Should You Buy a New Home Instead of a Resale?

Many first-time home buyers buy townhouses with the intention of moving up to single-family homes later. Given the choice of buying a newly built townhouse vs. a resale, many prefer to buy new — where they get to choose floor plans, options, and even colors for carpeting, paint, and bathroom tile. But make sure you fully understand the economic implications of buying a new home vs. a resale.

First, the future value of your house will be determined by your builder. If you buy a brand-new townhouse in a new development, the builder likely will continue to build homes in your neighborhood for several years. That means your future selling price will be based on whatever he is then selling his homes for — and in fact, yours probably would sell for less than his. After all, why should prospective buyers choose your "old” townhouse when they can get a new one — giving themselves the same opportunity to buy state-of-the-art construction and appliances along with the same choice of designs and colors as you enjoyed?

Of course, if the builder raises his prices, your home’s value will rise, too. But either way, you will compete against the builder for as long as he’s building in your neighborhood.

Another concern is that since the homes are all being completed in roughly the same period of time, most buyers move in during the same period and many move out at the same time, too. The result is often a saturated market which keeps resale prices down.

Remember: When buying your home, think like a seller, for you will be one someday. To that end, don’t wallpaper a newly built house for at least one year. The house will settle and the wallpaper will tear. (It’s okay to paint.) Design and decorate your home so it will be appealing to potential buyers. If you paint your dining room purple, as my wife and I did (don’t ask), be prepared to repaint it before you sell (as we did), because just as you don’t always like the decorating you find in other people’s homes, buyers will not share your taste, either (as we learned).