Buying vs Building... some questions

[Alex]

Hi Everyone,

My wife and I have decided to sell our older ranch style house to move up to something newer and bigger since we now have a kiddo with hopefully more to come. But with this we're debating on whether to build or buy, and with that we'd like to jump on whatever decision we make to meet the deadline for the $6500 tax credit if possible.

We've literally been driving around neighborhoods in our area for a few years now seeing what's out there, plus we've both bought and sold houses in the past so we're not green in that part of it. My concerns are more with building vs buying because in our area, Waco, Tx, it seems most houses anymore are built by tract builders, local builders who throw stuff together (pseudo-tract/cookie cutter homes), or the more lavish builders who are way out of our price range. It seems most of the smaller builders who most people suggest didn't make it after the recession and are now out of business.

Our first step is getting our house ready to sell, which we still have some projects to finish, hopefully by end of December with the house going on the market before then.

The first option we're looking at is building with a local tract builder called StyleCraft Builders. We like the neighborhood and have a floor plan we love, and the few people in the neighborhood we've talked to highly recommend them. It's still a tract home which we're worried about, so should this be a concern if we've read nothing bad about them and they are A+ with BBB with no complaints? Also though I'm no expert in the field, I've walked through several of the houses they're building and the framing and structure looks sound.

Another option is going the traditional route and finding a Realtor and buying a house that's already built. My worry though is we'll have to settle with that's available and still pay what we'd pay to have a custom house built through StyleCraft Builders.

And the last option is finding a local builder to build the house and hope they shoot is strait and stick around long enough to honor any warranty work. Going this route probably won't make us eligible for the tax credit since closing has to be done by end of May 2010, but I'm not too worried about that if we go this route.

No matter which route we take our goal is to have our current house on the market by years end and hopefully have it sold by end of January or February. We've already found an apartment in the area we want to move to which does offer short term leasing, and we're looking at storage sheds now.

Has anyone gone down this path??? Are we missing something? Also are there any factors we're over looking or putting too much emphases on?

Thanks for any suggestions or advice... Take care,

Sam Alex

[Robert Neville]

There's nothing particularly wrong with using a production builder, as long as they have a good track record in your area. In fact, you will get the most value for your money using a production builder. The trade is that designs are limited to what the builder permits, and options are usually limited or priced at "market" rates - i.e. they don't relate to what the builder pays the sub.

You might talk to a few realtors and see what the resale value of the builder's homes are. That will give you your biggest clue as to the quality of the construction. You can also hire an independent house inspector to monitor the construction process if you really want to, although they can identify phantom problems just to show you that they are "helping" you.

That's a viable option as well. We recently used a realtor to locate a builder and area for a family member. Even though we thought we knew the county quite well, the realtor found a beautiful small new subdivision we were unaware of and identified a number of new construction incentives that the builder would grant.

Any warranty work beyond minor finish rework is usually handled by the subs/suppliers, so I wouldn't be real concerned about that. I would make sure than my deposit was minimal. If the bulider can't finish the job, at most you are out a grand or so.

If you have a plan (or are using a builder plan), the ground is ready and the builder isn't saturated, you shouldn't have any problem closing in 90-120 days.

The key is to get your current house sold before you commit to building a new house. Accepting a contingent offer on your current house or hoping to have sold by the close of a new house is a recipe for disaster.

[Tony Hwang]

Hi, I have always lived in houses we have custom built to our plan and specs. Learned a lot about house building and no crooked contractor can fool us. Now I often help friends, relatives with their housing needs. If you custom build you'll have unique one no one else has. If you buy spec. house nothing exciting with it because there are many like it. For me, it's either custom build or find a spec. house going up and do some changes per your plan. And foremost important thing is the location of house. Location, location, location, most important. Pick a best lot you can afford.

[Frank]

Good advice and key point is that in a buyers market, the first objective is to sell your old house first. I've seen people with bridge loans or pressured by builders to accept less for the old house than expected.

[trader4]

You haven't even put your house on the market yet and you hope to have it sold by Jan or Feb? There are loads of houses in most of the country that have been on the market for a year and haven't sold.

