Why New Home Pricing Differs From Existing Home Pricing

January 4, 2016

Why New Home Pricing Differs From Existing Home Pricing

When Looking to Buy a Newly Constructed Home in North San Diego County – It is Important That You Understand How Builders Price New Homes.

Builders look at home values in a different manner then you would for resale homes (existing homes). They base their price on margins that are needed for their projects to be successful, not on relative resale values. These margins are based on their intended profits, material, labor, administration and land costs, and are seldom based on resale comps for the local market. Indeed lower Comp prices in the market should lower the price of new homes. There are many ways for the Builder and sales staff to overcome higher prices of the new homes and convince the buyer of the higher prices. New home pricing typically is higher than a comparable resale as it should be as you are getting more modern features and designs, newer equipment, new materials and warranties.

Many builders differ on how they cost their homes. Larger builders may control costs by negotiating volume discounts for materials and labor. Some builders are very thrifty and control their costs by diligent purchasing of materials while others may cut corners to meet their margins. Material costs have been a moving target and there will be continued price pressures in the coming year.

You can avoid paying too much by using a Buyer’s Agent to assist in the process of determining what the comparable values are in the community. Comparable values are important to understand because comparable values will play an important role in what you can sell your house for down the road. What you paid for your new home and what your current mortgage balance is will determine your “margin” numbers when you decide to sell. If this margin is too high compared to similar homes surrounding you, your home can be difficult to resell or you stand to lose money when you do sell. Sure “new” is worth more to many buyers, but understanding the numbers before you buy is your defense against overpaying.

One more thing to keep in mind when buying new is what you will be paying for upgrades and landscaping which will increase your cost basis for the home. If these amounts are excessive your home may have too high of a cost basis that may not be recaptured if you need to sell in a short period of time.

-Rob Pontarelli



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