Custom Construction or Buy Existing and Remodel?

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In the current market, it is more affordable to buy an existing home than it is to purchase new or custom construction.  Why is that? 

The obvious reason is we live on an island; transportation costs are factored into every supplier and service provider.  Housing costs are expensive, whether it be for temporary workers or our full-time island labor force.   Delays are a regular occurrence due to ferries, lack of service providers and tradesmen.  The costs of materials and labor have escalated over the last few years to all-time highs.  Compliance with the current and ever-changing development and building regulations add to the cost of new construction. High interest rates and during the course of construction insurance also add to the costs.   General Contractors are quoting no less than $550 per foot for starter homes and many of the contractors are starting at $750 with quotes of $1000 per foot on a regular basis.  This price per foot will offer some hardwood floors, custom cabinetry, granite and a high-end appliance package, if you spend wisely.  Of course, for over $1000 per foot, the quality is superior.

We used to think that $1000 or more per foot was rare on the island, however; it is not uncommon now.  Many property owners elect to customize their homes to that level of quality.  Only time will tell if the value of those homes based on the market approach will be greater than the cost approach or the owner’s actual basis, should those owners decide to sell.  The good news with real estate is that time heals all, or at least most issues.    All the receipts in the world do not make a home more valuable than the market is willing to pay.  The buyers rely on the market approach to value – comparing similar homes that have sold and that are available for sale, more than the replacement cost approach.

Now that home inventory is built up and the market favors buyers, the selection of existing homes and some homes that may need a remodel is a viable option.  For a buyer, there are numerous advantages to purchasing an existing home and remodeling.  Those advantages include views, footprints and other amenities such as guest houses, mooring buoys and docks, that current regulations make difficult or impossible to recreate. 

To demonstrate the calculation for buying existing versus new construction comparison, I’ve created two hypothetical options for a hypothetical buyer, these transactions are loosely based on real properties.  I chose a waterfront home to use in my comparison as it is the type of property that many buyers would considering for custom construction. However, the premise is the same for all types of homes.  However, the lot price/value is higher for a waterfront parcel versus inland, unless it is a large view or acreage parcel.

Option A:  This week our clients can buy an existing northwest facing home on a .73 of an acre lot with 100 feet of low bank gravel beach frontage.  The waterfront home offers 2850 square feet with 3 bedrooms, 2 baths, an attached 2-car garage with a 800 sf studio above.  It has nice landscaping and good sun exposure and views.  The home was originally built in 2014 and is somewhat current with interior design and was well maintained.  The home was on the market for 41 days and was offered at $2,900,000.   

For the current market on San Juan Island, our waterfront homes are starting around $1.2 for cabins or smaller homes.  However, you need to be over $2 M to find a home offering at least 2500 sf, unless it has conditions on site that have an impact on desirability.  Steep driveways, high bank waterfront, difficult road or driveway access, or overall condition, may all have an impact to desirability which places downward pressure on the price.

The average negotiation from sellers for properties listed in this price range is 4%. My hypothetical buyers were able to purchase slightly below the list price.   Their basis would include their buyer’s closing costs and possible loan expense. 

Some homes that were built in 2014 need updating as the interiors may be worn and/or may be dated. Based on the cost of remodeling and current regulations, it is difficult to update a home of this size for under $300,000 and would most likely be closer to $500,000.   A typical kitchen update is $100,000 and each bathroom can be $40,000.  Other updates for living, dining, great rooms and bedrooms for carpet and hard surfaces add up quickly as well.   Further, one might want to upgrade windows, hardware, lighting fixtures, and decking for quality, but the roof and siding should still have some life expectancy and not need upgrading, unless in the buyer’s opinion they are not attractive.   

Other advantages of buying an existing home include:

• The lot may have been originally cleared back in the 1970s letting the sunshine in and widening the water views.  The footprint may be much closer to the waterfront. There may be stairs to the beach.

• If the buyer wants to make some changes, less time is needed for a remodel permit and the construction than to build a new custom home.  The remodel permit process is less complicated and fewer sub-contractors are required, so less time is needed.    Of course, if they are planning on a remodel, the cost of that would need to be factored into this proforma for comparison.