Second big problem. The federal tax credit you refer to was set to expire this year, but was extended until April 30. Given that, it would seem you'd be very lucky if you can get your house sold and another existing one bought by then, Forget about building and getting the credit. Also, I wouldn't get so focused on the $6500 tax credit that I wind up selling the existing house for $20,000 less to get the deal done.

[Robert Neville]

True - but the rules haven't changed. If you want to sell your home quickly in any market, make sure it presents better than anything else in the local market and price it under what similar houses are _selling_ for. It always amazes me that people base their listing prices (and expectations) based on what other people are *listing* their houses for. As it turns out, right now in many locations, entry level homes are selling quite well compared with more expensive homes.

Absolutely.

The OP has six months. If they hustle, sell their current house quickly and do a few things in parallel (like getting the plan finalized), I think it's still doable. I think he said he was in/near Austin? That's not near the disaster housing markets are on the west coast or in Vegas.

[Alex]

Actually the housing crash hasn't hit our area as it has others. Most houses we've seen go on the market sell in weeks or a month to 6 weeks tops unless there's something wrong with them (in flood plain, foundation problems, etc). Also the area we currently live in is actually one many are looking to move to and houses rarely go up for sale, so I'm keeping my fingers crossed that we will be sold within a month or two tops which from talking to local Realtors is more than feasible. We live in a good area and on a nice lot (1.5 acres), and we've made LOTS of updates to the house - new roof, 15 SEER HVAC system, laminate floors, counter tops/sink, etc - so we have many pro's in our favor to sell quickly. It's just a matter of finishing up the few projects we still have outstanding before listing it. The main reasons we want to move is to be closer to town and to have a larger home.

As for building, this is another reason we're looking at the StyleCraft Builders because they do offer a contingency that our house sells first, and if it doesn't sell by the time the house is complete we can either walk away loosing our earnest money or we can choose to build on another lot and another contract will be written. The house they built for us would just be sold to someone else. As for the tract builders and 'cookie cutter look', one pro with going with these guys is they have about 75 plans to choose from, and each has two or more 'elevations' with completely different fronts... so the houses don't look alike a all which we like. There is only one other house in the community with the same floor plan and elevation we've chosen, and it has complete different colors and is mirrored to what we'll have. There are several local builders who have built neighborhoods of 50-200 homes using 3-4 floor plans, and yeah you might see 5 houses in a row that are identical. We didn't want that, and this builder won't let you build one style next to another.

Resale is another factor though we hope there's no need to sell anytime soon. I just went to Zillow and compared houses in the neighborhood we hope to build in to other nice neighborhoods in the area, and honestly it looks like the area we're looking to build is about $10/sqft higher than most. There are three houses right now in the neighborhood we're looking at for sale, and they're about $90-$95 per square foot... some of the other neighborhoods are closer to $80- $85 per square foot. The house we're looking at having built will be $85 per square foot.

And for the tax credit, yeah that's gotten us motivated because it is feasible given our house sells in a reasonable amount of time ... but if it doesn't we won't loose any sleep over it.

I liked the idea of having an independent inspector check out the place throughout construction. They ask that we do hire an independent inspector upon completion and the city will be inspecting it throughout construction, so hopefully that'll find any problems.

But again, this is my logic after researching the heck out of the builder and neighborhood, but what else am I missing? If anyone's in the Bryan/College Station or Waco areas, do you have any experience with StyleCraft Builders?

Thanks --

Sam Alex

[Hustlin' Hank]

First, are you planning on living in the new home forever? If so, you will probably be surprised that you won't. You may want to move after the kids move out.

Second, No house, custom or tract, will be the perfect home for you. There is no such thing as a perfect house.

Third, I am assuning you are a young couple, so, plan for the future. Schools make a big difference in holding value.

Fourth, location, location, location. You may get less house for the money in a more desirable area. But that isn't necessarily a bad thing.

Fifth, Realtors will negotiate their fees

Hank

[Ed Pawlowski]

It may take him longer than that just to get financing. I've been hearing horror stories from people with good credit and 50% or more down.

