Buy vs Build - Which Is Right for You?

BY CINDY STANFORD

While the vast majority of vacation, second homes, and primary residences bought in the Los Cabos area are existing homes, some buyers want to consider an alternative which is building 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. This article will focus on the choice between buying an existing residence or starting from scratch and building a new home.

Almost every buyer develops a “wish list” that lists things that the buyer must have (“needs”) as well as optional features that the buyer 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. After all, once a decision is made to purchase a home in paradise, most buyers want to be able to enjoy it as soon as possible. 

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 considerably over the past several years. The cost of buying a lot to build on, and construction labor and material costs have increased significantly. Architect’s fees can be an additional 15%  or more of construction cost, and mature landscaping can add many thousands of dollars to a new home’s cost.

In a recent comparison that I performed, the price of an existing home with fantastic views and in excellent condition was 30% lower than purchasing a lot and building comparable new construction. This was obviously a significant savings. 

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. In the current buyer’s market, there is a choice of a number of residences, and the buyer can actually experience what life will be like in their home. 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. Any changes or redecorating that a buyer wants to make can be factored in, and since most or all of the buyer’s “needs” and “wants” have been met,  the buyer can decide when to accomplish this, without having to make snap decisions during the building process.

A big convenience factor is the buyer’s ability to enjoy his new home in a short period of time. 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—locating  a property to build on and imagining what views will be once the home is built; forecasting what a community will look like in the future;  making sure that all utilities are available; choosing an architect and giving direction on the design the buyer wants-- the size of the house, what features are desired (such as pool(s), palapa, outdoor cooking and seating areas, etc.) and where they should be placed; getting the architect’s design approved by the homeowner’s association; choosing a reliable contractor and negotiating a construction contract; reviewing detailed construction drawings and choosing every element of the new home (room sizes; flooring; fixtures; countertops; cabinetry; interior trim; exterior details; and even the location of electrical outlets, laundry rooms, equipment rooms; etc., etc.).  A buyer should not underestimate the time and effort it will take and the stress involved, especially when the contractor tells you that a decision must be made quickly or else construction will be delayed and costs will increase!  And, changing your mind during construction can be very costly, both in dollars and time.

Building a New Home

While buying an existing home has many advantages, the main advantage of building a new home is that you are more likely to get exactly what you “need” and “want.” This is not guaranteed, of course, since your “needs and wants” may exceed the price you are willing or able to pay. 

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 that may or may not occur. 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 on a regular basis to avoid surprises. Airfares, hotels, rental cars or renting an apartment can add up quickly.

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.

Is buying or building better for you? You should compare both options.  Even if you start in one direction, you may change your mind, depending on what homes are available, whether they fit your wish list, comparing the cost of an existing home to the total cost of construction, and how soon you want to enjoy your dream home. Good hunting!

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.