Typically, a new home will cost a bit more than a used home. The reason? The new home is built with newer technology, newer materials which cost slightly more than was previously paid for the materials in the used home. When evaluating which is the better value, consider the “Hidden Cost of Ownership” test.
Here's one scenario. After shopping new and used homes, a Realtor's client was excited about the prospect of purchasing a new home that would have been built to their exact specifications, with exactly the selections, colors and features that they required. But there was a used house that they had found in a troubled situation that was significantly less expensive. However, it would require numerous updates and modifications.
Their Realtor helped them make a list of items that they would need to modify, change or replace.
Granite Countertops $ 7,000
New Kitchen Sink 700
New Cabinets 9,000
New Carpet 5,500
New Hardwood Flooring 11,000
New Ceramic Tile 2,000
New Shower Surroundings 1500
New Faucets 1,200
Total Repairs: $ 37,900
Their Realtor totaled the cost of the modifications. She then calculated the lower monthly payment of the lower priced used home. The lower priced home yielded a $ 350 lower monthly payment each month. Then she asked a surprising question. “How long do you see yourselves in this home?” Her clients were not quite sure how to answer. She then proceeded to advise them by pointing out that in our market, the average stay in a home is actually between 5 and 7 years, regardless of nearly every homeowner indicating at the time of purchase that they will be in the home for a much longer time frame. She pointed out the reality is that jobs change, involves change, there is the birth of additional children, adult children leaving the nest, physical limitations and a myriad of other factors that come into play shortening the time that most people actually occupy the home.
She then took the $ 37,900 and divided it by 6 years of occupancy (splitting the difference between 5 and 7 years). The “hidden monthly cost of ownership” was $ 526 ($ 37,900 divided by 6 years and divided by 12 months). Yet the lower cost of the home had saved only $ 350 per month. What that means to her client is that they were actually planned pay an additional $ 176 per month MORE for the used home. The Realtor went on to point out that the $ 37,900 they would be paying to improve the used home to their requirements would be paid out of their savings and earnings, depleting their assets rather than having the luxury of financing those same improvements with the new home.
Further, the Realtor pointed out that even after remodeling the lower priced used home, and even after having depleted their assets by having to pay cash for the improvements, that at the end of the day, the home would still be a “dated” floor plan rather than the more current designs being offered by the builder.
This is just one case of “Hidden Cost of Ownership”. Another example may be a more remote home location adding to the driving distance requiring consideration of the cost of vehicle replacement, repairs, fuel and maintenance and adding that adjustment to any savings yielded by purchasing a home in a more remote and less desirable location. Determining the “True Cost” of ownership is one factor in determining “Value”.