The Benefits of Buying a
New Home vs. a Foreclosure
A common misconception among homebuyers is the idea that the best home values in today's market are foreclosures. While there are some good deals on homes in foreclosure, for most buyers, buying a new home is actually the better value.
Robert Burton, vice president of sales and marketing at The Hofmann Company, a renowned homebuilder that has built over 30,000 homes throughout northern California since 1959, shared his insights on the market and explained the advantages of buying a new home over a property in foreclosure.
What makes buying a new home a better value?
For starters, when you purchase a new home you are protected by a warranty. As Burton points out, "If anything goes wrong, the home is covered by the builder's one-year limited warranty on workmanship and materials, as well as a ten-year structural warranty." You have peace of mind knowing there won't be any unanticipated out-of-pocket repair costs to absorb.
Another benefit of buying a new home is the special incentive programs many builders currently offer to assist buyers. Some of these incentives, such as below market financing or help with closing costs, can save you thousands of dollars and make it easier for you to qualify for your home purchase.
If you're after a quick response to your offer, a new home is a smart way to go. In most cases, you're dealing directly with the builder, which ensures a prompt reply. "As long as the home is ready for occupancy, you can also count on closing escrow in a timely manner," Burton notes.
Of course, the ultimate benefit of buying new is having the opportunity to purchase your dream home. You are the first owner and everything is pristine, sparkling, and brand new. In many cases you'll be able to customize the home, selecting items like cabinetry, countertops, and flooring. Rather than making due with someone else's choices, you have the advantage of living in a home and a neighborhood that truly reflects your taste, lifestyle and personality.
Are you prepared to roll the dice on a foreclosure?
Most buyers don't realize there are a variety of risks associated with buying a foreclosure. Perhaps the biggest concern for any potential buyer should be the fact that properties in foreclosure are sold "as is." This means there's no warranty protection and more importantly, as Burton states, "there's no stipulation on disclosures on the property."
By law, conventional sales on new or resale homes require full disclosure of any details or drawbacks on the property. The seller can be held liable if a problem arises as a result of an issue that wasn't fully disclosed at the time of the sale. With foreclosures, it's always "let the buyer beware." When you purchase a foreclosure you have no recourse against the seller if there are construction defects, environmental hazards, or problems of any kind with the home.
Additionally, when you purchase a foreclosure you can't always be sure of the condition of the home. Many homeowners stop taking care of the property when they realize they will be losing the home. Often, maintenance issues are not immediately visible, for example, having the water turned off for a long period of time can result in problems with seals and plumbing fixtures throughout the home. Buyers are forced to come out of pocket to bring the home up to an acceptable standard of living.
Then there's the issue of price. Burton notes, "You may be surprised to discover that the below market listing price is not what the property actually sells for." Foreclosure properties often attract multiple offers, with professional investors stepping in and bidding up the prices of many below-market foreclosure listings. What initially looks like an incredible deal ends up selling at a significantly higher price. Keep in mind that many foreclosure properties may also require a substantial additional investment after the sale to replace damaged fixtures, missing appliances, stained or worn-out carpets and dead landscaping.
Another factor to consider is you won't receive incentives like those builders offer on financing and closing costs. In terms of financing, you're on your own when you purchase a foreclosure. In most cases, you'll need to have your financing in place before bidding on a foreclosed property.
Finally, for many, there's still a stigma attached to buying a foreclosure-a feeling of buying someone else's problems or benefiting from another family's misfortune. Those who practice Feng Shui may fear the negative energy in the house could impact their family and cause bad luck.
What about short sales?
A short sale occurs when homeowners who want to avoid bankruptcy or foreclosure proceedings gain lender approval to sell the home for less than they owe. In a short sale situation, you are at the mercy of the lender. Even if the owner accepts your offer, the lender has the final say. Obtaining lender approval is a time consuming process, which can take upwards of thirty to sixty days. Short sales require patience and may result in disappointment since lenders frequently reject offers that are below market value.
The bottom line is peace of mindů
The reality is it's a great time to be a homebuyer. Prices are down, interest rates are extremely attractive, and the selection of available homes couldn't be better. If you're a risk taker, a foreclosure or even a short sale could be right for you. For the rest of us, Burton concludes, "When making an investment as significant as a home purchase, the bottom line is peace of mind." Buying a new home from a trusted builder in today's market promises the best of both worlds-outstanding value and peace of mind.