New Homes vs. REOs
During a recent conversation with one of our top producing agents at Elite Properties, Mike Keleshian, he mentioned something that I thought would be worth mentioning on the blog. He said that new homes are lately very possibly beating bank-owned homes as better bargains for home buyers and they are definitely options a home buyer should keep in mind when shopping in this market.
Really?
When one thinks of great bargains in this current real estate market, we tend to think of mainly bank owned homes. While it is true that prices have fallen overall because of the number of foreclosures in the market brought about by the number of bad loans out there, it is also important to remember that prices have fallen for all the homes.
While banks usually price their inventory at rock bottom prices to get rid of it, other homes in the neighborhood are also affected. Their prices have also fallen. (As you probably already know, prices are based on comparable sales of nearby homes. If all the homes in the area are foreclosures and their prices are depressed, the prices of the subject properties fall as well.) So it’s not just the foreclosures that are underpriced - brand spanking new homes have also lost value and are now cheaper than they used to be.
Can a Realtor® Show me New Homes?
Absolutely. In fact, one of the biggest changes that has occurred because of the real estate slowdown is that new homes are now featured regularly in the Metrolist MLS that all Realtors® in the area use. In the past, Realtors® were not welcome in new home subdivisions - and if you can remember the time - home buyers were picked by lotteries and long waiting lists.
Today, the situation is completely different. Home buyers have huge incentives to buy these new homes, whether it be free upgrades or better financing. Some homebuilders are also throwing in luxury vacations and so forth to entice home buyers. Of course, while you’re not really considering a luxury cruise as soon as you buy a new home it is important to know that the home buyers now hold the cards.
What about the Financing Aspects?
If you’re a first time homebuyer in this market, the world is your oyster! Besides the tax credit to first time home buyers, new home builders are now giving you incentives in terms of financing your home purchase. These incentives include a lower interest rate (i.e. lower than what you could get from the bank or any mortgage broker - they discount a point or so) if you use their preferred lender, various upgrades like granite counter tops, landscaping and / or custom paints and so on. Sometimes, builders will even offer to pay a year or two of your mortgage payment.
To compare this with a bank-owned home is to see the advantages of buying a new home right away. Bank owned homes typically need you to jump through their hoops - get pre-approved with their own lender, shorten your timelines to get a loan and various other financing issues. Why not look at new homes and take advantage of the incentives offered to you?
What are the Other Advantages?
I remember attending an appraisal class once and although the emphasis was on how to use comps for Realtors® the appraiser discussing details said something pretty unequivocally - Never compare a new home to a resale home. Why? Simply because it’s a new home!
But besides the fact that some people prefer homes where no one else has ever lived, the fact remains that a new home is something of a novelty for which people will pay a premium. Just from the practical side of things as well it has suffered less wear and tear and less depreciation than a resale home and usually much less than a home that has been foreclosed on someone for non-payment. (Of course, if there were no finances available for the mortgage payment, we can assume there is deferred maintenance on the home.)
It is up to the individual home buyer to decide whether or not he or she prefers a new home subdivision to a resale home, but it is however a choice that should not be ignored if you’re in the market for a home today. There is a host of choices out there and it’s a good idea to at least check each one out before making a decision!
