Buy or Build A New Home – Market Trends Update

Posted on May 8, 2014

CA new Trulia Survey suggest that 41% of Americans would prefer to buy or build a new home than purchase an existing home.  Of those that would prefer a new home, just under half would be willing to pay more for the new home.  The challenge is it still costs more to build than buy an existing home in our current market.  Wise buyers are reaching out to better understand these dynamics.

The first step is to educate yourself on the differences between buying verses building.  In a growth real estate market, the differences between buying and building may be slight while in a declining or even in a stable real estate market, the cost to build will likely be more than the cost to buy a comparable home.  This is not to suggest you should buy rather than build.  Just understand you will likely have a larger investment requirement should you decide to build.   The good news is with a design/build approach…..you will get exactly what you want because it is custom designed specifically to your design requirements.  It is also important to understand that all Real Estate markets are local and the cost differences between buying and building will vary.  Take the north Georgia market for example……Cherokee & Forsyth Counties (located just north of Atlanta) are booming.  As a result, the cost differential between buying and building has narrowed to about 15% to 20%.  In other words, it cost about 15% more to build than buy.  Just two years ago this cost differential was 30% to 35% in this same market.  Travel north to Pickens, Gilmer or Fannin counties and the differential is also down form 2 years ago, but to a lesser degree.  It cost about 25% to 30% more to build in these counties (down from 35% to 40% just two years ago.  The bottom line is it is important to understand your market and the availability of comparable properties.  As the inventory is depleted, the cost differential between buying and building will narrow.

The second step is to find a competent Realtor and Builder that can provide you with the information you need to make an informed decision.  In a perfect world, if you can find a person or company that offers both real estate services and design/build services all under one roof, you are more likely to receive an unbiased view of the dynamics of buying versus building.  Either way, do your homework and get the facts before diving in and deciding which is best for you.

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Market Trends

The current market of new home buyers typically fall into one of three categories.

Price Driven Buyer - The first and largest category are those buyers that are taking advantage of low cost and low interest rates.  The largest segment of these buyers are those purchasing homes for under $250,000.  The inventory of these low cost, high value homes is abundant and thus the large number of folks rushing to buy in this category.  This dynamic has created a double edged sword when it comes to financing however.  With lenders focused on the volume of loan applications for low dollar loans, a paradox has emerged with buyers that want more and need to borrow more money.  Many lenders are even considering a loan in excess of $300,000 to be a high risk.  With that said, there are alternative solutions and getting the right loan for you is always easier when you have an advocate on your side.

Stuck In The Middle Buyer - Many buyers want more house than what is available for $250,000 but less than say $500,000.  These buyers usually know what they want, but may have no idea what it will cost.  They also often misinterpret the down real estate market with what it will cost to build.  The greatest challenge these buyers have is understanding the out of pocket requirements to build their dream home.  Let’s use the buy vs. build examples stated above and run some real numbers to bring this into perspective.  Let’s say you have a budget of $500,000 to build your new home in a market where comparable homes are being sold for 30% less (or $350,000 in this example).  If your planning on borrowing money to build your home, you need to understand the dynamics this creates.  A lender is going to lend you up to 80% of the “Appraised Value” NOT the actual cost to build.  So in this example, a lender would loan you up to $280,000 (80% of the Appraised Value of $350,000).  That means you will be $220,000 out of pocket to build a $500,000 home.  That’s almost 45% of the cost of the home.  If it is any consolation, this is down from 50% just a year ago……So the market is improving, just slowly.  The bottom line is buyers are having to put more equity into their new home when they decide to build vs. buy an existing home.   Putting down 40% to 45% is common in our current market.  This has caused many buyers of mid priced homes to wait or reconsider buying an existing home rather than building.  Because of these dynamics, many of the mid priced home buyers that still want to build are cash buyers or are converted to an existing home buyer.

I Know What I Want Buyer – These buyers often have realistic budgets.  They know what they want and they are willing to pay to get it.  Most of these buyers are prepared to spend somewhere between $500,000 and let’s say $1.5M.  These buyers have been paying attention, saving for years and are ready to design and build their dream home.  These homes are often intended to be their last home and therefore, it has to be exactly what they want.  These buyers are usually willing to adjust their budget to get what they want as long as they are getting value for their investment.  These buyers are frequently demanding and expect a higher level of service.

Team Sepia

So What Is A Buyer To Do?

