that it'd be better to buy a new house in order to benefit the most from increased value. I tell them that can be true if they're buying in the first phase, plan to finish the backyard, put in upgrades, and sell within a few years. People who bought a few years ago have seen their homes double and more in value even if they did just about nothing to them. However, builders have really increased prices on new homes, and buyers of new homes now are faced with higher prices at the outset. If they plan to sell sooner rather than later, there's lots of competition, so they need to finish the yard, put in patios and patio covers, and upgrade the interior. So I find myself warning people that, after the 30% annual increase in value across the board during two years in a row, they're going to have to put some money into that new house to get some out of it.

The potential for a lot of unearned equity (when sellers benefit from fast-rising prices rather than having to improve the property) led to a virtual torrent of flipped houses in new tracts. But as buyers go from one empty house to another, each one with the same layout, the same flooring, the same everything, and all with barren dustbowls outback, their enthusiasm quickly wilts. They wonder why "everyone" wants to move out of the neighborhood and if they're being had.

So while it can make sense to buy a new house in order to get more equity faster, buyers need to keep in mind that the market has changed. If they choose a house that has been lived in (and landscaped), they can finance the cost of the improvements that the sellers have made. Whereas if they choose to buy from the builder, they'll have to come up with the cash (or perhaps get an equity line of credit if value goes up quickly enough) to make those improvements. And they'll have to live with the dust, noise, and general mayhem while those improvements are made. Of course, they'll get to choose the improvements, so the property will be just to their liking. But then they ought to stay put and enjoy living there after all their hardwork.