Should You Build or Buy Your Dream Home?

My wife and I are embarking on the exciting journey of buying our first home together. We know that buying a house generally wins over renting. What we haven't quite figured out just yet is whether we'd be better off buying an existing home or having a new home built. It's a dilemma that faces many homebuyers these days.

There are benefits to either choice, and a home is such a personal purchase that there is no "one size fits all" answer. That said, early in my journey I found one pretty compelling reason to build.

One hidden benefit of building
While I'm early in my personal homeownership journey, one factor I hadn't considered in the build versus buy debate was the impact of energy. Homebuilders like KB Home  (NYSE: KBH  ) and PulteGroup (NYSE: PHM  ) are designing some incredibly energy-efficient homes.

A home's energy efficiency can be rated by comparing it to the HERS Index, which stands for Home Energy Rating System. The average new home being built today has a HERS score of 100. By comparison, the typical resale home averages a score of 130, or 30% higher. The higher the number, the less energy efficient the home. 

Homebuilders like KB Home are going the extra mile to design houses that are much more efficient than average. In 2012, for example, the average HERS score for a home built by KB was 68, or a third more efficient than the average new house and nearly double the efficiency of a pre-owned home.

To put that into perspective, say the average monthly energy cost of a pre-owned home was $139. The owner of a comparably sized new house built by KB Home would only spend $72 per month on energy bills, for a cost savings of $67 per month.

Why are new homes more efficient?
As technology has advanced so have homebuilders. To one degree this has been mandated by building codes that are forcing builders to increase the energy efficiency of their houses. That said, many builders are taking this a step further.

The PulteGroup's Pulte Energy Advantage has standardized many energy-efficient features on the homes it builds. These features typically include programmable thermostats, low-emissivity windows, 90% efficient furnaces, and house wrap. In addition to standardizing many features, PulteGroup also offers optional features that will make the home even more energy efficient.

Ryland Group (NYSE: RYL  ) has a similar focus through its HouseWorks program. It ensures that Ryland homes are built to leading industry standards in energy efficiency. This includes General Electric (NYSE: GE  )  Energy Star appliances that help reduce energy consumption costs by 20%. In addition, Ryland Group has a third party verify that each home it builds is airtight to help reduce energy consumption. This enables most Ryland Group homes to deliver HERS ratings between 85 and 60, making them almost twice as energy efficient as the typical existing home on the market.

Final thoughts
Purchasing a more energy-efficient home offers substantial monthly savings for a prospective homeowner. In my mind it's a hidden benefit that few buyers, myself included, don't factor into the equation. So, while we haven't made the decision to build just yet, energy efficiency is a big bonus to building.

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