The first thing you need to do is recognize what kind of buyer you are.  If you are a price driven buyer and your budget is under $250,000, you will be best served buying an existing home.  If you are a mid level buyer with a budget of $250,000 to $500,000, you have a choice of buying or building.  Just understand if you decide to build, you are going to have to put 40% to 45% down on the cost of your new home.  If you have been saving for years and planning to build your last home with a budget of somewhere between $500,000 and $1.5M, you have probably decided to build your home exactly the way you want.  You are still going to have to put down 40% to 45% of the cost of the home, but you were probably planning to do that anyway.  Many of these high end buyers  know what a Jumbo Loan is and understand the interest rates are going to be higher for funds borrowed over $417,000.  As a result, we are seeing many of these buyers borrowing $417,000 and paying cash for the difference to avoid the higher interest rates.  Most of these buyers are budgeting $745,000 or more for their new home.  Using the examples described above, a build budget of $745,000 less 30% (or $521,500) to anticipate a worse case scenario for the appraised value, less 20% (for a traditional 80/20 loan) brings you to a loan of about $417,000 and an out of pocket investment of $328,000.

Summary – If you are planning to find a home already built, the next step is finding a competent Realtor to walk you through the process of finding your dream home and helping you negotiate a fair and equitable price for your new home.  If you are planning to design and build your new home, the next step is to find a competent Architectural Designer or Architect and a great builder.  If you are still undecided if you want to buy or build, you need to find a company that does all of the above.  Unfortunately, there are not many companies out there that offer an unbiased set of services that include real estate, architectural design and general contracting all under one roof.  There is one company that offers all these services all under one roof.  This company is Modern Rustic Homes.  They are uniquely equipped to walk you through the buy versus build options as well as connect you with the right lender that best meets your specific loan requirements.  They even have a  “New Home Concierge” who is responsible for helping you through the process.

To learn more, here are a few links that may be helpful:

Joe Folsom, Modern Rustic Homes New Home Concierge 

Water Music, Look out here we come….

Posted on December 6, 2013
Bonus RoomWhen ever you build, the build site will provide opportunities you may not have expected. Sometimes good, sometimes not so good.  We have been fortunate.  Once the site was fully excavated, what was to have been a “crawlspace” below the Lodge Room is now “bonus space”.  So what do you do to take advantage of this new found frontier?  I suggested a line dancing studio, or perhaps a space to display a lifetime collection of toy trains, even a media room to seat 60 of your favorite friends.  What ever it will become it will have good daylight, a fireplace and elbow room.  John the homeowner now has an expansive “man cave”.  Much deserved and a pleasant reward for his many years of hard work.  (In a later post I will tell you about Gina’s “fem lounge” to maintain fair and equitable allocation of space.)
The framing is done, the interior spaces are beginning to show definition so John’s and Gina’s minds are in over drive thinking about the many decisions they will need to make.

Modern Rustic Homes Workshop & Model Tour (Buy or Build?)

Posted on October 23, 2013

Please join us for a “Buy or Build Workshop & Model Tour”:

When: Saturday, Nov. 2nd. at 10:00AM till 1:00PM. (Eastern Time)

Where:  The Modern Rustic Homes Design & Model Center, Ellijay, GA  30540

To learn more about the event and to register, please click at this link:  More Info

Directions to the Design & Model Center may be found at this link: Directions To MRH

Outdoor living was a “must have” for this family.  After moving from the tropics of Florida to the cool breezes of North Georgia, enjoying the outdoors was a welcomed change.  Here you see the Living Porch fireplace with comfortable chairs.  A perfect spot to enjoy an afternoon cocktail.

Chestnut Lodge

Creating A Lifestyle We Call "Modern Rustic Living"

Smith_LivingVerticle

Visit the Modern Rustic Homes Web Site.

Meet the Modern Rustic Homes Team

Buy or Build Workshop & Model Tour

Posted on September 26, 2013

Please join us for a “Buy or Build Workshop & Model Tour”:

When: Saturday, Feb 1st at 10:00 AM till 1:00 PM. (Eastern Time)

Where:  The Modern Rustic Homes Design & Model Center, 512 Hwy 382 West, Ellijay, GA  30540

To learn more about the event and to register, please click at this link:  More Info & to Register

Directions to the Design & Model Center may be found at this link: Directions To MRH

Outdoor living was a “must have” for this family.  After moving from the tropics of Florida to the cool breezes of North Georgia, enjoying the outdoors was a welcomed change.  Here you see the Living Porch fireplace with comfortable chairs.  A perfect spot to enjoy an afternoon cocktail.

