Pre-Construction Homes – Pros and Cons

Pre-Construction Homes – Pros and Cons

Buying a home before it’s built is exciting and overwhelming at the same time. You get to pick your home’s features down to the color of the outside and make other adjustments as the builder allows.

But sometimes pre-construction homes have downsides. Like any investment, it’s important to know the good and bad to ensure you get the most out of your purchase.

What is a Pre-Construction Home?

A pre-construction home is a home you buy before the builder is done building it. You may buy a pre-construction home early on when the builder doesn’t even have models built yet or mid-phase when some homes have been built and already have people living in them.

The Benefits of Buying a Pre-Construction Home

Buying a pre-construction home has many benefits including:

  • You may get lower prices

If you’re buying a pre-construction home, you’re taking on some of the risks from the builder. They typically offer the best prices to buyers who commit before any construction in the area has even started.

  • The home may have a warranty

Your new home warranty may cover major issues and builder defects as well as minor issues. Read the fine print to know what it covers before you commit because even new homes have big issues.

  • The home may appreciate quickly

Since you’re buying at a lower price (typically), new construction homes often increase in value quickly. This means you’ll have instant equity in your home within the first couple of years of buying it.

  • There are no bidding wars

Buying an existing home may cause you to run into other interested buyers resulting in a bidding war. This inflates the price and may make you lose out on the purchase if another buyer outbids you. This isn’t as much of an issue with pre-construction homes, unless you are in our current market, where new home builders only release so many lots at a time, and occasionally hold lotteries for prospective buyers. 

The Downsides of Buying a Pre-Construction Home

Of course, every investment has downsides. Here are the disadvantages of buying a pre-construction home.

  • The price may be higher

Even though you’ll get in at pre-construction prices, newer homes often cost more than existing homes because of the lack of maintenance and repairs you’re getting. Plus, you’re covering the current cost of labor and materials which is always higher, especially right now.

  • There’s no guarantee the price will increase

You assume new construction prices will inflate, but there’s no guarantee. If the market crashes or the builder runs into financial trouble, you could buy into an area that never gets completed.

  • The real estate taxes can be outrageous

New construction real estate taxes can be confusing. At first, you’ll only pay the assessed value of the land, but once the true assessed value hits (typically the year after you close on the home), the increase in cost can be financially shocking, and could adjust your monthly mortgage payment to something higher than you can afford. 

  • There are many out of pocket expenses

New houses are bright, shiny and have never been lived in which is appealing to most. You need to keep in mind the many out of pocket expenses you may incur. Things like landscaping and irrigation costs, window blinds and treatments, garage door opener installation, appliances that are not included in the sale of the new home, ceiling fans and installation, etc. Most if not all of these items are usually already done in an existing home, so be sure to keep these out of pocket expenses in mind on new homes. 

Final Thoughts

Should you buy a pre-construction home? Many factors play a role, and you should always have a professional helping you decide. If you’re choosing between pre-construction homes and an existing home, let me help.

I’ll go over the pros and cons of each situation with you and help you see the big picture so you make the right real estate investment for your family.

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