Many homebuyers assume a brand-new home will automatically cost more than a resale home. In today’s market, that isn’t always true.
Builders can offer incentives that traditional homesellers usually can’t, including lower mortgage rates and help with closing costs. Those incentives can sometimes make a more expensive new construction home cost less each month than a lower-priced resale home.
For real estate professionals, understanding that difference is increasingly important when helping clients compare their options. Instead of focusing solely on the sales price, agents can help buyers understand what each home will actually cost them to own.
Help clients look beyond the sales price
Let’s say your client is comparing a $500,000 new construction home with a similar resale home priced at $480,000, with 10% down on either one.
At an interest rate of about 6.75%, the resale buyer would borrow $432,000 and have a monthly principal and interest payment of approximately $2,802.
Now, suppose the builder offers an incentive that permanently lowers the mortgage rate to 5.5%. The buyer would borrow $450,000 for the new home, but the monthly principal and interest payment would be approximately $2,555.
Even though the new home costs $20,000 more, the mortgage payment is about $247 less per month in this example. These figures include principal and interest only and do not account for property taxes, insurance, HOA dues or other housing costs.
That doesn’t automatically make the new home the better deal, but it gives agents a clear example of why a lower sales price doesn’t always mean a lower monthly cost for their clients.
Understand what the builder is actually offering
One of the most valuable incentives a builder can offer is an interest-rate buydown, where the builder helps reduce the interest rate on the buyer’s mortgage.
A permanent buydown lowers the rate for the life of the loan. Temporary buydowns offer a lower rate for the first few years before the payment increases to reflect the regular rate.
Temporary savings can be attractive, but buyers need to understand what their future payment will be. I never recommend assuming you’ll simply refinance later because we don’t know what interest rates will look like in the future.
Builders may also offer help with closing costs or upgrades. Some financing incentives may require buyers to use a builder’s preferred lender, so it’s important to understand the terms and compare available options.
For agents, the goal should be to help clients look beyond the incentive being advertised and understand how it affects both their upfront costs and monthly payment. For some buyers, bringing less cash to closing is more valuable than having a slightly lower monthly payment.
You have to look at what the client is spending upfront and what that money is actually saving them each month.
Help clients look at the entire cost of the home
New construction can have additional expenses that buyers don’t always consider. Depending on the community, there may be HOA dues, special assessments, higher property taxes, solar costs, lot premiums or upgrades.
And remember, the model home your clients tour is designed to impress them. A home advertised with a $450,000 base price may cost closer to $500,000 once they add the upgrades featured in the model.
On the other hand, a new home may save clients money in other areas. They’re starting with a new roof, HVAC system, appliances, plumbing and electrical systems, which can mean fewer major repairs during the first several years. Newer windows, insulation and energy-efficient equipment may also help lower utility costs.
Resale homes have advantages too. They may offer lower property taxes or HOA costs, larger lots or improvements already completed by the previous owner.
This is where real estate professionals can add value by helping clients compare the entire cost of ownership, not just the mortgage or sales price.
Compare the numbers, not the advertisement
One builder might advertise $30,000 in incentives. Another might advertise a 5% mortgage rate. A third might offer to cover closing costs.
Those offers may sound appealing, but the dollar value alone doesn’t tell buyers which option will save them the most money.
Before deciding which is the better deal, agents should help clients compare the actual purchase price, loan amount, interest rate, monthly payment, closing costs, HOA dues, property taxes, insurance and any additional upgrades or community costs.
Working alongside a knowledgeable mortgage professional can also help agents put those numbers side by side and show clients how each incentive affects their upfront and monthly costs.
This is also why agents shouldn’t automatically rule out new construction when working with clients who initially planned to purchase resale. Showing clients both options gives them a better understanding of what their budget can buy and allows them to make a more informed comparison.
Get involved before the first builder visit
Real estate professionals should encourage clients to involve them before touring new construction.
The sales representative at the new home community works for the builder. The buyer’s agent represents the buyer’s interests throughout the transaction.
A buyer’s agent can help compare incentives, evaluate upgrades and lot premiums, review timelines and make sure clients understand what they’re purchasing.
Builder policies regarding real estate agents can vary, so agents should educate clients about those requirements before they begin touring communities on their own.
The agent’s value in a new construction transaction goes beyond finding the property. It’s also about helping the client understand how the home, financing incentives and overall costs compare with their other options.
The bottom line for real estate professionals
There isn’t one answer to whether new construction or resale is cheaper.
A resale home that costs $30,000 less may not be the better financial decision if a new home comes with a significantly lower interest rate, fewer immediate repairs and help with closing costs. At the same time, resale could be the better deal if it’s priced appropriately and comes with lower taxes and fewer additional expenses.
Instead of simply helping clients ask which house has the lower price, real estate professionals can help them ask: What will each house actually cost me every month, how much money will I need upfront and what am I getting for that money?
Once agents help clients compare the complete picture, the better financial choice becomes much clearer.
