If you’re shopping for a home, you may be considering new homes, short sales and foreclosures. The best deals will depend on your local market — and how much patience you have.

By Amy Hoak of MarketWatch

The nation’s housing inventory is cluttered with foreclosures, short sales and homebuilders willing to make a deal. If you’re in the market to buy a home today, you’re likely weighing the benefits of each type of property available for purchase.

Don’t be fooled. Not all bank-owned foreclosures are sold at deep discounts. Not all builders are slashing prices. Short sales can be a crapshoot, with some buyers enduring months of waiting and still not getting the property.

All things considered, it’s possible that your best deal is purchasing a traditionally sold existing home, so don’t count those out of the running.

To get the most for your money, it’s important to understand the local market’s inventory; market dynamics will have a lot to do with how various types of homes are priced. Also, do some soul-searching to determine how much risk you’re willing to take and the amount of time and money you’re willing to invest in a home.

You won’t be alone: "Buyers are more educated these days. They’re coming to us with a good sense of what they’re looking for," said Diann Patton, real-estate agent with Coldwell Banker.

At the very least, go in knowing what you can afford and in what neighborhood you’d like to live, said Leonard Baron, a real-estate professor at San Diego State University. Since most properties find their way to local multiple listing services, shoppers also can decide what type of home they’ll buy after finding one that fits their needs, he said.

Bank-owned properties
Foreclosures reclaimed by the bank, often called bank-owned properties, are often sold at a discount. However, the size of the discount depends on the market you’re in.

A recent report from Zillow.com found that the typical discount for bank-owned properties, compared with a traditionally sold home, averaged 20% to 30%. According to separate data from RealtyTrac, an online marketplace of foreclosure properties, the average discount on bank-owned properties was 34% in the first quarter.

There is more than one reason why the selling price of a foreclosure is lower than a traditional home.

"The seller is typically a bank, and would like to move (the property) off the books as quickly as possible. A traditional seller is interested in getting a certain price and is willing to stay in the market," said Stan Humphries, Zillow’s chief economist.

Also, the condition of the home can be an issue. A buyer who wasn’t able to make mortgage payments also probably wasn’t able to keep up with needed maintenance. One of the biggest mistakes homebuyers make when buying a foreclosure is underestimating how much it’s going to cost to repair it, said Rick Sharga, senior vice president of RealtyTrac.

Others agreed. "It usually costs a lot more than you think," Baron said. "You can add value to a property by rehabbing it, but probably not more than the cost you put into it."

For the lower price, buyers also need to accept that they’re most likely purchasing a home that has been sitting vacant, which comes with its own set of issues because small problems — a leak, for example — can become big ones if no one is there to notice them. These homes also may have limited seller disclosures, because the owner — the lender — hasn’t been living in the home and thus has less information to disclose.

Home inspections are generally recommended regardless of what type of property you’re buying, and they’re essential in the case of a bank-owned property.

Location matters, too, in the pricing of a bank-owned foreclosure. In places with the highest incidence of foreclosure, bank-owned properties garnered the smallest discounts, compared with traditionally sold existing homes, Humphries said. "The places that did not have very many foreclosures right now had large discounts," he said.

Another way to look at it: A homeowner aiming to sell his home in a market where a large percentage of sales are foreclosures will likely have to price it like a foreclosure just to be competitive.

Short sales
Patton said that in her California market, short sales offer some of the best deals. A short sale is when the seller owes more on the mortgage than the home is worth, and the lender agrees to accept less for the property to make a sale.

But even if you save money on a short sale, you could pay in other ways, she said.

Although lenders and government programs are trying to speed up the process required to complete a short sale, a buyer could still wait months just to find out he or she failed to get the home, Patton said. The home is discounted partly because of the uncertainty that the buyer experiences, she said.

"You need to understand there’s a reason why they’re less money — you have to play the game," she said. "You have to be patient."

The market generally discounts short sales by 5% to 8%, compared with traditional sales, said Travis Hamel Olsen, chief operating officer of Loan Resolution Corp., a national pre-foreclosure asset manager.

New homes
In many markets, the supply of new-home inventory is dwindling. That has caused pricing in the new-home market to stabilize, said Ken Lee, product analyst for Hanley Wood Market Intelligence, the research arm of media company Hanley Wood.

That is, fewer bargains may be available for new-home buyers.

"There is less flexibility on the builders’ side to negotiate prices," Lee said. Plus, with supply more in control, "there’s not as much urgency to drop prices to move the homes that are currently sitting on the market."

Buyers typically pay a 20% premium for a new home, compared with a traditional (nondistressed) existing home, but that also varies by location, Lee said. In his area of Philadelphia, a new home might cost $300,000, where a similar existing home would sell in the mid $200,000s, he said.

That isn’t to say builders won’t find other ways to make a deal. They’re still willing to throw in incentives, like finished basements, as a way to sell a home, Lee said. But if you’re looking to get the lowest price on a home, this might not be the best route.

