Builders highlight often-hidden costs of buying a foreclosed home

Source: Los Angeles Times | February 19, 2012

Builders say the costs of their houses are built into the price, but fixing up a foreclosure can cost thousands of dollars extra.

Home builders are switching tactics and confronting head-on one of their biggest nemeses: foreclosed houses that not only lure buyers away with deeply discounted prices but simultaneously depress the appraisal values of newly built homes.

At a packed session at the International Builders’ Show expo Feb. 8-11 in Orlando, consultants and builders said that with gluts of foreclosures in major markets around the country — and more forecast to arrive in the next two years — the time has come to stop being passive and to begin aggressively educating buyers about the often hidden costs of buying foreclosures.

Among the key arguments builders are using in their campaigns:

• New homes are far more energy-efficient and “green,” with highly rated windows, roofs, insulation and appliances. They also come with the wiring and spaces needed for most consumers’ high-tech information and entertainment preferences. The vast majority of foreclosures offer little or none of this.

• Newly constructed homes allow the buyer to “choose what you want” in floor plans, equipment, landscaping and amenities, “rather than inheriting someone else’s choices.”

• Closing-cost and upgrade incentives. Most builders are willing to help with settlement costs, unlike banks unloading foreclosures.

• Financing is almost always easier, since a large percentage of builders either have their own mortgage subsidiaries or are affiliated with a lender.

So what should you make of marketing pitches like these? To begin with, if you’re seriously thinking about buying a foreclosure to live in, take the time to check out the potential risks.

The builders have a point: The costs of their houses are all built into the price. You often have no idea what your final expenses will be with a foreclosure because you buy it “as is,” typically with no professional inspection, and you can’t be totally sure where that might take you. [Read the article.]