iNest Newsletter

Why Similar Looking New Construction Homes May Have Very Different Prices

Dena Kouremetis
A veteran of the homebuilding industry, Dena Kouremetis is the foremost real estate columnist specializing in new home issues, trends, products and designs. Her columns appear in the New York Post as well as other newspapers throughout the U.S.

Is your mind playing tricks on you? Or was that last model home layout nearly identical to one that you walked through just three hours ago by the same builder in another part of town? Sure, the decorating was different, it looked a little fancier on the outside, and this one displayed the den option instead of the fourth bedroom. But the square footage is identical. So why is this home’s base price $15,000 higher than the other one across town?

At first, it may seem that the homebuilder is trying to pull the proverbial wool over someone’s eyes, betting that the same homebuyer would not likely tour the less expensive version. Builders aren’t that dumb, however. They realize that consumers shopping for new homes may compare areas as well as homes, especially if they are relocating from out of the area.

Upon further research, however, one may find that homebuilders charge different prices for the same basic house in different areas for a variety of reasons.

Down and dirty . . .

One of the most justifiable reasons for price disparities is land value. The cost of the parcels purchased by the builder in one part of town may not be equal to another, enabling the builder to offer lower prices or forcing him to charge higher prices for his finished product. Those parcels may also be sized differently. For instance, the same 45-foot wide home placed on a 60-foot wide home site may seem rather cramped, but looks downright estate-like on an 80-foot wide parcel. Other factors figuring into disparate land costs may be things like grading, developer and school fees, permit fees, retaining walls, streets and sidewalks, contractor pricing, environmental reports and tree permits, to name a few; all of which pay a big role when viewed as an aggregate per-parcel expense.

Beauty in the eye of the beholder . . .

It can be an enlightening experience to a homebuyer to try to gain insight into why some areas of town are inherently more expensive than others, calculating whether the area’s amenities and location in the big scheme of things is important to them. Let’s say you’ve found the perfect house. Regardless of the home’s bells and whistles, the home just works for you and your family in both size and layout. The area in which that floor plan costs significantly more, however, is (1) a gated community with its own park, bike trails and community center; (2) has new neighborhood schools with more to be built;(3) is only ten minutes from the freeway (4) has more curb appeal, with winding streets and sloped home sites and (5) has some large-home, established neighborhoods surrounding it.

Do these factors matter to you? Perhaps your children are grown and gone and you need not worry about schools any longer. Perhaps the neighborhood amenities are not important to you either, and you prefer not having to punch in a code each time you enter your neighborhood enclave. And those huge homes are not significant, either, since you’d rather live closer to commercial conveniences.

As you can see, what are selling points to one set of homebuyers may be deterrents to others. Builders bank on a driver for every seat when locating, presenting and pricing their new homes, so that they can cover as many demographic bases as possible.

Details, details . . .

More intense research on the buyer’s part may unearth more visual and obvious differences. The exterior elevations may be more detailed on one set of homes than another, adding to the cost. For example, the second floor windows on one version may include decorative “pop-outs” while those in the other new home community remain unadorned. Stone accents, pillars, hip roofs, windowsills, window sizes, doors, landscaping and walkways also figure prominently into builder cost.

For the same home available in a three-car garage instead of a two-car version, the cost is not merely a little extra to the homebuilder. It can translate into a more generous home site (there’s that land thing again), more foundation, more electrical, a more costly permit, more roofline and expanded concrete flatwork (driveway), as well as additional grading.

As for the interior of a home, one must study what may seem like very small and almost insignificant differences as he reads the builder’s standard features list. One home may have fancier appliances included, like a five-burner built-in cook-top range, while the other has another offers a basic drop-in stove/oven unit. One may make fancy brass bathroom fixtures throughout an upgrade, but install them as standard in another. The countertops in one home come may be a sturdy laminate, but come fully tiled in another, adding to the home’s base price. Electrical features, such as pre-wires for security systems, structured wiring panels for computer networking, and a myriad of other things can become important behind-the-walls expenses in some homes that are absent in others.

Putting it all together . . .

Once all of these known and surmised costs are added together, one may begin to realize that the builder itself is paying a significantly higher price to package and offer a house in one area as opposed to another.

To be sure, builder profit does figure into the equation in our free enterprise system, but perhaps not as significantly as many would have us believe. Where some products can reap a 30% or even 50% profit margin, builders operate on much lower margins for their new homes as a rule; somewhere between 7% to 15% averaged out over hundreds of homes they build each year.

It is hoped (and generally played out) that the same reasons you may pay more for the same house in one area than you would in another will be the same reasoning used by a subsequent buyer of your home some day. Values are set by what willing buyers pay to willing sellers in new homes just as they are in re-sale varieties