Buy vs. Build Which Is Right for You?

BY CINDY STANFORD

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While the vast majority of vacation, second homes, and primary residences bought in the Los Cabos area are existing homes, some buyers want to build their own home. 

Whether buying or building, there are many factors to consider, including location, scenic views, size and price, community stability and amenities, available water and utility services, weather variations from area to area, property taxes, homeowners association fees, and the condition of the residence.

Almost every buyer develops a “wish list” that lists things they must have (“needs”) as well as optional features they would like (“wants”). A qualified real estate agent can find properties that will fit your “needs” and “wants,” and help negotiate the best possible price. When building a new home, the buyer must discuss this list with its architect and builder to make sure that their desires can be accomplished and how much it will cost.

Buying an Existing Home

Why do most buyers choose to buy an existing home? Generally, the three major advantages are the lower cost of the home, the convenience of being able to move into their new home quickly and a less stressful experience with fewer decisions to make. 

The Cost Factor

As the Los Cabos area has become one of the premier vacation and second home choices, the cost of building a new home has risen. The cost of buying a lot to build on, and construction labor and material costs have increased. Architect’s fees can be an additional 15 percent or more of construction cost, and mature landscaping can add thousands of dollars to a new home’s cost.

In a recent comparison, the price of an existing home with fantastic views and in excellent condition was 30 percent lower than purchasing a lot and building comparable new construction. 

The Convenience Factor

In Cabo’s luxury communities, existing homes were built on many of the community’s premier locations, with spectacular views and locations closer to town, the marina or amenities. A qualified home inspector can give comfort to the buyer on the home’s condition, and any necessary repairs can be completed before closing, so the buyer can move in the day of closing and relax.

A big convenience factor is the buyer’s ability to enjoy his new home in a short period. Closing on an existing home in Los Cabos may take 60-90 days. Construction of a new home can take 12-18 or more months from the date the architect’s plans are finalized and a construction contract is signed (which takes many more months). Add to this the time it takes to find and purchase the right lot to fit the buyer’s dream home.

The Less Stress Factor

Building a new home requires dozens of important decisions and a buyer should not underestimate the time and effort it will take and the stress involved!  And, changing your mind during construction can be very costly, both in dollars and time.

Building a New Home

There are “fixed-price” or “lump sum” construction contracts and “cost-plus” agreements. In the fixed-price contract, the builder agrees to build the house according to a specific set of plans for a specified price. An up-front payment to the builder is required for land clearing, mobilization and initial materials, and an intelligent builder will include a fudge factor in its price to protect itself from potential material and labor cost increases during construction and other unknown occurrences.

Also, if additions or changes are made by the buyer along the way, these “extras” are added to the contract price and there is little room for negotiation at that time. For this reason, a fixed-price contract, while sounding good, can often result in a higher final cost compared to a “cost plus” contract, where the builder charges for all labor and materials at actual cost, plus a percentage for the builder’s overhead, supervision and profit. Architectural fees, HOA fees, city fees and taxes and inspection fees are added to the builder’s contract price. 

Buyers often overlook the cost of travel and living expenses when visiting the project during a lengthy construction period. While the internet is a wonderful tool for keeping abreast of construction progress, there is no substitute for visiting the property regularly to avoid surprises.

Other advantages of building new can be having a more energy-efficient home and avoiding having to replace older equipment.  Today, energy-efficient systems can be added to existing homes, and the risk of equipment breakdowns can be alleviated by a competent home inspection, finding a home that has been properly maintained, and even asking the seller to provide either a limited warranty on certain systems, or an allowance for specified repairs for system breakdowns within a certain period of time after closing.

Cindy Stanford is a Real Estate Advisor with the International Engel and Volkers Snell Real Estate office in Cabo. Her 35 years of experience in real estate dealing with high profile clients adding to their portfolio is what she loves to do.  She also has an active license in the United States in Texas. She is in Who’s Who in Luxury Real Estate out of Seattle and is a member of A.M.P.I. in Mexico. She can be reached at MX cell: (011) 52 1 624 157 1855

NA cell: (001) 214 773 7979. Mail to: cindy.standford@engelvoelkers.com