Builders are still building in Florida
As most housing markets are depressed in value from their peaks in 2005 and 2006, many buyers that have not had the opportunity to ride the rise and fall of home values in the real estate market wonder why they would pay a higher price for new construction when they can get great value in a foreclosed home.
The builders have had a hard time in the last few years finding a small percentage of the buyers that were there before. They have offered incentives, changed their floor plans and altered product features to adapt to the buying mood and offer a great value home at a lower price. However, it can be hard for a buyer to wrap their head around the price. A new home built in 2006 may have sold for $180,000, is on the market as a foreclosure at $80,000 and the builder is building the same or comparable home today for $110,000. So why would the consumer choose to either pay more for the same/less or choose new construction?
There are several reasons why people are choosing new construction over a foreclosure and here are some of those reasons.
Warranty – Some people choose to a pay premium for the piece of mind they get in their new home warranty. Most builders warrant major and minor components for one year; some builders two years. There are also builders that offer 10-year structural warranties. On top of that, the manufacturers that have products in the home may also have their own warranty on items such as appliances, air conditioning systems, doors/windows, roofing material, flooring materials and even counter tops.
This edge has been rivaled by the foreclosure market with the growing offers of warranties on components by Freddie Mac in select homes or the buyer’s ability to buy a home warranty from American Home Shield or 2-10 Warranty. The buyer is still getting a warranty in these situations but they may not be as good as the builder warranties and most of these have service payouts that the home owner is responsible for in order to get repair work completed.
Built to the Most Current Building Codes – Florida has seen its share of hurricanes over the years and after devastating storms in the 90s, the state revised their building code to be more stringent on areas prone to wind damage particularly on the coasts. The Florida building code is updated every three years with revisions and exceptions added in between. The latest code on register is the 2007 code adopted in 2008 (so yes there is a new code coming). In 2004, there were changes put in place in regards to wind loads that had to be managed by roofs, windows and points of entry such as garage doors in coastal areas. Those changes were again modified in 2007. Buyers who want to feel like they have the best chance against a storm are likely to buy new construction because they feel like their home is safer and built better to match the potential storm conditions.
Energy Efficiency – Consumers have talked about being “green” until they are blue in the face. And with the adoption of the Montreal Protocol, the United States agreed to reduce ozone depleting gases in a staged program. The first noticeable impact to new construction was the requirement of a minimum 13 SEER air conditioning system installed in new homes as of January 2006. For those that don’t know, SEER (Seasonal Energy Efficiency Ratio) refers to the efficiency that the air conditioner cools the air as opposed to the amount of energy it consumes. As of January 2010, a home will also have R-410 as a coolant because manufacturers can no longer put Freon, R-12 or R-22 in new air conditioning systems and those coolants will no longer be manufactured after 2020. New construction will have newer, more efficient systems which impacts a home owners wallet every month.
Depending on the Stage of Construction a Buyer Can Select Cabinets, Countertops, Flooring, Appliances and Finishes.
Ability to Personalize – Why would someone buy a foreclosed home and then spend $40,000 to renovate the inside to match what the new owner wants in the home. The new home owner now has to live in dust and with contractor nightmares until the work is complete. The buyer should have the builder do the work and pay the premium to have the home done prior to closing.
Still Has That Brand New Smell – Just like when you buy a new car, when you buy a new home and you can smell fresh paint, new carpet and that clean plastic smell in new appliances, you know that you are about to live with things that are new. There are not years of mystery bacteria or mold hiding on the counters or pet hair from previous owner’s pets in the carpet. Especially for a family with children that might be concerned of where there kids are going to be, there is piece of mind that they are playing on a new, clean floor (or as clean as you can keep it.)
Buy Down Programs – The builders have been trying to sell homes so they are trying all kinds of things. A successful promotion which has been done by many of them are rate buy down programs. In these programs, the builder pays the buyer’s lender a premium to buy the mortgage rate down the first two years while the buyer is in the home and then the buyer hasa normal fixed rate the remaining life of the loan. This allows a home to be priced a little higher but adjust the monthly payment down so that it is more attractive for the homeowner in their monthly payments. The buyer will usually have to qualify for the higher rate that extends the life of the loan but that rate is comparable if not the same as current 30-year fixed rates. It is an affordable way for a buyer to get into a new home and is unlike the exotic loan products that were prevalent in 2005 and 2006.
Buyers should carefully weigh their options and think if they want to invest in a foreclosed home or new construction when they are buying in Florida in 2011.
