Sometimes, buying an existing home just won’t work. You may be a homebuyer who’s tired of competing for highly desired homes in the neighborhood you want, or maybe you just don't like the idea of living in an older house.
Either way, you have options if you'd prefer to live in a brand-new house.
Whether you’re planning to buy a teardown and build a home on the perfect plot of land or buy into a new housing development, prepare for a process that differs from purchasing an existing property.
Here’s your guide to getting from flat land to the home of your dreams, and what it’ll cost you to get there.
Buying Land to Build a House
If you’re starting from scratch, the first thing you need to do is buy land, which can be a simple process – or prove fraught with problems if you fail to do your due diligence. Be sure to follow these steps before you close on a plot of land.
Check the zoning and condition of the property. Few things will be more disappointing than buying the perfect plot of land for your dream home, only to find out that it’s not OK to live on, either due to zoning issues or soil contaminants that make living there a hazard.
In a highly populated area like Los Angeles, most buildable land has already been developed, and the few patches left are hillsides, says Steve Pallrand, owner of design-build and renovation company Home Front Build. “I see people here in Los Angeles who [say], 'I love this hillside, this is just so charming.’ They buy it, and then a few years later it goes back on the market because they realize they can’t build on it,” he says.
Check the zoning, grade and soil quality, as well as other details specific to the area that may keep a house from being constructed on the land. Even if there’s an existing home on the property, it’s important to check, as zoning or soil quality could have changed since that structure was built. A real estate agent familiar with buying land can help you with the due diligence process.
See if utilities are hooked up. Undeveloped, vacant land or a dated house may need additional work to enable it to reach utilities, including electric, gas and plumbing. “What are all the burdens that are going to be on you? Maybe there’s no sewer,” Pallrand says.
If utilities are not available or old plumbing needs updating, factor the additional work into your budget. This can be pricey: A sewer hookup, for example, may even require construction on the street in front of the property, which requires additional permits and more money.
Demolishing an existing structure. If there’s a house or other structure on the property that must be demolished, you have a couple of options. A mechanical demolition with excavators and heavy machinery will take a house down the fastest but cost more, while a smaller-scale demolition by hand will be cheaper but require more time.
Before you demolish anything, it’s best to select a team of professionals to build your house. In many cases, a design-build firm may want to retain a portion of the structure and can help oversee the demolition.
You may need to hire a separate contractor who specializes in demolition as well. A contractor can manage details to ensure utilities are shut off for demolition, you've secured the necessary permits and you've notified the local fire department.
How much does it cost to buy land to build a house? The cost of land varies widely based on the size of the plot, where you live and if there’s already a house there. When a house exists on the property, keep in mind that you typically won’t be able to pay the land value only. The existing structure, regardless of its condition, is considered an improvement on the land and is factored into the overall value. That said, a seller desperate to close on a deal will likely consider lower offers knowing the property is a teardown.
At the end of the day, demolition of any kind is a big project that can come with a hefty price tag. The average house demolition costs $18,000, according to HomeAdvisor, but it depends on the size and location of the property as well as the experience level of the contractor.
Building a Custom-Design House
With your vacant plot of land, you’re free to build your own house. That is, as long as you’ve received the proper approvals from your local municipality, including permits to build, approval of the size and placement of the structure and confirmation that the home plans meet local zoning and code ordinances.
Here are the steps to build a custom house:
Hire your team of professionals. You'll want to assemble your team even before you’ve purchased the land to ensure the house you want is within your overall budget and is a fit for the property you’ve purchased.
Your team will likely include an architect to design the house, a builder and subcontractors to complete each step of the building process.
Rather than seek out each of these pros individually, you could hire a design-build firm, which employs architects and construction specialists like electricians and carpenters, reducing the need to hire more people and helping keep the process efficient and your budget on track.
As with hiring any professional, research a few companies before moving forward with one. Ask friends or neighbors who have had positive experiences for referrals, and research companies who operate locally that showcase examples of work online that might be to your taste. You can even approach multiple firms to bid on your project.
Pallrand warns that you might not see a realistic total cost in some bids. “One of the three people who’s bidding either doesn’t know what they’re doing or is disingenuous,” he says.
If you go with the firm that provided a significantly lower bid, you may get change orders during the process, which are additions or deletions from the original project plan, that increase the total cost. With any firm you choose, make sure your budget is a part of the discussion as you make design and material decisions with your team.
Don't feel like you're rolling the dice when paying someone to do your home renovations.
Design your home. Now comes the fun part. Selecting an overall style and preferences for rooms and materials is certainly consuming, but keep in mind that the design often has limits to ensure that your home’s basic systems, like electrical and the HVAC, can run properly.
“People don’t really come into the process realistic in general, and that’s mostly budgetary,” Pallrand says. As the design of the house develops, you’ll find that much of the budget you thought would fund a state-of-the-art kitchen or home theater actually goes toward things like lumber, ductwork and plumbing.