As for the tax credit, was that not for first time buyers?

[h]

That's the way I read it. If the OP already owns a house, he is NOT eligible for the $6,500.

[Colbyt]

All builders cut a few corners somewhere because building the "perfect house" costs mega $.

The key is to find one who economizes in the same place you would and you sound like you have enough knowledge to decide that.

Your selling plans might be a bit optimistic in the current market. I would move twice and live in a rooming house before I would buy without having closed on my current house. I did that once about 20 years ago and it just isn't any fun. :)

[Robert Neville]

I've not seen any evidence of problems for people with good credit - keeping in mind that the definition of good has changed by about 75 FICO points over the past 18 months.

Just walked a relative through her first home purchase. 3.5% down on a FHA mortgage, 5% rate, new construction. No hangups, exceptions or surprises.

The original one was. About a month ago Congress extended the expiration date through next April and added move up buyers who have been in their current house for 3 years or more.

[Robert Neville]

Out of date information. Current program description can be found here:

[Robert Neville]

Correction: Must have lived in current house 5 of the past 8 years.

[cshenk]

Not that I'm selling mind you, but didnt anyone realize the largest set hit there would be active duty military? My house was rented 2001-2007 due to military orders overseas.

It's not even like I had a choice about it if I wanted to fill our my career. Grin, thats why they are called 'orders' not 'suggestions'.

[Robert Neville]

I'm thinking the current administration doesn't have the special needs of our military members/families anywhere near the top of their radar.

[Sam Alexander]

The new tax credit requires that you have lived in your home for 5 years and stay in the new home for 3 years after closing... all of which applies to us. So we should be good given we can be under contract and close by the deadlines.

Sam Alex

[Sam Alexander]

Hi Hank,

Actually we're in our lower 30's with a 2 year old and another one planned very soon :) The house we live in now was mine before my wife and I got together, so I didn't anticipate how much space we would need. Now that we've lived in the house 5 years as a couple and 2.5 with a kiddo we've learned quickly that we've outgrown where we're at now which is why we're looking to move.

We also debated on expanding the house, but financially we figure it's better to find something new then try to expand a 30 year old house. Besides if we sank more then 10K-15K into this house we would never get our money back if we did sell.

And you're right, nothing is perfect. I've talked to friends who had houses built and none were 100% satisfied, in fact some have moved since building because they didn't anticipate their needs or the house correctly.

I just want to be sure we're doing every bit of research possible before leaping, and thanks to you and everyone else for the advice and anything else that may crop up.

Sam Alex

[Paul Franklin]

Another thing to watch for if you build...allowances. I keep hearing of builders setting allowances for lighting, appliances, flooring, etc. unrealistically low to keep their package price attractive. When the buyers actually go shopping for these items they either have to pony up a lot more money to get the style and quality they want, or settle for low end materials. Those items can be surprisingly expensive. You may want to shop around ahead of time to see what a reasonable budget for those items will be given your area, taste and quality expectations. Make sure you know what allowances the builder includes in his bid so you can judge if they are adequate and can compare different builders apples to apples.

HTH,

Paul

[Ed Pawlowski]

Maybe better for existing homes, not so good for new.

My company makes ICFs used to build both residential and commercial projects.

I know of a half dozen people not able to get the banks to give a nod. In one case, the owner owns the land free and clear, has the well and septic in place and paid for and cannot get the money for the house with 20% down.

I know of a builder that has 5 prospective houses to start, all waiting for money.

I know of a commercial project, a hotel that was started and the lender backed out. Owner has put in 20% of his own money so far and had to halt construction.

Another commercial project the owner is putting up 80% in cash but cannot get a commitment for the other 20%. Others are waiting and waiting. These projects are located in NY, CT, PA, ME, and one in Canada

Consequently, our business is off 40% from last year. We do not expect to do any better next year and hope to recover in 2011.

So, I see. The Worker, Homeownership, and Business Assistance Act of 2009 has extended the tax credit of up to $8,000 for qualified first-time home buyers purchasing a principal residence. It also authorized a tax credit of up to $6,500 for qualified repeat home buyers.