Denis and Kristin Lynch began their online search for a house in the Washington area as they were preparing to relocate from Cincinnati for his job.
The big question for them: new or existing?
For four months, they trudged through lots, construction sites and models, and toured houses in every conceivable style ranging from a few years old to several decades old.
Finally, in December, they’d made up their minds: They signed a contract to build a $650,000, 3,800-square-foot house in Aldie that is targeted for completion in mid-June.
“We feel this will be a pretty permanent move, so we want what we want, not to settle for something that doesn’t meet all our needs,” Kristin Lynch says.
Moreover, adds Denis Lynch, the couple grew weary of the low inventory of existing homes. “As soon as [houses] appeared, it wouldn’t take long for them to disappear,” he says. “There’s not enough selection, and it goes quickly.”
New homes coming on the market in the next several months may be a solution for some frustrated house hunters. But, experts say, they won’t do much to plug the hole from the region’s near-record-low inventory of houses for sale.
According to data firm RealEstate Business Intelligence (RBI), a subsidiary of Rockville-based MRIS, active listings for existing homes are down in the Washington area by 38 percent from February 2012 to February 2013 and down by 51.4 percent when compared with the five-year average for existing-home listings.
Permits for new single-family homes in metropolitan Washington increased to 10,748 in 2012 from 8,251 in 2011, but few of those homes are ready for delivery yet, according to the Center for Regional Analysis at George Mason University.
“New-home construction is picking up in 2013, but it takes time to get permits in place and to construct a new home,” says Lisa A. Sturtevant, the center’s deputy director. “Construction slowed down dramatically into 2012, so basically any inventory that was available has been eaten down. It will be at least late 2013 before we’ll see a big impact of available new homes.”
Traci Oliver, a real estate agent at Coldwell Banker Residential Brokerage in Fairfax, says any quick-delivery homes that come on the market disappear promptly, sometimes with multiple offers. She says that the housing shortage caught builders off guard and that many of them lack lots or the resources to ramp up fast enough to meet demand.
“Some buyers only want new homes, but others want to compare both new and resale homes,” Oliver says. “They have the perception that they can get a better deal on a resale, but when they see what’s available, they sometimes decide it’s better to buy new even if it costs a little more upfront. The out-of-pocket expenses to replace appliances, floors and other items mean the cost is about the same.”
Dave Jones, a real estate agent at Long and Foster in Ashburn, says that most new homes come with a one-year warranty on appliances and a 10-year warranty on structural issues, though you can buy a one-year warranty for appliances in an existing home.
“A big advantage of a new home for many people is that you can pick everything yourself, from granite counters to flooring, and you won’t have to paint for years,” he says.
The Lynches saw many existing homes they liked, but they weren’t sure they could live with some of the outdated features of those homes. The cost of replacing flooring or renovating a kitchen didn’t seem worth it when they had the option of getting everything new at once.
“Some buyers have very specific reasons to buy a new home,” says Eric Murtagh, a realty agent at Evers & Co. in Washington. “People who have allergies or have kids with allergies want a super-clean, tighter environment with special filters.”
Murtagh also says some buyers want an elevator, which can be tough to retrofit in a resale. Others need special wiring for a home business or want an oversized garage for larger cars, both of which can be difficult to add to an existing home.
“The scale of rooms in new homes is also bigger, with high ceilings, tall windows and bigger closets,” he says. “You can’t always add those things when remodeling.”
Bruce Gatti, a recent homebuyer in One Loudoun, says he and his wife were interested in downsizing from their large home with its large lot.
“We’re about to be empty nesters, and we wanted a walkable community in Loudoun County,” Gatti says. “We looked at various used and new homes in Loudoun County, but we couldn’t find the package of a community where we could walk to a grocery store, a movie theater until we found One Loudoun.”
The Gatti’s new home is a smaller single-family unit without a yard, but it has a studio over the garage that will be perfect for their college-age son.
Oliver says first-time buyers are attracted to a new home if they can afford it because of their concern that they won’t know how to maintain an older home. She says new homes are also appealing because they typically are designed for today’s more casual lifestyle with fewer formal spaces. New homes are generally more energy efficient than existing homes because of improvements in home construction techniques, windows, appliances, and heating and air-conditioning systems.
