Buying a new home versus buying a foreclosure

New home builders of course want homebuyers to buy new homes rather than resales but when Beazer Homes recently sent me this article I have to admit I thought the points were valid ones for potential homebuyers to consider when comparing a new home with a foreclosure.

New home builders have been hit hard by the housing slump and credit crunch, so they are offering buyers increasingly generous incentives (thousands of dollars in closing cost assistance, including upgrades and finished basements, etc.) in order to compete with other sellers and get their inventory off the market. So, while a foreclosure may be a bargain, home shoppers should take a look at new homes in their price range, too. Foreclosures are sold "as is" and often require intensive repairs and remodeling which should be factored into the financial decision to buy one.

So, here's some advice from Beazer Homes for buyers weighing purchasing a foreclosure or a new home:

As more “bank foreclosure” and “home auction” signs take root across the landscape, an increasing number of potential buyers are asking the question: Deal or no deal?

With bank repossessions topping more than 850,000 properties in 2008, according to RealtyTrac, curiosity is building in the foreclosure home market.

But before sinking your hard-earned money into buying a distressed property, real estate professionals strongly advise doing extensive research so you know what you’re getting into. What looks like a bargain basement deal of a lifetime may end up being no more than a money pit.

Home builders, who are offering large incentives on inventory and to-be-build homes, suggest that new construction is a much better value — and one that comes with a full warranty and no surprises.

“While there may be some good deals out there on distressed properties, you never really know what you get until you move in — and then there’s no recourse if the roof leaks, the heat stops working or the plumbing backs up,” said Martin Hernandez of Beazer Homes.

To help homebuyers make an informed decision, Hernandez offers the following advice on both sides of the foreclosure verses new home debate.

Get the facts. Do as much research on the foreclosed property early on to learn if there title issues, judgments and liens attached that may hold up or derail the purchase.

It’s yours — as is. If you can’t get in to inspect the distressed property, or have a professional do it for you, you’re taking a big gamble. With no warranty on a foreclosed home, necessary repairs to make the house livable will quickly add up.

“Don’t get caught off guard by thinking the home will be livable from the start,” said Hernandez. “Everyone has heard horror stories about evicted owners stripping the house of appliances, fixtures and even copper plumbing on their way out the door.”

Take your pick. While your choice of neighborhood, amenities and home style may be limited with a foreclosure, it’s just the opposite with new home construction. The ability to choose a neighborhood, the floor plan that fits specific needs, plus countertops, cabinets, storage systems and flooring, are among the biggest reasons why people buy directly from a builder.

Peace of mind. Real estate professionals typically say “let the buyer beware” when speaking about foreclosures for good reason. There is no warranty like that which comes with a new home. New home builders like Beazer provide buyers a warranty that covers materials and workmanship for the first year and continuing coverage through the second year that includes specific components of major mechanical and electrical system. Also, new home buyers have the added benefit of manufacturers' warranties for kitchen appliances, air conditioning and heating units and the roof, just to name a few examples, which are passed along to the buyer at closing.

Energy wise. Chances are good that you will have no idea how high your power bills will be with a foreclosure. New construction offers the greatest savings through features like an advanced HVAC system and materials like low-e windows and tight insulation that keep power bills down. A foreclosed home that has been sitting vacant with no air circulating through the HVAC can lead to myriad health issues.

Financing. When bidding at an auction, bring cash for the down payment and have your financing ready to go because you may be asked for the full amount right then. Home builders, on the other hand, may have a preferred lender who can to help resolve financing obstacles. Ask what other incentives are available, like closing cost assistance or interest rate buy downs.

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