You may choose to design your own house, but keep in mind that the structural and code requirements in a blueprint must be approved for construction. According to HomeAdvisor, the cost to hire an architect ranges from $2,035 to $8,270. It might be a good idea to at least consult with an architect about your plans to ensure the structure will be sound. Your local planning board may even require a licensed architect or contractor to sign off on the plans before you move forward.
Get municipal approval. Many cities or counties require permit approval before any new construction starts. Be sure all of your plans follow local code and zoning requirements to get approval.
Then, once construction actually begins, you’ll likely need to have inspectors sign off on different steps to ensure, for example, the foundation was laid properly and the electricity was installed correctly.
The municipal approval and subsequent inspections are often cited as things that can draw out the timeline of a new construction project, explains Ben Caballero, founder and CEO of new home marketing company HomesUSA.com.
“In most municipalities, building inspection departments are pretty good, but it could be one day [or] it could be five days [before an inspection is done],” Caballero says. “That can make a big difference in scheduling.”
Keep your timeline flexible. Those permit hiccups in the timeline or any number of weather events, accidents or labor shortages can draw out the time it takes to complete your home. As a result, don’t go into a home construction project with an expectation that it’ll be done on time.
“If you start a home from scratch from the bare lot, the builder can maybe give you a target month,” Caballero says. Later in the process, estimates of the completion date get more precise.
How much does it cost to build a custom house? According to HomeAdvisor, custom home construction typically costs between $350,000 and $1.5 million. Of course, that wide range is due to the fact that the cost of labor, materials and permitting vary widely not just from state to state, but even from a more urban setting to a suburban or rural area and based on the size of the property.
For custom builds, you can expect to pay $100 to $400 per square foot, according to HomeAdvisor. However, Pallrand notes that the cost per square foot of a single material, like tile flooring, can change based on where the house is located. A tile that costs $15 per square foot may lead to a straightforward estimate, but when you factor in two stories and California earthquake codes needed in that installation, the total cost increases significantly.
Unlike with an existing home purchase, you'll likely pay throughout the process with a custom build, because you first pay for the property, then you may pay for project costs in installments. Also be sure to budget appropriately for a scenario in which you receive change orders, and alter the bottom line as the house is being built.
Buying a New-Construction House
A much simpler way to buy a new home without the hassle of a custom design-build job is to seek a builder who has created a development in your area and purchase a home built to your specifications.
Here’s how you can buy your newly built home from a builder:
Find developers and builders in your area. There are national builders, regional builders and local builders you can research, and they all offer different floor plans, home types and community perks that will factor into your purchase decision.
Check out master-planned communities or neighborhoods where builders appear to have lots for sale, or look online for builders with homes available for purchase. Real estate agents familiar with new construction homes can also be a great resource.
As you search, keep the community in mind. Many developments of new houses aren’t just about the houses – they include common areas for residents as well. “A lot of the new communities focus on common areas [and] parks,” says Adam Davidson, president and CEO of Davidson Homes, a builder based in Nashville, Tennessee. “Many of them will have a clubhouse and a pool and walking trails.”
Don't sign on the dotted line until you research the neighborhood and learn about the builder.
Check out customizing options. By purchasing a home to be built in a community like this, you typically have a few floor plan options and the ability to customize add-ons, paint colors and surface and fixture materials to fit your preferences.
In most cases, you’ll find that the design options are up-to-date with the preferences of the general public. For example, many of Davidson Homes' recent builds feature open floor plans.
Make sure your lender and title company are flexible. A home purchase from a builder in a new community means you won’t close on the house until it’s fully built, but the builder also won’t start construction until you’ve gone under contract.
Caballero notes that lenders and title companies that don’t frequently work with new construction homes may push back against the fact that a completion date can’t be determined right away. As a result, a national or regional builder may have preferred lenders and recommended title companies to help the process go smoothly.
Keep a flexible timeline. Similar to the custom house, the timeline for new construction can hit a few snags. Caballero says closing may be pushed back by a few days, but once the community has been established by the builder, construction should be completed within the estimated month.
“The closer it gets to completion, the more definite the builder can be,” Caballero says.
[Read: Is Your House Too Big for You?]
How much does it cost to purchase a new house? With a new house from a developer or builder, you may be able to save on overall construction costs, but these houses are typically on the higher end. HomeAdvisor reports that a house purchased from a developer or builder can range between $50,000 and more than $1.5 million.
Customization and a desire for luxury, however, can lead you to much higher prices. Toll Brothers, a home builder known for its luxury designs, offers home options in the $300,000 range in parts of the Midwest, Pennsylvania and Maryland, but it also offers houses starting at more than $3 million in some of its California communities.
Be ready for things to go wrong.
