Watch for Hidden Costs: Comparing New Homes to Foreclosures

The economic downturn has hurt many American families during the past few years, and sadly that means there are a larger number of foreclosed homes on the market than during a healthy economy. The lower price of these homes can make them look like a bargain, but home buyers  need to carefully compare the actual cost—and advantages—of a newly constructed home versus a foreclosed one before you buy.

During an educational seminar at the 2012 International Builders’ Show in Orlando, Jay McKenzie, vice president of Builder Digital Experience, LLC, offered a number of advantages of purchasing a brand new home, and  hidden costs of foreclosed homes that buyers need to consider:

·         Many foreclosures are sold “as is” with no disclosure requirements. You could be surprised with major repair bills for issues such as foundation faults or other structural defects, mold, hidden water damage, unsafe wiring, rodent infestations and more. A foreclosed home that appears to have been renovated may not have been done so with the proper permits and inspections. A brand new home provides peace of mind for your family’s safety because it has passed inspections and conforms to current building codes. A new home is also under warranty and any issues that arise during the warranty term will be fixed at no cost to the home owner.  

·         New homes can be personalized with appliances, cabinets, countertops, carpets, floor coverings, paint color and other design elements to meet your family’s needs and tastes. They also come designed for modern lifestyles, with open space floor plans, walk-in closets, creative storage solutions and conveniently-located laundry facilities. With a foreclosure, you’ll have to spend time and money to knock out walls, re-paint, and make other renovations to change the previous owner’s tastes to your own.

·         Newly built homes are highly energy-efficient, saving the buyer money and helping the environment. New windows, doors and insulation better control the home’s interior climate, and Energy Star-rated appliances and other modern components will help save costs on utility bills. With a foreclosure, if the appliances, water heater or HVAC are in working order, depending on their age, they may not be for long. And they certainly aren’t as energy-efficient as new ones.   

·         New homes come outfitted with the latest home automation and wiring components that provide state-of-the-art technology capabilities to accommodate modern home appliances and entertainment resources such as high-definition televisions, full-house sound systems, hard-wired fire and security alarms and more. Foreclosures probably don’t have updated wiring, and old wiring not only may not be able to handle modern resources—it may be unsafe and a fire hazard, and will cost a lot to update to current standards.    

·     Financing a new home is easier than financing a foreclosed home. Many builders offer incentives to reduce closing costs and can complete the closing quickly, unlike banks that just want to get foreclosed homes off their books and may have a backlog of homes to process, which can take months or years.

It is important to note that some home builders have expanded their businesses to include buying foreclosures, then renovating and re-selling them. In these cases, the builder normally has inspected the home for hidden damage or dangerous conditions, gotten the required permits, and completed the necessary repairs. They also often renovate, replace appliances and components, and perform many cosmetic upgrades to make the home an attractive and safe place for the home buyer. 

For more information on what to consider when buying a new home, contact the Home Builders Association of the Grand Traverse Area at 231.946.2305  or visit the National Association of Home Builders online at www.nahb.org.