Build a New Home or Buy Existing Part #3

We looked at the option of building new. What about buying used? Unfortunately, this is not a straight forward easy answer, but I will begin to unwrap buying used over the next few days.


If you can find a bank foreclosure that is in the area you want and is the type of home you are looking for, it might be worth taking a hard look at. Be very careful though. On the surface, many of the bank foreclosures are listed for much less than you could build them for even in today’s depressed market. However, you need to think about the total cost of ownership. When you build new, you get a one year bumper to bumper warranty, a two year mechanical warranty and a ten year structural warranty. The home is move-in ready and if there is one scratch anywhere the builder is responsible.

When you buy a bank foreclosure, you are buying the home "as-is" with no warranties whatsoever. This means what you see is what you get. It is called "caveat emptor" or more commonly "buyer beware". If there are broken pipes, cracked foundations, or mold in the walls, it is 100% your problem. Even things like the landscaping being overgrown or in a state of disrepair add to cost of the total cost of ownership.

A new house built by a good builder will have nearly zero maintenance costs in the first ten years. Most bank foreclosure properties have a ton of deferred maintenance. The older it is, the higher the maintenance costs will be. A new roof will cost 7-10,000; a leaking basement 10-20,000; a new furnace and A/C 6-8,000; redo a bathroom 3-5000 and the list goes on. That fence falling down, even if you do it yourself it will cost 2,000 in materials. The landscaping has been let go? Doing it yourself will cost thousands to restore.

I am not discouraging the purchasing of a bank foreclosure and I have bought many myself over the years. I am just making the case that if you do not do your homework you may end paying more for a rundown bank foreclosure in the long run once you add back the deferred maintenance costs.