Profile picture for user4565941

Are new homes overvalued?

My wife and I are looking at building our first home. After picking a floor plan we like, we met with the builder for an estimate which I felt was too high. I then found three other homes in the area that are literally identical which have sold in the past 18 months and looked up the assessed values and their last sold values on the county records website. The problem is the builder wants to charge about 10% more than what they sold for 12-18 months ago and yet the values are about 10% less than what the other buyers paid 12-18 months ago. What gives? We also visited their design center to look at upgrades. Right after we went to Home Depot and saw saw fixtures and flooring that are pretty much the same that are about 25% less. Are builders really that big of crooks? 
  • August 19 2012 - US
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Answers (5)

Profile picture for sunnyview
You may be right about the 25 year old builder bias, but it is good that you know some subs. I would pick their brains about who the solid builders in the area are, who uses quality materials/methods.

Also ask them about how much it would cost if you could negotiate a deal with the builder for a bare bone build to upgrade features on your own by subbing them out before you move in.
  • August 21 2012
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Profile picture for user4565941
Thanks for the responses.

I'll preface by saying that I want my builder to make money. I believe such a balance exists where he can be profitable and we can get a fair price. Perhaps he saw two wide-eyed 25 year-olds and thought we didn't know any better. However, after talking to some friends who work for sub-contractors or supply warehouses, a lot of builders seem to place about a 100% markup on upgrades. I don't want to play that game.
  • August 20 2012
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Profile picture for Blue in d Nile
It is not a question of being "crooks", it is simply they must pay the salaries of the laborers, and must make their overhead and profit.

And in most cases, they will not let you buy "at their cost", nor will they let you buy below what the neighbor's paid (as that would lower the value of the neighbor's properties, and would make it even more difficult for them to sell their "product").  (For the "negotiations", they usually throw in "upgrades" instead of lowering the price).

I'm of the same opinion as Sunnyview; buying "used" gives you better value, and the "wear in" has already occurred, so you can "see" the issues, and in many cases, the "issues" were already addressed. 
I'm also not a fan of "slab on grade", and that is the construction method chosen for a large portion of newer homes.

Obviously, climate conditions make a difference on home construction methods, so without knowing the area, one should not just assume that one is better than another.
  • August 20 2012
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Profile picture for sunnyview
Disclaimer: I am not a new house fan. Yes in my opinion new homes are overvalued. People like the idea of new and buy into the idea that new homes have no issues. That is not true. Many new homes have the new wear off very quickly and features that do not age well over 5-10 years. Some also have construction issues caused by lazy workmanship or bad original site grating/prep.

Buyers often pay a premium for new houses since they can have everything new and choose some finishes like a "custom" house. Truth is most would get better value updating an older house with a one time Home Depot order and would have a better quality house in the end.

Buy what you prefer, but know that builders cut corners to make profits and new/shiny wears off you will have a house with so so materials that is not new when you go to sell. 
  • August 20 2012
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It all depends on the area that you live. Considering the price is only 10% over what is sold for 18 months ago that is an acceptable amount. As far as the fixtures and flooring you found is 25% less I would ask if you could pick our those items instead of using his.
  • August 20 2012
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