No one loves shelling out money for unexpected expenses, but sometimes that seems like a rite of passage in homeownership. “Most of the time, the unhappy surprises are simply due to people being unaware of the things that can crop up,” says Brad Hunter, chief economist for HomeAdvisor. First-time homebuyers in particular may not know what to expect after closing on a home, and there’s nothing worse than developing buyer’s remorse about one of the largest investments you’ll ever make. Here are eight headaches to prepare for if you’re looking to purchase a house.A suddenly less-than-desirable location
A suddenly less-than-desirable location
Buying a house across the street from a high school didn’t seem like such a bad idea when you saw how nicely renovated it was. But when you don’t have kids and Friday night football games are keeping you up later than you would like, you realize you should have made a pros-and-cons list regarding the location. Don’t let a charming interior override a location you dislike or a lot that will give you flooding problems. “If you don’t like your lot, don’t buy the house, because you cannot change that,” says Kim Wirtz, a Realtor for Century 21 Affiliated in Lockport, Illinois.A high monthly mortgage payment
A high monthly mortgage payment
One of the most crippling headaches to deal with is a monthly mortgage payment you find you can’t quite afford. Lysette Portales, a real estate agent with Century 21 Jim White & Associates in Treasure Island, Florida, says she stresses to clients that they should shop around for a mortgage with multiple lenders and inquire with each about different program options. “A lot of them might be able to do 100 percent [financing],” she says, noting that many homebuyers typically only know about a couple mortgage programs and settle for one without considering what would be most affordable option both now and down the line.Items that are on their last legs
Items that are on their last legs
Whether it's the roof, water heater or furnace, aging home systems will need replacement. And that may end up being sooner than you’d like, especially if you didn’t pay close attention to the age and condition of the roof, plumbing, electric and heating and cooling systems when your inspector pointed them out. HomeAdvisor’s 2015 New Homeowner Survey found that 75 percent of homeowners face an unexpected emergency within a year of purchase. To expect the unexpected, Hunter points to the survey’s recommendation that homeowners plan to spend 1 percent of the home’s purchase price on unplanned repairs. Maintaining at least that much in your emergency fund will help keep you from dipping into other savings from year to year.Old systems
It’s important to pay attention to a home's aging big-ticket items before you even make an offer. “A lot of homebuyers are distracted by how cute a home can be,” Portales says, adding that she makes it her job to point out the age of the roof, air conditioning unit, water heater and more to buyers. Then when it comes time to calculate an offer, you should factor in the cost of those pieces that will need immediate replacement when determining how much you think the home is worth.An air conditioner that's not the same
An air conditioner that's not the same
Wirtz says one of the things in a home that seems to always break or have issues within the first year of its purchase is the air conditioner. But it’s not always because it breaks down – she says it simply might not be as effective as the new homeowner wants it to be. “It may not be cooling like they’re used to,” Wirtz says. You can either learn to deal with a little less cooling, bring in an HVAC pro to inspect and fix any problems or research any DIY fixes that might get it cooling better – like air conditioner cleaning spray.Unseen leaks
Home inspectors aren’t able to see through walls, so the discovery of a pipe leak isn’t uncommon after you’ve moved into the home. But this is one repair you want to make as quickly as possible. “When there’s water that is not stopped, it can create mold – and mold remediation is extremely expensive and extremely difficult,” Hunter says. Mold growth in your home can cause serious health problems, so it’s imperative to address any moisture issues as quickly as possible to avoid it becoming any more dangerous, let alone more expensive.Surprise renovation expenses
Surprise renovation expenses
Fixer-uppers are all the rage these days, as many homebuyers are willing to take on renovation projects in exchange for a slightly lower price tag. But when budgeting for your renovations, leave plenty of room for the discovery of existing problems once your contractor looks behind the walls. The HomeAdvisor survey found 51 percent of homeowners spent more time on home projects than they expected. “Even if you have a fully vetted, well-reviewed contractor … they still might uncover issues that maybe a previous contractor left incomplete,” Hunter says. He recommends leaving around 10 percent extra space in your budget for surprise problems of any kind.Problems that pile up
Problems that pile up
All too often it feels like the problems in a home have a snowballing effect, but you don’t have to go broke tackling them all at once. “Day one, [homeowners] won’t have to tackle all those projects,” Hunter says. “They can use the list of items found by the home inspector as a checklist and prioritize the items on that list and create a budget.” You should immediately address those problems that create a health or safety issue, such as a broken step or leak in your roof that could lead to mold. But replacing an older dishwasher can wait until next year, when you have more room in your home repair budget.Read More
She has appeared in media interviews across the U.S. including National Public Radio, WTOP (Washington, D.C.) and KOH (Reno, Nevada) and various print publications, as well as having served on panels discussing real estate development, city planning policy and homebuilding.
Previously, she served as a researcher of commercial real estate transactions and information, and is currently a member of the National Association of Real Estate Editors. Thorsby studied Political Science at the University of Michigan, where she also served as a news reporter and editor for the student newspaper The Michigan Daily. Follow her on Twitter or write to her at email@example.com.
Devon Thorsby | June 5, 2019
Homeowners should not fret, as long as they're prepared for the possibility of a downturn.