Purchase Price               $2,784,000 -  4% off list price

Remodel                             300,000- $500,000

Total                              $3,084,000 - $3,284,000           

Option B:  If my hypothetical buyer was unable to find a suitable existing home and decided to build custom construction, their costs may be similar to the following:  

Waterfront Lot  .73 of an acre/100 FT                 $1,000,000

Main home 2850 sf @ $750-$875                         $2,137,500-$2,493,750

Garage 528 sf @ $100                                       $     52,800

Studio 800 sf @ $550                                         $   440,000       

Well                                                                   $     55,000

Septic                                                               $     80,000

Power                                                                $     20,000

Landscaping, driveway, patios                            $   175,000

TOTAL                                                               $3,960,300-$4,316,550

This proforma under Option B for new construction assumes a nice level lot with a typical foundation expense.  It also assumes none of the utilities had been installed, which is not always the case.  Many of the lots on the market have at least some or all utilities nearby.

The advantage of new construction allowed my buyer to construct exactly what they were looking for in a floor plan and use of materials.  Unfortunately, they could not finish the home for 2.5 years and during that time, they had what seemed like an interrogation by their lender and had to interview three general contractors and architects prior to finding one they felt was compatible.  During the construction period, they elected to make change orders which increased their costs and delayed the process. 

Further, they had to hire a consultant to submit to the County the storm water management plan and due to an Indian Midden, an archaeologist had to be retained as well. In addition, their well required a 4-hour drawdown as it was within 1000 feet of the shoreline and the drawdown could only be processed during July to October to comply with County regulations.   

There were only two dead or dying trees on their lot that could be removed so their view remains filtered.  Below is a photograph of their view from their deck which is approximately 110 feet back from high tide mark with the first 35 feet being a “no touch” buffer.  They are able to trim up to 4% per year.  They have yet to figure out how to measure the 4% and may have to hire an arborist to process the calculation and do the work.

As they used a federally insured lender, they had to pay $4,500 in survey costs to prove to the lender and Corps of Engineers that they were eligible for a Letter of Map Amendment and waiver of flood insurance.

For some people, the new construction process can be very stressful; however, a major remodel can be just as stressful, and both can be a character-building experience.   Other people enjoy the process very much.

Of course, I have exaggerated the list of problems my hypothetical clients dealt with during the course of their construction, and I admit that if all of these items actually happened during their project, they most likely would be stressed out.

Option B proforma would also apply to a “remodel by backhoe”.  Basically, a nice lot with a tear down house should be considered as new construction.  Of course, you need to add $100,000+ in dump fees to the budget. The advantage is that the tear down cabin is most likely in a location closer to the shoreline and is considered non-conforming.  You should be able to remodel in that location, but you may not increase the non-conformity, therefore you can build up or back, not to the front or side to side.  There are other regulations that you must also comply with as well.   Further, these types of properties were most likely cleared years ago so offer more sun and good water views.

In this sample case the cost of custom construction was $876,300 higher or 28%-31% above the cost of buying an existing home and remodeling.  This percentage has increased from 16% when I first processed this case study in May 2016 when I also used a waterfront home in my analysis. Back in 2016, I used $250 per foot for new construction, my existing waterfront home was available at $1M, and I thought it would take 1.5 years to finish the construction. Those were the days!!!  

These last few years of escalating prices and appreciation of existing homes, has kept pace with the higher costs of labor and materials.  However, the cost of an existing home is still less than new construction but…. Supply and demand.

                                          Sample View from a New Home with 110 foot Setback

                       Below is a sample view from the existing home that they need to remodel.

Lot and acreage sales have just started to pick up in our market.   Last year was very slow for land sales but year-to-date we are noting a higher number of land sales.  Some new listings for land are property owners that purchased a few years back and have decided that building a custom home is not in their comfort zone or budget.  With lower land sales over the last few years, most of our general contractors have caught up and no longer have years for a wait list, they can start on your job without delay.  Permit applications for new construction have increased at the County. There are always people that are willing to pay to construct the exact home that they want for their lives. 

As with all my articles, the opinions expressed herein are solely my own.  And these opinions are based on my personal experience, observations, and from interviewing and reviewing both public and non-public information sources.  Anyone interested in either new construction or a remodel should speak with one of our many qualified general contractors on island. If you need a referral, please be sure to contact me.

Written by:

Merri Ann Simonson

Managing Broker/Sales Manager

Coldwell Banker San Juan Islands

1-800-451-9054

simonson@sanjuanislands.com

posted 8-2026