Why All Homes Are Not Created Equal: Breaking Down True Cost of Ownership
When you’re in the market for a new home, there are a lot of decisions to make. A common misconception that new homeowners make is comparing homes based on their purchase price.
The problem with this is that the initial costs fail to take into account the quality, your experience, and the true cost of ownership beyond the initial price tag.
Often, these major purchases can cost more than you anticipate. Nerd Wallet does a good job of identifying the hidden costs of owning a home. They explain how taking these hidden costs into account is how we start to break down the true cost of ownership and understand the actual cost - and we agree.
To help paint this picture, we have compared two similar vehicles with significant purchase price differences. Let’s say you come across a 2019 Dodge Grand Caravan and a Toyota Highlander Hybrid. The mini-van is priced at $32,000 and the SUV is priced at $47,500. By examining each vehicle’s cost to own throughout the years, we can more clearly see their true cost of ownership.
Of course, you want a car that you will love but you are also budget conscious. At first glance, the Grand Caravan looks like the best value with an initial price tag of over $15,000 less than the Highlander Hybrid. It appears to be a no-brainer, but you’re a savvy consumer and do some research on the vehicles. You like the sale price of the Caravan, but the Highlander beats it in virtually every category: reliability, owner satisfaction, fuel efficiency, utility, safety, and let’s be honest - it’s a sleeker, more stylish car.
You know all of these things are important to you and your family but how can you justify an additional $15,000 price of this purchase? You dig deeper into your research and discover the concept of true cost of ownership. This takes into account what the vehicle will cost you over the lifetime you own it and not just the amount required to purchase it.
You find that when you compare purchasing and owning these cars for the first year, you actually end up saving $2,000 by going with the Highlander Hybrid. Now you multiply these savings on a year-over-year basis and think about all the additional savings from those categories in which the Hybrid beat out the minivan.
The cost of ownership savings for the Highlander Hybrid over 5 years comes out to $11,190. Thus, the $15,000 disparity now decreases to $3,810 for a much more desirable, eco-friendly driving experience. Furthermore, this cost margin between the two vehicles decreases even more if you choose to own the vehicle longer. The Highlander Hybrid will also fare better with resale, thus increasing the value even more.
And while you can’t exactly put a monetary value on owner satisfaction and style, buying a vehicle is an investment in yourself and the time you spend using it as much as the features and statistics that you can list on paper.
Not only do you get all the other features that you know are important, but you can also justify the increased purchase price.
What initially appeared to be an easy decision changes drastically when you explore all the facts. Understanding the real value and making comparisons across detailed information is the best way to make informed decisions. Trying to create an apples-to-apples comparison leads to misinformed decisions.
Let’s take the same concepts from above and utilize them to compare a BrightLeaf home with a standard new construction home.
The True Cost of a BrightLeaf New Construction Home
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Comparing two new construction homes using the same initial costs (including down payments, interest rates, property tax, and home insurance) you can see the major savings begin after these factors are taken into account. BrightLeaf homes have an average HERS Index score of 35, while many new construction homes are closer to 100. On the HERS Index, the lower the number, the more energy-efficient the home.
Just as we know that there is a significant difference in the quality of the product for a car, these same concepts should be applied when shopping for a home. This leads to the fallacy that the largest home for the cheapest price equals the best value. As with our car comparison, the true cost of ownership is identified not with the initial price tag, but with the savings you see after you purchase your home. Find out more about how we breakdown and calculate the true cost of ownership for homes.
So why do we accept this inferior comparison model as a standard for homes when we know there is much more at play? Let’s change this mentality and find better ways to help make informed decisions.