New Construction Home or Resale?

Are you considering a new construction? Wondering what are the pros and cons vs. resale? Well then you're in the right place! Let's explore:

Pro: It's a new home! Everything is new!

Con: Probably the largest con is the contract used. For resale homes, licensed real estate agents are required to use promulgated forms from the Texas Real Estate Commission (TREC). These contracts are written by a committee of brokers and lawyers to ensure all i's are dotted and t's are crossed, and to ensure a "fair" transaction. Although, it is very buyer-friendly, and there are a couple dozen ways you as the buyer can "exit" this contract and recover your earnest money (but not your option fee or investments in inspections/repair estimates, if any). New construction contracts are typically written by a lawyer who represents the builder. They are typically unidirectional obligations. That is to say, the builder can terminate at any time with no repercussions but you as the buyer will be asked to deliver a deposit and if you decide to terminate, you will have to forfeit that deposit. If the builder delays your completion for 12 months? Too bad, so sad, better keep waiting or lose your deposit! So you're signing a contract that just gives you a non-guaranteed place in line to purchase the property.

Should this concern you? Most likely not. Builders do still need to maintain some sort of reputation (especially amongst real estate agents) and they don't want to delay the construction anymore than you do, because that actually costs them money.

However I have personally seen this cause conflicts occasionally. I have had a builder refuse to allow a third-party inspection of the home prior to closing. Also during COVID when construction material costs were going through the roof and home prices were too, we saw a handful of builders either increase the price or outright just cancel the contract without so much as a conversation. This is unlikely in the current market.

More commonly we see builders refuse repairs and disputes with 3rd-party inspectors over deficiencies.

Pro: Modern features and amenities. The latest appliances, wiring for Fiber internet, ethernet jacks in all rooms and associated networking cabinet in the master bedroom closet, pre-installed wiring for electric vehicles, neighborhood playgrounds, splash pads and pools.

Con: Location. Most central neighborhoods are already fully-developed with no room for expansion, so if you're looking for a new home, it is likely to be located in the city suburbs.

Pro: You get to oversee the construction of the home. When purchasing a resale home, you have no idea if the foundation was poured properly, the electrical systems were installed properly, the plumbing was run properly, etc. These can lead to costly failures due to builder mistakes, even after your new construction warranty has expired, but in new construction you get an opportunity to nip them in the bud before they become major problems. Before the foundation is poured, before the drywall is hung, obscuring wiring and plumbing runs, before you take possession, and again before your 1-year comprehensive warranty expires.

Pro/Con?: HOA. Rarely do I come across anyone that actually wants an HOA, and communities without them are not common regardless, but every new construction community is virtually guaranteed to have one.

Con: You may be living in a construction area for a while. There can be lots of heavy machinery running, nail guns, hammers, air compressors, etc., possibly for years. There are often nails in the road that can cause tire failures on your vehicle. Be sure and inquire with your builder about when the neighborhood will be completed and be prepared to deal with these things until then, or later!

Pro: Warranty! Most builders offer a 1-2-6 home warranty for new construction. The 1-year warranty covers workmanship and materials for most components of the home for the first year after construction. This includes things like siding and stucco, doors and trim, drywall and paint and other general workmanship issues. The 2-year warranty extends coverage for two years on the home's major systems, including plumbing systems, electrical systems and heating, ventilation and air conditioning (HVAC) systems. The 6-year warranty provides extended coverage for major structural defects for up to 6 years. It typically covers issues related to load-bearing elements of the home that could affect its safety or habitability, such as foundation, load-bearing walls, and roof framing systems. Previously the structural warranty was 10 years, but reduced to 6 with new legislation in 2024. The exact details of warranty coverage should be verified with your builder.

Con: Typically slightly higher cost compared to a lightly-used resale.

Pro: Customization. Builders often offer a selection of available lots (some may include a "lot premium" for special lots that, for example, back up to a green space or face a waterfront), floor plans, and finish-outs (tile, flooring, paint, etc.). Some offer higher levels of customization than others. Some exclusively offer "spec homes" (they don't list them for sale until after the foundation has been poured and all selections have been made). Typically you can get a better deal on an inventory home that's already built and sitting around waiting for someone to buy it, as the builder is losing money on it every day, but these are likely to be less desirable than other homes in the neighborhood.

Con: Taxes. These neighborhoods usually have a Municipal Utility District (MUD) and other taxing entities that lead to overall higher tax rates. Be sure and compare this with the purchase price.

Pro: Energy efficiency. Most modern homes are built with efficiency in mind, meaning added insulation and modern HVAC systems.

Con: Potentially long wait times and (often) delayed completion. Some new homes you can walk in and buy it and be moved in within a month. Other homes can take 18 months or longer, depending on size, customization, and construction management. There's also a solid chance completion will be pushed back one or more times, which can be very problematic if you're looking to sell your current home or time it with your rental property's lease expiration.

Pro: Modern safety features. Fire suppression systems, gas bonding, smart home equipment preinstalled, pre-wiring for security systems, modern electrical equipment.

Con: Resale value. Normally you want to stay in the home for 5+ years but we all know, life happens, and if you do end up needing to sell shortly after you buy, you could end up even more upside-down than with a resale, since you may be competing with other new construction homes in the immediate vicinity. If you add any customization options, you will likely not recover that value, as they are customized to your personal tastes and don't necessarily increase market value.