Chestnut Lodge

 

Visit the Modern Rustic Homes Web Site.

Buy or Build – Financing Options

Posted on September 1, 2013

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Financing Your New Home

In the old days anyone could get a loan to buy or build a home.  However, with tighter regulation on lending practices, the pendulum has swung and we are faced with new challenges when deciding to finance your home.  It is important to first understand the numbers, the ratios and the facts of life we all live in today.  First of all we need to understand a few dynamics that will impact your lending options.  If you are buying an existing home, your options are many.  Most lenders today offer the traditional 80/20 loan where they loan you 80% and you put down 20% of your own money as equity.  Since the home is existing and you are making an offer on the new home, presumably at market value, the 80/20 loan option is a good way to go.  However, if you plan to have your new home designed and built, the rules are different.  First of all, remember back when we discussed the difference in the cost of buying versus building (see “Understanding The Market” in the paragraph above).  Your lender may be willing to loan you 80% of the cost to buy a home, but what will they lend you if your home costs 35% more to build than it cost to buy?  The answer is, they will loan you 80% of appraised value…….And if the appraised value is 35 % less than the cost to build, you will have to pay the difference.  The bottom line is you can expect to put down more than 20% if you plan to have your home built rather than purchasing an existing home.  While there are many factors that impact the out of pocket requirements, we are finding most buyers that build are having to come up with about half the cost out of their own pocket.  This has created some interesting dynamics and market trends.

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Alternative Financing Options

One of the great byproducts of an industrious people is the creation of new opportunity that evolves out of challenge & struggle.  As it pertains to financing, a new trend is emerging for mid to high end home loans.  Instead of the traditional 80/20 loan, buyers with adequate assets are electing to do an “Asset Loan”.  Essentially, the lender holds your “Other Assets” as collateral instead of or in addition to the home you are buying or building.  This changes the dynamics of the asset to loan challenge that exists in a market where it costs more to build than to buy.  There are also different ratio requirements for the asset you collateralize (usually 60/40) and most lenders will not allow a before tax asset (like a 401K or IRA).  Having said that, an Asset Loan can provide greater flexibility for those buyers wanting to borrow more money than traditional lenders are use to in a challenging market.

Team Sepia

So What Is A Buyer To Do?

The best thing you can do when faced with a new challenge is find someone that knows more about the ins and outs than you do to guide you through the process and help you avoid the pitfalls you are likely to encounter.  As it pertains to finding or building a new home, getting it financed and helping you stay sane through the process, you might want to consider calling the professionals at Modern Rustic Homes.  They have been through this many times and are uniquely equipped to walk you through the buy versus build options as well as connect you with the right lender that best meets your specific loan requirements.  They even have a  “New Home Concierge” who is responsible for helping through the process.

To learn more, here are a few links that may be helpful:

Joe Folsom,Modern Rustic Homes New Home Concierge 

Buy or Build – I Want To Build

Posted on August 31, 2013

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Design/Build Process

If you decide to have your home designed and built, it is important to do your homework.  First, make a list of the features important to you and then go back to your list and mark those features that you are NOT willing to compromise.  These would be the items you MUST HAVE in your new home.  The other items on the list, while important may be items you are willing to compromise as long as you get most of what you want.  The second homework item is to create a scrapbook of photos that represent the look and feel you want or that point out architectural features that are important to you.  You can create your scrapbook with a simple three ring binder and photos cut from magazines or you may be more comfortable creating your scrapbook electronically.  If you are more incline to want to do this online, may we suggest this site which has thousands (if not hundreds of thousands) of architectural accents you can save into an “Ideabook” you can share with your Architectural Designer and/or Builder.  Here is the link:  Modern Rustic Homes on Houzz.com.

Team Sepia

So What Is A Buyer To Do?

The best thing you can do when faced with a new challenge is find someone that knows more about the ins and outs than you do to guide you through the process and help you avoid the pitfalls you are likely to encounter.  As it pertains to finding or building a new home, getting it financed and helping you stay sane through the process, you might want to consider calling the professionals at Modern Rustic Homes.  They have been through this many times and are uniquely equipped to walk you through the buy versus build options as well as connect you with the right lender that best meets your specific loan requirements.  They even have a  “New Home Concierge” who is responsible for helping through the process.