Although Oliver says many people relish the idea of being the first to own a home and don’t like the idea of living in a “used” home, others buy new by default when they cannot find an existing home that meets their needs or when they discover that they can buy a new home for only a little bit more money than an older home.
The lack of inventory means that builders are less inclined to offer big incentives to buyers, but most still offer some cash for closing costs or optional features as an enticement for buyers to work with the builder’s preferred mortgage company and title company.
Buyers who expect to sell in 10 years or so may or may not find that buying new today will yield a higher resale value in the future than buying an existing home.
“If you’re selling in 2023, it could be an advantage that you’re selling a 10-year-old home rather than a 20-year-old home, but it all depends on the location, how well you’ve maintained your home and other factors,” Oliver says.
Murtagh says long-term value is heavily influenced by a homeowner’s maintenance habits, particularly with a newer home.
“If a recently built home hasn’t been maintained, then it won’t stack up as well against other resale properties,” he says.
“You have more flexibility with an older home because the buyers may be considering tearing it down, remodeling or expanding it and won’t be as critical of the condition.”
Jones says it could be tough to sell your home before a development is complete.
“You may not want to buy in a community if you intend to move before the builder is finished,” he says. “It can be difficult to compete as a resale with new homes in the same development.”
Jones says most builders are now selling homes that won’t be ready until July or August and even into 2014.
“Some buyers, especially if they’ve missed out on multiple offers on existing homes, are willing to wait to move, but relocating buyers usually need to move immediately,” he says.
The Lynches have moved into a rented townhouse while they wait for their new home to be finished.
In addition to the inconvenience of waiting, there may be a financial cost.
“You typically cannot lock in your mortgage rate until you get closer to the closing, so new-home buyers may end up paying a higher interest rate if they have to wait until later this year or next year before they can lock in their financing,” Oliver says. “This means there’s a little bit of uncertainty about your housing expenses.”
The negotiating process, particularly when it comes to discussing lot premiums and optional features, also can be a negative factor for some buyers.
Charlee and Justin Irish, prospective buyers in the Haymarket area, backed away from purchasing a new home in Dominion Valley because they were unhappy with the additional cost of building the model they wanted on a particular lot. They had looked at existing homes and new homes and decided they wanted to buy new, but now they are back to looking at both types of houses again.
Charlee Irish says it’s “a little scary” to give a builder a large deposit without knowing exactly what the monthly payments would be when the home is complete.
Kevin and Helen Pullen, homebuyers at Brambleton in Ashburn, found that some of the new homes they were interested in buying would not be ready until next March. They chose an existing townhouse because they didn’t want to wait to move or risk paying higher mortgage rates.
Other drawbacks that were surprising to Denis Lynch were the added cost of items he thought might be included and the daunting task of choosing everything.
“We can do anything we want, but it’s also overwhelming to have that flexibility,” he says. “On top of that, while the model homes look amazing, we realized that we had to pay extra for crown moldings and lighting. Even the door to the study was an optional feature.”
Murtagh says the biggest reason that many people choose a resale instead of a new home, particularly in the neighborhoods in Northwest Washington and Bethesda, where he sells, is that new homes are significantly more expensive.
“In some situations, a new home can cost 50 to 100 percent more than a resale,” he says. “That can be risky from a short-term standpoint, but in the long-term, if you’re building a new home in an established neighborhood where other people are upgrading their homes, then time will take care of any concerns about making a big investment.”
In other neighborhoods, existing homes are usually just a little less expensive than new homes, Jones says.
Purchasing an existing home can also save buyers money on items such as custom blinds, ceiling fans and other amenities already in place.
Murtagh says some people prefer a resale simply because they can feel more relaxed about the home’s condition.
“The imperfections are already there in a resale, so you may not need to fix every little thing,” he says. “Also, older homes can offer architecturally appealing details and craftsmanship that you don’t always find in a new home.”
Besides having a pleasant patina of age, existing homes have the advantage of being located in established communities.
“New communities are a work in progress without mature trees or without the infrastructure in place such as parks, sidewalks or retail centers,” Oliver says. “Sometimes it’s hard to visualize how the neighborhood will look, plus you don’t really know when or if all the planned amenities will be in place.”
As Oliver says, if you want immediate gratification, a new home may not be for you, but if you plan to stay in your home for years, the wait may be worth it.
Michele Lerner is a freelance writer.