What is risk of buying house where there are lots of empty lots?

Asked by Ecint51, Sierra Montana, Surprise, AZ Mon Jul 4, 2011

Nice community. Appears builder stopped building during housing slump. Fannie Mae has some of these homes.

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7
Gretchen Bea…, , Estrella Mountain Ranch, Goodyear, AZ
Fri Jul 8, 2011
If the area you are asking about is Sierra Montana, I would tell you - it is probably an empty lot cause the builder stopped building cause the market collasped. If the builder is still in business, Beazer and Richmond America for example, they had stopped building out there and may start up again. These is true out in Cortessa and will probably happen in Northwest Surprise too. Your realtor, if you are interested in a new build - can usually just put a phone call into the builder/developer to get new build info for you as to what they are planning for that area. Of course, there are several already completed homes in that area that are worth looking at, instead of having to build from scratch - hence your initial inquiry I am sure.

If that is the case, just remember - empty lots next to your house bring snakes and scorpions. Good pest control and weed control spraying will be critical until that builder gets a new house built to keep those critters away from your house. :-)
0 votes
Joan Boesen, Agent, Surprise, AZ
Tue Jul 5, 2011
It would be wise to investigate the financial stability of the HOA. Are the vacant properties maintained should be part of your due diligence. What is the present condition of the vacant lots and do they impact the properties around them. Is dust control being addressed?
0 votes
Jose Dias, Agent, Scottsdale, AZ
Tue Jul 5, 2011
Some risks I can think of:

1 - if lots remain vacant, it will have a negative impact on the value of your home.

2 - eventually, houses will be built on those lots (either by the original builder or another builder that takes over construction). Have you ever tried to sell a home in a subdivision where the builder is building new homes? It is very hard to compete with builder incentives. So if you happen to decide to sell your house at the same time as construction resumes, you will probably have to sell at a discount.

3 - vacant lots can be used by burglars to access your house. This is true also for vacant houses.

4 - you may not be able to get FHA financing if there are too many empty lots in the community. I would check with your loan officer before you invest time and money in this purchase. And if the lots remain vacant for an extended period, there is always the risk that the community may not be eligible for FHA financing in the future. This may impact your ability to sell the house in the future.

Having said all that, you also need to factor in the price you are paying. Are you getting a good discount on the property? The benefits of a lower price you can get now (with the vacant lots) may well offset the risks. But this is an analysis that only you and your REALTOR can do.

I hope this helps. Good luck!

Jose Dias, REALTOR
(623) 418-5700
Jose@MyFirstHouseAZ.com
Realty One Scottsdale
0 votes
Don Tepper, Agent, Burke, VA
Mon Jul 4, 2011
Risks:

-->Builder goes bankrupt and is unable to fulfill any warranties or repairs he's promised you.

-->Builder goes bankrupt and is unable to build other promised items (swimming pool, club house, tennis courts, etc.)

-->Builder is unable to build houses on those empty lots, making the existing homes far less desirable.

-->Builder is eventually able to resume building. (You thought that'd be a good thing? No way.) So in a couple of years you want to sell. You'll be putting your used home up next to new construction. The builder probably will also be able to offer incentives--special financing, add-on extras in the homes--that you won't be able to offer.

-->Some of the built homes are foreclosed upon. The lender (maybe Fannie Mae) puts those homes back on the market at lower prices. Instantly, your home loses 20%-40% of its value.

And there are plenty of other risks. But those should do for starters.

Hope that helps.
0 votes
Scott Hulen, , 64068
Mon Jul 4, 2011
When developers go into a subdivision they have a business plan which relates to the overall price of the lots. Lots are usually priced / grouped into A, B, C and other type of lots with the A lots being the most desirable and the other lots the least desirable. When the developer gets into trouble with the bank they discount the A and B lots to improve cash flow, a quick fix but if the market doesn’t heat up the developer with shallow pockets will fail. The lots that are left are usually the C and other lots at the end of the cycle. These being less desirable lots they sell at foreclosure prices, years later when a new developer steps in his cost basis is much less on infield lots therefore the homes are generally smaller and less expensive than the surrounding products, which they would have been any way had the developer completed the subdivision but to add a further problem, the land value might be reduced by as much as 50% - 75% on those lots. Bottom line if you own an existing home your comps are usually downgraded if you buy a new home your comps may be better and you may see a benefit. The cost to build is similar for most custom builders but the price of the land and the square footage they decide to build can be factors that influence current and future value.
Web Reference:  http://www.randshomes.com
0 votes
Pat & Steve…, Agent, Westlake, OH
Mon Jul 4, 2011
It will be a problem to sell your home in the future, if the builder or another builder starts to build homes. Buyers may opt to by a new home rather than a "used one." Your home will likely sell for less than a new one. My husband bought a home in a new constuction area with about 10 years of new home lot inventory. But, we didn't care, as this was the home we planned to stay in for a very long time.
0 votes
Yvette, Home Buyer, Saint Louis, MO
Mon Jul 4, 2011
I would be concerned it a builder went bankrupt and didn't complete subdivision.
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