To learn more, here are a few links that may be helpful:

Joe Folsom,Modern Rustic Homes New Home Concierge 

Buy or Build – How Much Do You Want To Spend?

Posted on August 30, 2013

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How Much Do You Want To Spend?

Budget plays a major role in deciding if buying or building is best for you.  Even the most modest custom designed home can cost $300,000 or more so if you budget is less than that, you might want to consider looking at available homes instead of building.  On the other hand, if you are planning to spend more than $300,000, you might want to sit down with an Architectural Designer and discuss how they can design and build a custom home for you.  While the Design/Build process can be complex, it can also be very exciting when you find the right team to design & build your new home.   When selecting an Architectural Designer, make sure you look at their portfolio of homes they previously built.  The folks at Modern Rustic Homes do a good job of both Architectural Design, General Contracting and Real Estate all under one roof.

Team Sepia

So What Is A Buyer To Do?

The best thing you can do when faced with a new challenge is find someone that knows more about the ins and outs than you do to guide you through the process and help you avoid the pitfalls you are likely to encounter.  As it pertains to finding or building a new home, getting it financed and helping you stay sane through the process, you might want to consider calling the professionals at Modern Rustic Homes.  They have been through this many times and are uniquely equipped to walk you through the buy versus build options as well as connect you with the right lender that best meets your specific loan requirements.  They even have a  “New Home Concierge” who is responsible for helping through the process.

To learn more, here are a few links that may be helpful:

Joe Folsom,Modern Rustic Homes New Home Concierge 

Buy or Build – Understanding The Market

Posted on August 29, 2013

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Understanding The Market

It is important to understand that home values fluxuate.  As is the case with most markets, the real estate market is determined by supply and demand.  A healthy market will result in a 2.5% to 3% appreciation (or growth in value) each year.  However there are other factors that can impact this growth.  In the late 1990′s for example, the Federal Government decided everyone should be entitled to a new home and began implementing programs that allowed more buyers to qualify for a loan.  They did this by insuring lenders against loss (even when lending money to marginal buyers).  As a result, buyers that could not otherwise qualify for a loan….now could under the new federal programs.  The housing market boomed with an annual growth rate of 10% to 20%.  With real estate appreciating at this unprecedented rate, everyone was getting into the real estate market.

With a shortage of existing homes, new construction began to boom.  Because of the home shortage, the cost to build a home was actually less than the cost to buy an existing home.   Home prices continued to rise (both buying and building) until the Real Estate market hit is’t peak between 2006 and 2007.  This unnatural growth rate could no longer be sustained.  From late 2007 to 2011 we saw a correction in the market with falling home prices.  As a result, the market now had more homes than there were buyers which reversed the buy vs. build dynamic.  As house prices plummeted, those buyers that were buying could purchase an existing home much less than they could build a home.  In the Southeast US, for example, the cost differential between buying and building was about 30% to 40%.  In other words, it cost more to build a home than it did to purchase a comparable existing home.  Although we continue to experience a normal growth rate well into 2013, the existing inventory of homes has kept this differential at close to 35%.  So…… if you are on a tight budget, you may want to consider buying rather than building before the current inventory of homes is depleted.    To see a list of distressed properties that need to sell fast, visit this link:  Distressed Properties

Team Sepia

So What Is A Buyer To Do?

The best thing you can do when faced with a new challenge is find someone that knows more about the ins and outs than you do to guide you through the process and help you avoid the pitfalls you are likely to encounter.  As it pertains to finding or building a new home, getting it financed and helping you stay sane through the process, you might want to consider calling the professionals at Modern Rustic Homes.  They have been through this many times and are uniquely equipped to walk you through the buy versus build options as well as connect you with the right lender that best meets your specific loan requirements.  They even have a  “New Home Concierge” who is responsible for helping through the process.

To learn more, here are a few links that may be helpful:

Joe Folsom,Modern Rustic Homes New Home Concierge 

Buy or Build – What is Most Important To You?

Posted on August 28, 2013

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What Kind of Buyer Are You?

Price DrivenThese are buyers that are driven primarily by price.  It is all about the numbers.  These buyers are willing to make compromises in the size or design of their new home as long as they stay on budget.  As a result, a buyer driven by price in a normal real estate market is more likely to consider the purchase of an existing home than to accept the additional cost that would result in designing and building a new home.

