New Homes vs. Foreclosure

This is the hottest part of the market. While prices are at the lower range of appraised value, many times they are bid up with multiple offers, including cash offers, and ultimately sell at greater than asking price. Even in today’s market, homes are selling ABOVE asking price! The demand is for the cleanest, move in ready.  Others, far less in demand due to “issues” and since appraisals and asking price reflect the issues; they usually sell 95-100% of asking price. When you hear that your buddy’s buddy got a steal on a foreclosure…that was probably the fair market value given its current condition.

Foreclosures are the end result of court action taken against the former owner and ownership, in most cases, reverts back to the original mortgage holder – the bank.  You are negotiating with the bank.  That is what makes them popular as the bank will have an acceptance or counter back within days rather than the months that the same bank may have taken on a short sale.  Additionally, if not resolved in the court’s foreclosure ruling the banks resolve other issues for clean title transfer.

 Foreclosure Considerations

 All transactions are AS IS, no warranty.

 Offers submitted on standard AS IS contracts.  Banks return with addendums drawn up by their lawyers, superseding all other language, and not in the buyer’s best interest. READ CAREFULLY!

 No Homeowner’s Disclosure advising you of defects or prior repairs that covered defects.

 Prior owner sabotage.  Flushing concrete mix down the drains to harden? Other passive aggressive acts?

 Bidding against your own tax dollars! Each County participates in the federally funded Neighborhood Stabilization Program, acquiring foreclosed properties to limit neighborhood blight.  By rules and financial modeling, these tend to be the better properties that need the least repair…and would sell in their own right as they are the most desirable. 

 Buying into neighborhood liability.  It may take decades to recover with future short sales and foreclosures liming your property appreciation potential.

 Home condition – What is missing and needs to be replaced immediately to be livable?

 Home condition – What is destroyed or trashed?

 Home condition – What is the remaining life of what remains?

 Home condition – What is the secondary damage? Example: Leaving holes in roof when removing solar panels. Mold covered up with paint. Dark paint colors requiring 2 coats to cover doubling material and labor cost.

 Home condition – Dead landscaping needing total replacement.

New Home More Viable ?

There are several considerations supporting a new home over a foreclosure.

 Many considerations are the same as those over a short sale.

 All new energy efficient appliances, AC, roof and other major components.

 Doesn’t need re-landscaping.  Previous owner usually practiced minimal upkeep and repairs and had no incentive to assist the bank.

 Neighbors in new home developments have higher mortgage eligibility criteria to qualify and houses are priced at current deflated market values while foreclosure neighborhoods enjoy neither and issues may continue for decades as neighbors owe significantly more that their home is worth.

 New home warranty is included while a home warranty is rarely offered and paid for by the bank.

 How much will it cost to make the foreclosure home equivalent to the new home, if possible? After all repairs, it may be cheaper to buy new!

About Foreclosure Photos

The Foreclosure photos, like most on this web site were taken by Larry Gray.  These are actual homes in the Orlando Metro area that are owned by the bank at the end of a foreclosure process.  Banks may clean them up as the photos were taken at the initial access and lock changing after the foreclosure case was settled.  However, banks taking them to a pristine state is unrealistic. In the photos above, the bank DID NOT replace the appliances, fireplace and flooring, intercom system, AC, or re-sod the landscaping.  Sadly, it represents the former owners either taking or not safeguarding items that were originally part of the mortgage they defaulted on.  Ultimately, it is the new buyer  that is tasked with making things whole.