Are New Build Homes Hard To Sell?

Buying a new build as your first home in the UK is normally a much faster process than going for an existing home. The developer should have all of the checks and inspections complete for a new build home, which can really minimize the paperwork to complete the sale.

But trying to sell your new build home in later years can be much more difficult. Suddenly the easy process that the builder had doesn’t seem to be as easy for you. There are a few reasons for this that we discuss below.

Some of these issues you can be prepared for when you go in to buy your first home. But unfortunately there are other things that are simply unknown when the house is first built.

New Build Premiums Can Be Hard To Recoup

It’s a sign of the times. New home construction costs are skyrocketing due to rising prices for lumber and other critical construction material. That drives up the total cost for the builder, and this gets passed onto you. Remember, builders want to make a profit on the home, which again pushes the selling price up. This premium price that gets charged is called the new build premium.

But after you buy your first home, this extra cost no longer gets considered by any other buyer. And it makes sense – your home will never be a ‘new build’ again because you’ve taken that crown.

What does this mean for your property? Your home will now have to compete against all of the other existing homes that are on the market at the same time.

When there are many sellers, buyers have the power. And that means you won’t be able to recoup as much of a gain for your new build property.

Real Danger

Some people are still confident with their new build home and the price they paid. Property has historically always gone up in value over the long run, so even if you pay a new build premium, the logic is that at some point house prices will rise enough for you to sell your property at a price exceeding the new build premium price.

The biggest danger for a new build buyer is to buy and sell a new build home in a very short period of time. This magnifies the risk that you get caught out at the wrong point of the cycle – and you are basically relying more on ‘timing the market’ – which is basically luck.

Comps Influence the Price of New Builds

Older homes within the immediate area have an effect on the value of a newly built home. In real estate jargon, these secondary homes are called “comps,” as in, comparisons. Real estate agents will often rely on these homes to calculate the value of a newly built home that you purchased. 

A common starting point is looking at the total floor area of other homes and the prices that they are selling for. Agents will work out a price per square foot (or price per square metre if using metric measurements).

There are other factors that can beef up a property’s value that isn’t captured in comps. If a property has had an extension this adds value. Upgrading other items like plumbing and wiring on older houses can really improve value too.

New Builds Going Up Near Secondary Homes

If you’re trying to sell your home and there are new-builds going up around it, the price will certainly be affected because there is more disruption going on in your immediate area.

Anyone moving in will know that they have months of listening to hammers, circle saws, machinery, and everything else that goes on during construction. Months could turn into years, depending on the development plans for that area. 

A big disappointment is when the view from your home to the outside gets obstructed by a new build home being developed. This is especially the case in city centers where taller blocks are more likely to be built. Before any large blocks can be built a developer needs to interact with the council to obtain relevant permissions, and you should be able to find out details of proposed building work.

Finished New Build Homes Are Worth More

There are still problems for you after the new build homes are finished.

Trying to sell your existing home at a premium price is going to be made even more difficult if there are shiny new developments going for a similar price next door. Freshly built new builds typically set the top price in the market, with existing homes following further down.

Some existing home buyers find themselves squeezed in the middle, needing to be above the price of older homes and under the price of newer homes.

In some neighborhoods this won’t always be the case. Homes that have real character, are on a specific road or carry other features can set themselves apart from new build home prices, and in some cases these homes can be worth more than new builds.

Home Owner’s Associations

In some larger new build developments there is a Home Owner’s Association. These bodies can be a real problem in some cases when you are trying to sell your property. HOAs are normally concerned with making sure service charges are paid before you sell your home. In some leases it is actually written inside that a certificate needs to be obtained from the HOA before a property can be sold.

The main problem with this is delays. HOAs are not set up to deal with requests efficiently, especially if there aren’t many sales happening and the process isn’t ironed out.

Mortgages Might Be More Difficult

For the most part a mortgage on a new build home should be straight forward. After you have lived in a new build home, you’ll have to follow the same process as any other property to sell it on to someone else.

Lenders can sometimes get nervous about new builds for the following reasons:

Safety

After the Grenfell disaster lenders have been much more reluctant to lend on a property that doesn’t meet all of their strict criteria. Any of the following items could be an issue with a particular lender:

  • Lack of safety certificates
  • Dangerous cladding on the exterior
  • Flats above a certain number of storeys

Charges

Lenders are very concerned about high service charges and ground rents that are quite common for new build homes. Some new build estates have roads that become the responsibility of the homeowners, called unadopted roads.

Shorter Leases

If you are buying a new build home on leasehold, it’s really important to be checking the length of the lease.

A short lease can be a huge financial pain for anyone trying to sell. Lenders don’t like providing mortgages on short leases, buyers don’t like buying them and you as a seller might be forced to pay for a lease extension on your new build home if you’re not able to sell as it currently is.

All Things Considered

New builds can be a great place to live, but often they can be more difficult to sell and you do risk coming away with a smaller financial gain from the property due to paying a higher price at the start.