Design Driven -These buyers are more interested in making sure they get the home design they want.  While budget may still be a factor, they are willing to pay a little more to get exactly what they want.  For this reason, a “Design” driven buyer is more likely to want to build their new home than to purchase an existing home.  One possible exception to this dynamic can be impacted when there is an inventory of existing homes that have not been completely constructed (as would be the case with a home when the Builder or Owner of the home runs out of money and has to abandon the project).  This dynamic can create a unique opportunity for a new home buyer.  By finding a incomplete home that can be finished the way the new owner want, a unique value proposition is created.  Modern Rustic Homes just finished one of these if you can to take a look:  Crazy Fox Lodge

Timeline DrivenA buyer driven by a short timeline will want to consider purchasing rather than building with one exception.  With a “System Built” solution for your new home, both price and a short build time can be successfully addressed.  In fact, new technology in the building industry has brought “System Built homes” into the forefront.  System Built home are more cost efficient, faster to build and have more consistent attention to quality control.  You can expect to save about 10% on a System Built home and get it built in under 90 days (verses 6 months to a year with conventional construction).

Team Sepia

So What Is A Buyer To Do?

The best thing you can do when faced with a new challenge is find someone that knows more about the ins and outs than you do to guide you through the process and help you avoid the pitfalls you are likely to encounter.  As it pertains to finding or building a new home, getting it financed and helping you stay sane through the process, you might want to consider calling the professionals at Modern Rustic Homes.  They have been through this many times and are uniquely equipped to walk you through the buy versus build options as well as connect you with the right lender that best meets your specific loan requirements.  They even have a  “New Home Concierge” who is responsible for helping through the process.

To learn more, here are a few links that may be helpful:

Joe Folsom,Modern Rustic Homes New Home Concierge 

Buy or Build – Market Trends

Posted on August 27, 2013

CSo you have decided a new home is in your future and you want to know if you should buy an existing home or design and build a new home.  The answer to that question depends on the prevailing Real Estate Market, your objectives, how much you want to spend, how much money you have to put down and the kind of financing you need.  In this series “Buy or Build”, we will explore the dynamics of buying versus building.  To get started, let’s talk about Market Trends. 

The first step is to educate yourself on the dynamics of buying versus building.  In a growth real estate market, the differences between buying and building may be slight.  While in a declining or even in a stable real estate market, the cost to build will likely be more than the cost to buy a comparable home.  This is not to suggest you should buy rather than build.  Just understand you will likely have a larger investment requirement should you decide to build.   The good news is with a design/build approach…..you will get exactly what you want because it is custom designed specifically to your design requirements.

The second step is to find a competent Realtor and Builder that can provide you with the information you need to make an informed decision.  In a perfect world, if you can find a person or company that offers both real estate services and design/build services all under one roof, you are more likely to receive an unbiased view of the dynamics of buying versus building.  Either way, do your homework and get the facts before diving in and deciding which is best for you.

8

Market Trends

The current market of new home buyers typically fall into one of three categories.  The first and largest category are those buyers that are taking advantage of low cost and low interest rates.  The largest segment of these buyers are those purchasing homes for under $150,000.  The inventory of these low cost, high value homes is abundant and thus the large number of folks rushing to buy in this category.  This dynamic has created a double edged sword when it comes to financing however.  With lenders focused on the volume of loan applications for low dollar loans, a paradox has emerged with buyers that want more and need to borrow more money.  Many lenders are even considering a loan in excess of $300,000 to be a high risk.  With that said, there are alternative solutions and getting the right loan for you is always easier when you have an advocate on your side.

Team Sepia

So What Is A Buyer To Do?

The best thing you can do when faced with a new challenge is find someone that knows more about the ins and outs than you do to guide you through the process and help you avoid the pitfalls you are likely to encounter.  As it pertains to finding or building a new home, getting it financed and helping you stay sane through the process, you might want to consider calling the professionals at Modern Rustic Homes.  They have been through this many times and are uniquely equipped to walk you through the buy versus build options as well as connect you with the right lender that best meets your specific loan requirements.  They even have a  “New Home Concierge” who is responsible for helping through the process.

To learn more, here are a few links that may be helpful:

Joe Folsom,Modern Rustic Homes New Home Concierge