Homebuilder ads highlight pitfalls of foreclosures

The Associated Press
Saturday, March 5, 2011; 4:41 PM

PHOENIX -- Homebuilders trying to fight off customers' attraction to cheap foreclosures are doing more to show buyers that the good deals can come with pitfalls.

The companies are increasingly trying to woo buyers like Katie and Mike Zwanziger, hoping that warnings about unknown repairs, limited selection and haggling with banks might help them recover from the most dismal year for new home sales in more than 50 years of record-keeping.

The Zwanzigers were ready to move to a larger home and were enticed by the number of resales and foreclosures in the area they liked. But after several weekends of hunting, the physical therapists from the Phoenix suburb of Gilbert decided to look at a new development.

"And we got in there and found out that, truly, we spent maybe $50,000 more and got the exact house we want, the layout we wanted, the backyard we wanted," said Katie Zwanziger, 31. "So we could be happier with just a little bit more money."

Many national builders are using some form of marketing to try to make that point and beat back the quiet competition from lower-priced foreclosures and short sales.

More than 4 percent of the homes in the Phoenix area were lost to foreclosure last year, according to a report from Arizona State University's business school. Statewide, foreclosures topped 70,000, part of a wave of more than a million repossessions nationwide in 2010.

That has left plenty of inventory available for buyers and not much room for new home sales since the peak of the building boom in 2005, when about 60,000 new homes were built in the Phoenix area. Last year, the number was about 7,000.

Lennar Corp.'s website is fighting back with a "Buying a New Home vs. a Foreclosed Home" page that lays out the benefits of new construction - like home warranties, energy efficiency, and customization options - while highlighting the potential risks of buying a foreclosed home.

PulteGroup Inc. uses similar tactics in its advertising, as does Shea Homes and Phoenix-area builder Fulton Homes. Fulton and Shea both promote new homes with a "foreclosure cost calculator" on their websites that lets customers calculate potential costs.

Although foreclosures have helped metro Phoenix home prices drop 50 percent from the mid-2000s, homebuilders point out numerous drawbacks such as hidden defects and the potential of having to deal with disgruntled former owners or evicting a current tenant.

"There are hundreds of people that purchased homes from us that have been lured in by low prices on foreclosures, have tried to purchase those homes and have been outbid by investors," said Ken Peterson, Shea's vice president of sales and marketing. "Or, they waited months to get an answer back on `can I get this short sale, can I get this foreclosure,' only to discover that they didn't get that home."

Those not willing to take on the risks would be better off buying a new home, the companies argue.

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