There is a common misnomer that new homes are more expensive than homes previously-owned. While this may be accurate to some extent, when you take a closer look and indirect expenses, it becomes clearer. Here are three typical scenarios:
Pre-Sale
For a brand new project offered to the general public for the first time, the Developer generally accounts for market demand, the economy, pre-sale requirements from the Developers lender, competition as well as resale activity and then they price position their homes accordingly. As a generalization, a brand new project tends to be priced approximately 20% to 30% higher than resale homes. This may vary significantly depending how quickly the Developer wishes to sell. The Developer takes the project to market and starts selling. As they meet sales targets, the Developer will tend to increase prices along the way and maximize near the end of the project. As such, if you were in a position to purchase a new home from a developer it would be prudent to purchase early to take advantage of this price increase.
New Inventory
This is a brand new home that either didn’t sell during the pre-sale stage or perhaps was saved by the Developer and has now released it as an inventory home. Generally speaking, these homes have had all of the price increases attached to the home which would suggest that you would be purchasing a higher-priced home as an inventory compared to a pre-sale home. However, if the Developer holds on to this for too long, they will generally start discounting the home because as an inventory home -- it costs the Developer to keep it. The key to purchasing an inventory home is understanding the sales history.
Older Home/Resale
A resale home is generally price-driven by three factors: comparable sales in the immediate area, comparable active listing in the immediate area, and the home owner. The most telling determination of valuation is comparative sales for similar homes in the immediate area. However, there is always home owner pride involved which tends to make some listings priced higher than they should be. Price tends to be correlated to sales. The lower the price is, the faster it will sell and visa-versa. As such, seller motivation is a significant consideration.
