Buyer Beware!

Many people think that buying a new construction home is out of reach for them. I’m here to tell you, it is not out of reach. I completed a little exercise I’m going to let you in on and in turn, it will tell you a bit about what is going on in the current housing market too.

I recently had a realtor reach out to me. Her clients had put an offer on an existing home and didn’t win the bid so she was reaching out to me to see if Celebrity Homes had something for her clients. What I later came to understand was that the home they put on offer on, was a 6 year old Celebrity Home and it was the Weston plan which they really like. The good news is- we still build that plan and we even had some under construction and available for purchase. That got me thinking and I wanted to do a comparison between purchasing a 6 year old Weston plan vs buying a brand new Weston plan.

Here is my side-by-side comparison. I compared the existing Weston that had a 2-Car garage, and was 6 years old. Which also means the shingles, siding, HVAC, windows, flooring, etc., also have 6 years of wear or deterioration. This home had similar cabinetry we still offer in our new builds but it had sheet vinyl flooring in the kitchen, dining, laundry and bathrooms. It did have quartz countertops and sprinkler system, like we include today but the appliances are 6 years old even though they were upgraded appliances originally. There was no kitchen tile backsplash and whoever purchases the existing home gets the selections chosen by the original owner which they may not totally care for and will need to make their own enhancements. This property did have an added cement patio area out the back and the yard was fenced with 3 different fence materials. Many of todays offers are being written over asking price, with no warranty or no home inspection. I also threw in a comparison of taxes and closing costs.

What does it all mean? Well, we won’t have a final assessment until the existing home closes so we can see exactly what offer won the bid and right to purchase that property. However, the existing home was offered at $330,000. The clients offered the full amount and offered to pay an appraisal gap. They did not win the bid so that means there were better offers or terms presented by other potential buyers. It is very likely that the winning offer was over $330,000. In my comparison, you can see a new Weston plan with a 2-Car garage, LVP flooring and upgraded appliances has a cost of $346,400 which is a difference of $16,400 to begin with. Then assuming the offer on the existing home was at least 335,000, the difference between a 6 year old home and a new home, comes down to $11,400. Then consider the flooring is used and of lesser quality than the current LVP flooring, appliances and building components have 6 years of wear and most likely, the home was purchased without a home inspection or extended warranty. Is it worth a $10,000 difference to have a new home with no wear and tear?

We aren’t quite finished with our comparison though. Let’s talk about taxes for a minute. When you look at an existing home, you can see the current tax assessment and most, if not all realtors, will add this information to their flyers. What you need to know is that the tax assessment generally listed is the CURRENT rate at the CURRENT recorded value. Take this existing Weston home for example. The county is assessing the taxes on a home value of $282,113. When multiplied by the tax levy, the current owner pays $6,363 per year in taxes. What happens when this home sells for $335,000, $5,000 over asking price? The county records the purchase price and re-calculates or assesses the taxes due. Now the new owner would be looking at a tax assessment of approximately $9,008 or $750 per month.

When purchasing a new construction home, there are some initial tax benefits to note. In Douglas and Sarpy county, our taxes are in the rears, meaning, we live in a home for a year before we pay the property tax. When you purchase a new construction home, the initial taxes are assessed only on the land because the home, or improvement, wasn’t there prior. That is a huge initial tax benefit as there is hardly a tax assessment at all the first year. On an existing home, the improvement was already there so the taxes remain due the first year. (See the comparison chart above)

The last area of comparison is closing costs. Closing costs on an existing home at this price point will generally end up around the $10,000 mark. Celebrity Homes has a list of preferred lenders who only charge necessary closing costs. In addition, the lender and Celebrity Homes contribute up to $3,000 to go towards a buyers closing costs. For our example above, this leaves the closing costs on a new construction Weston as $3,132.

When we calculate in the tax benefit and the reduction in closing costs, don’t get snookered into thinking an existing home will cost you less just because the initial listing price might be less. Consider the costs of the homes age and condition, amenities and finishes, the current tax assessment and overall closing costs. So, buyer beware! Do your homework because you may come to learn there are more benefits to buying a new construction home than you realized.