This article was updated on Oct. 3, 2014.
My wife and I recently embarked on the exciting journey of buying our first home together. We know that buying a house generally wins over renting. What we hadn't quite figured out was 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 our journey I found one very compelling reason to build.
One hidden benefit of building
Early on in my personal homeownership journey I was floored when I realized that there was a growing gulf between the energy usage of a new home compared to an existing home. This is because today's top homebuilders like KB Home (NYSE:KBH) and PulteGroup (NYSE:PHM) are designing some incredibly energy-efficient homes. Not only are homebuilders today taking advantage of new technologies like tankless hot water heaters, but builders are focusing on the little things, like insulating electric outlets, to reduce a new home's energy usage.
This is driving a big reduction in the energy rating of today's homes. Just like mpg ratings for a car, 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.
However, many homebuilders like KB Home are going the extra mile to design houses that are much more efficient than average. In 2013, for example, the average HERS score for a home built by KB was 65% more efficient than a pre-owned home on the market and 35% more efficient than the average new home.
To put that into perspective, let's say the average monthly energy cost of a pre-owned home was $100. The owner of a comparably sized new house built by KB Home would only spend $35 per month on energy bills, for a cost savings of $65 per month. Needless to say, that really adds up over time.
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 homes being built today. That said, many builders are taking this a step further because energy efficiency is such a selling point with buyers. Not only are energy-efficient homes cheaper to operate, but these homes are more comfortable to live in, especially during the heat of summer or the chill of winter, as new homes prevent outside influences from impacting the temperature inside the home.
This is why PulteGroup has put in place the Pulte Energy Advantage, which 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 like tankless hot water heaters, better insulation, and a radiant barrier that will make the home even more energy-efficient, providing additional savings and comfort.
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.
Purchasing a more energy-efficient home offers substantial monthly savings for a prospective homeowner. It is a hidden benefit that few buyers factor into the equation. It was a big reason that my wife and I made the decision to build, as the combination of energy savings and comfort level were just too compelling to ignore.
Matt DiLallo owns shares of PulteGroup and has the following options: short October 2014 $18 puts on PulteGroup. The Motley Fool owns shares of General Electric Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.