Comparing new construction pricing against existing housing stock

Every so often when providing pricing for larger projects such as a new home, major addition, or stand-alone structure we hear the phrase “I can go buy a ‘new’ home for that”. 

Sometimes, the response legitimately means that they can go by a brand-new home in a development for less than the cost of a custom build.  This is true.  Even a small home builder is going to have greater buying power than a custom builder, has presumably value engineered their product to provide the most perceivable bang for the buck, and building multiple homes at a time, is working with economies of scale.  The price differences grow exponentially with the size of the builder.  However, that production-built home is not going to include the customization allowed with a custom build and often, isn’t going to use the same quality materials and quality of craftsmen.  If you want A home for the best price possible, then yes, a production-built home is the way to go.  However, if you want a truly custom home designed and spec’d for you, then a production builder isn’t going to be able to provide that and the cost to provide that is higher by necessity.  I strongly encourage clients looking to build a custom home to survey the market to see if there is a production-built home or existing stock that will suite their needs for less of an expenditure.

Often though, what a client really means is that they can buy an older home on their street or in their neighborhood for less than the price of the project they are looking to undertake.  Sometimes this is also a true statement.  It is also a true statement that you can buy a used car for less than the price of a new one.   Granted, cars depreciate over time due to wear and tear, but one could argue that homes do the same thing, even if to a lesser degree.  Over time, a home will almost certainly go up in value, but that doesn’t mean that it doesn’t need a new roof, HVAC system, rot repair, or just general updating.  These things all cost money which should be taken into consideration when making such comparisons. 

Renovations, additions, and new standalone structures on an already developed property are always going to cost more than new construction, due to more challenges; working around clients, their families, and pets, and property not to be damaged, more demolition and discovery to be encountered, etc.… Perhaps the bigger issue though, is that the cost of labor and materials when the ‘less expensive house’ was built versus today’s market.  For example, a house built 20 years ago may have cost the builder $300k to build and is now on the market for $500k.  That same house, built with todays current pricing for labor and materials might cost $600k to build new.  There are many reasons for this, but to name a few; inflation, regulation, and use of better, longer lasting, and more efficient products.  It is not realistic to compare the price of new construction against a one-year-old home, much less a 10-year-old home, and not against a 100-year-old home. 

I don’t know of any general contractors that just make up a price for their services.  They all are simply striving to run a profitable and competitive business within the parameters of the current labor and materials market.  That is not to say all contractors will have the same pricing, as some use different quality products, different quality tradesman, offer varying levels customer service, and so on, but when comparing apples to apples the pricing is usually going to be comparable.  Current estimates are the valid numbers to consider, not the cost of something that was built at a different time.

– Russell

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