And if there are distressed sales in new communities you’re considering, proceed with caution.

"A lot of foreclosures in the area will drive down the prices of nonforeclosure homes," Humphries said, and that can extend to new-home inventory. It’s not impossible to find foreclosures and vacant properties in communities that aren’t even finished yet, he said.

 

Learn what features consumers are looking for in design and construction this year.

By Hannah Shipley, FrontDoor.com | Published: 7/20/2010

During a panel at the 2010 International Builders Show, Eliot Nusbaum, executive editor for home design for Better Homes and Gardens, explained that practicality and price are fueling decisions on how homes are designed and built.

Nusbaum says the homeowner of today is "looking for a home that fits the entire family — from a multi-tasking home office, to expanding storage space needs, to a living room that can adapt to advancements in home entertainment and technology."

A Smaller Home

Today’s consumers are buying homes with less square footage. Purchases of smaller homes are up 36 percent from last year.

But just because a home is small doesn’t mean homeowners are sacrificing precious living space. Open concept floor plans are the resounding trend in smaller homes, where higher ceilings and an easy flow maximize perceived living space and allow rooms to serve multiple purposes.

Energy Efficient Appliances

Saving energy and money go hand-in-hand when using Energy Star appliances in the home. These eco-friendly products use less electricity, thus helping to lower your utility bill

Efficient HVAC Systems

Today’s HVAC systems are far more efficient than those of a few years ago. Not only do they bring increased comfort and improved air quality to the home, but they also use less energy and help to lower utility costs.

An Efficient Design With Lots of Storage

Homebuyers are looking for ways to maximize space and make better use of a home’s square footage.

An efficient design, with an open floor plan and multi-functional rooms, is complemented by a lot of storage.

With more people buying small homes, unique and practical storage solutions allow homeowners to have enough space to stay organized.

More Natural Light

Going with the theme of eco-friendly living, homes that maximize natural lighting don’t require as much energy to stay well-lit inside.

Plus, by adding more windows (or just larger ones) to bring more natural light into your home, you’ll make your living space feel larger and get better outdoor views.

A Separate Laundry

Being able to keep the family’s personal items out of sight is a luxury many homeowners want in their home. No one wants to feel like the washer and dryer are in the middle of the cooking or entertaining area.

A home with a separate area for laundry, whether it’s a designated room or just a space away from the higher traffic hot spots, offers a world of convenience.

An Outdoor Living Area with Private Backyard

A well-constructed porch, deck or patio can do wonders for a home’s perceived square footage. Plus, with proper landscaping, the backyard can allow for outdoor fun and relaxation without feeling like the whole neighborhood is watching.

Eat-In, Partially Separated Kitchen

A designated spot for dining in close proximity to the kitchen is important to homeowners, as is a partially separated kitchen. Being able to maintain an easy flow of space while keeping the kitchen from overflowing into other parts of the home allows families to dine together with ease, but it keeps the hustle and bustle of a kitchen from taking over the rest of the house.

Guest Bedroom and Bath

You want your overnight guests to enjoy their visit. You don’t want them feeling like they’re taking over an office or living room by sleeping on a foldaway couch.

A guest bedroom with additional bath may seem like an extravagance, but the extra living space adds value while also offering guests a private area where they can feel more at home.

A Comfortable Family Gathering Space

Think of a family room as a combination of a formal living room and a den — a place where the family can gather together for fun and relaxation. With family time a priority, many homeowners are coming up with new and inventive ways to customize a designated space to share with their loved ones.

A Home That Multi-Tasks

Today’s home office is more than just a desk and some shelves. Homeowners want a designated, functional space that allows them to work away from the rest of the family and not have to run back and forth throughout the home to get things they need. They are integrating features for productivity and convenience, such as a media system with TV, Internet and phone service, and refrigerator and freezer drawers for enjoying drinks and snacks without leaving the room.

Improved Home Electronics

Today, technology can integrate all sorts of home systems, allowing devices to "talk" to each other and share information. Home entertainment systems can be designed to stream content from your TV, Internet or DVDs. Smart phones can be connected to your alarm system, security cameras and lights so you can access and activate them when you’re not at home. Plus, energy dashboards let you monitor the energy you use and how much it costs.

Large Three-Car Garage

The garage has come a long way from being the place where you park your car. A large garage is a necessity for homeowners with multiple recreational vehicles, like motorcycles or boats. Other people will section off part of the garage and use it for storage, as a workout/gym area or as specialized work space, like an artist studio or workshop

A Low-Maintenance Exterior

Homeowners don’t want to spend time and money continually repairing siding, re-sealing the deck or dealing with other home exterior hassles. They want healthy landscaping and a beautiful home without having to keep up with all the maintenance.

Thanks to more durable building materials, like vinyl, cement fiber siding and composite woods, exterior upkeep is much easier. Plus, low-maintenance landscaping requires less water and less time for weeding, mowing or pruning.