Buying a home: New or pre-owned?

ALEX LEARY /St. Paul Pioneer Press
ALEX LEARY /St. Paul Pioneer Press
Posted: February 10, 2014

You've decided to buy a house.

It seems as if "For Sale" signs are coming down more quickly than they did a year ago, an encouraging sign for buyers and sellers alike.

With 30-year fixed mortgage rates in the low to mid 4 percent range, is a door you might have considered closed now open to you?

Could you buy a newly built house instead of buying a previously owned home and renovating?

The health of your finances will factor into this decision, naturally. But one five-letter word - taxes - should figure prominently, as well. And, as always, location is important.

Observers of the Philadelphia region's real estate scene say there are significant tax savings, albeit temporary, to be had in the city, where new homes are going up on cleared lots.

In the Pennsylvania suburbs surrounding the city, however, new-home construction can bring a hefty tax tag, those observers say.

Philadelphia's 10-year tax-abatement program, begun in the early 1990s, permits homeowners to forgo paying taxes on a house, but not on land or any unimproved structure on it.

"These vacant lots in Fishtown, Northern Liberties [and elsewhere], the number one reason they are selling is the 10-year tax advantage," said Dominic Fuscia, an agent with Coldwell Banker in Center City.

The program has attracted investors and builders, the latter typically paying cash for the lots.

Builder Cormac Mcaleer said the eventual buyers tended to be young professionals moving from elsewhere in the city, with some coming home from New York.

According to an April report, of the 15,191 so-called abated properties in the city, 8,885 had new construction on them.

Virtually no empty lots exist in the now-hot Graduate Hospital area, where a previously owned 780-square-foot rowhouse with one bathroom recently sold for $277,000.

"I started in Graduate Hospital" seven years ago, said Mcaleer. "Now, I am in Point Breeze."

If he doesn't have a buyer at the beginning of a project, he said, by the time the house is completed, it generally takes only about two weeks to sell.

"My buyers are priced out of [that] area," said Michelle Ashley, a Realtor with Berkshire Hathaway Home Services Fox & Roach. "Fifty percent of my sales are new construction."

The situation couldn't be more different in the suburbs.

"Buyers want to know what the taxes are going to be," Lisa Povlow, an associate broker for Weichert Realtors in Doylestown, said of new construction.

Povlow cited a buyer waiting for the Hatboro tax office to open after a recent weekend to learn what the tax bill would be on a house priced at $325,000. If the taxes were too high, she said, the deal was off.

But she also cited a young couple who saw an existing house they liked, but wanted a second opinion. So they waited a few days before that person could show up.

They lingered too long, Povlow said - in the meantime, the house had sold.

"Buy existing" in the suburbs, advised Steve Osiecki, a broker-owner of RE/MAX Access in Center City.

Move fast on the empty-nester and estate homes, the ones that just need cosmetic work, Osiecki said. Those types of homes sell in less than 30 days.

"The lots are such a premium, between $250,000 and $500,000 within a close commute to Philadelphia," he said.

In the city, going new takes stamina: You don't want to buy the lot on your own unless you're a builder yourself, said Realtor Mike McCann, a comment echoed by all those interviewed.

Two major hurdles are obtaining the financing and the necessary variances. Mcaleer said half his projects needed the latter. And you can't get a mortgage on an empty lot, McCann said.

So if you want new construction in the city, the experts advised, find a real estate professional who can help you.

"It's kind of like buying parts of a car and putting it together yourself," said Neeraj Jassal, a Realtor with RE/MAX Access in Center City.

The final decision to buy new or pre-owned expands to include other issues, too, local market observers said.

Among the advantages: New allows the buyer the opportunity for a more energy-efficient home. That means lower energy bills and added tax credits, such as 30 percent for solar water heaters, 10 percent for qualified insulation, and so on.

The disadvantages: A new house, while built to code, isn't going to have character, Jassal said, "just because the [builder] changed the color of the granite in the kitchen."

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