When building a new home, homebuyers may quickly find themselves over-budget and over-stressed. U.S. News & World Report recently highlighted some of the most common financial mistakes when building a new home:
1. Don’t overbuild
“I meet potential clients in my office almost weekly who tell me, ‘We built a 6,000 square-foot home, but now we’re dying to downsize to something smaller,'” says Andy Stauffer, owner of Stauffer and Sons Construction, a homebuilder in Colorado Springs.
“Most families don’t even need 5,000 square feet, and a home as small as 2,500 or 3,000 square feet won’t feel small if it’s designed properly. A larger house is just more expensive and harder to maintain and clean.
According to the National Association of Home Builders, a custom home in the U.S. costs an average of $105 per square foot to build. That means by eliminating even 500 square feet in a home that you don’t need, you’ll save over $50,000.”
2. Consider the resale value at the beginning
“It’s simply a fact of life: Most of us don’t know for sure where we’ll be in 10 or 15 years, as much as we’d like to think we do,” Stauffer says. “I recently spoke to a real estate agent who had some clients that built a five-story custom home. They loved it, but when it was time to sell, they had to drop the price by tens of thousands of dollars and sell at a significant loss because nobody wanted to buy a five-story home and walk up and down the stairs all day long.”
Stauffer tells buyers to “build your dream home, but don’t make it a nightmare for someone else.”
3. Weigh the upgrades
Which upgrade options should make the cut? Buyers may have to teeter between too-conservative and not-conservative-enough when choosing extras. “You will be surprised at how quickly a $200,000 home becomes $400,000 in upgrades,” says Joan Fradella, a family mediator in West Palm Beach, Fla., who built a new home in 1998.
Brian Brunhofter, president of Meritus Custom Builders in Chicago, says buyers need to carefully consider what upgrades are must haves.
“For example, carpet can always be switched out to hardwood floors later, but a full basement is something you should decide on now,” Brunhofter says. That said, some buyers might want to do some of those upgrades now while lending is still relatively inexpensive. As long as you don’t go overboard, it may “be much more economic to stretch and plan for those features in your budget now,” he says.
4. Monitor the progress
“Visit the site during construction,” advises Nicole Cannon, a resident architect in Los Angeles. “Make sure things are matching your expectations, and ask questions if they don’t. The worst option is to remain quiet and end up with something that you are unhappy with or have to pay to fix after the fact.”
Source: “8 Financial Mistakes to Avoid When Building a New Home,” U.S. News & World Report (Sept. 25, 2015)
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