New Home vs. Foreclosure: Avoid a Lesson in Hard Knocks

Here in Arizona we have seen an enormous amount of foreclosure activity. The state posted the nation's second highest state foreclosure rate in the third quarter, with one in every 53 homes receiving foreclosure filings. Nevada had the worst rate, with one in every 23 homes affected.

Week after week of foreclosure auction after foreclosure auction may leave you wondering if that route is one to consider. One word to the wise: caution! Foreclosure may not be the best value in the long run.

Foreclosures can be emotionally draining since they are the result of another person or family losing their American dream. There have also been wide reports of foreclosure homes being stripped of anything valuable, such as appliances, ceiling fans and light fixtures. "Without question, 85 to 90 percent of foreclosures on the market under $200,000 have been stripped," said Tempe real estate agent Kim Baker. "People are having to look at 20 or more foreclosure houses before they find one suitable," said Jay Butler, director of realty studies in the Morrison School of Management and Agribusiness at Arizona State University. "One of my students looked at 35. Doors are missing, plumbing is gone," he said.

What makes buying a new home a better value? For starters, when you purchase a new home you are protected by a warranty. 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 builders may 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 are after a quick response to your offer, a new home is a smart way to go. In most cases, you are 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.

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. At Maracay Homes you'll be able to customize the home, selecting items like cabinetry, countertops, and flooring, plus utilize the Flex Design® program to create your preferred living spaces. 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, 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 was not fully disclosed at the time of the sale. With foreclosures, it is 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 not 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 is the issue of price. You may be surprised to discover that the below market listing price is not always the final sale price. 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. And, if you purchase a home at one of the promoted auctions, there is usually a commission added to the sale price.

Another factor to consider is that you will not 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 is still a stigma attached to buying a foreclosure-a feeling of buying someone else's problems or benefiting from another family's misfortune. Most 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 30 to 60 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 mind.
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, 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.

Extrapolated from NewHomesMagazine.com and the Associated Press