New Build Nightmares

New Build Home Challenges

It’s roughly 4:00 in the morning. You have woken up two times already because you need to go to the bathroom. That’s it.. You can’t ignore it again. You’re going to have to give in, get up, and go. Frustrated that you’re awake, and that you have to be up for the day in two more hours, you flip the covers off and stare at the ceiling fan for a minute as it spins in the darkness. You work up the final amount of energy it’s going to take to actually get up.

Your procrastination finally comes to an end, you swing your legs over the side of the bed, and stand up. Wait! What the **** is on the floor!? What IS that!? You quickly dart across the room to the light switch, barely awake. The carpet is cold and mushy under your feet. Finally, with the flip of a switch, the darkness is gone, the room is full of light, and you look down at the ground – To see that you’re standing in ankle-deep water. IN YOUR BEDROOM!

This is a story that a buddy told me just a few days ago. Think this was a flood victim? Maybe he lived in a dump with a water heater from ’83 that finally gave up? Wrong – He had just closed on a $350,000 new build. Even when you’re looking at spec homes (generic floor plans), there’s still one-off things that can go wrong. In this case, it was a combination of a hanging toilet, and a piece of 2×4 that had been dropped down the toilet pipe. Yeah, that’s right – lumber in the pipes of a brand new home.

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Now I’ll say, issues like this are the exception, not the rule. What aren’t exceptions though, are problems that can occur prior to closing. You would think that since builders are constructing and selling what are basically the same homes, over and over, that it would all go pretty smooth. Ask any seasoned real estate agent or mortgage lender though, and most likely they’ll tell you that almost no new build purchases go that smoothly.

The first problem we have in our current real estate climate in North Texas is the fact that the market is still hot enough, builders aren’t worried about selling homes. They put them under contract 60, 90 or more days prior to completion. So if a buyer has been under contract for three months, and it’s two weeks before closing and a dispute comes up that can’t be resolved, most builders won’t care. They won’t care if you walk away from the deal because they’ll have that home back under contract again in the next couple of days.

It’s also a lot easier for builders to keep the deposit if a buyer walks away, than it is for sellers on a resale transaction. Part of the reason for this is that while 99% of resale transactions in Texas utilize a generic TREC (Texas Real Estate Commission) contract, builders almost always require a buyer to sign their custom contracts. TREC contracts generally protect the buyer and seller equally, but most custom seller contracts protect the builder much more than the buyer.

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A recent example of a builder letting a buyer walk away from a deal at the last minute, here in Dallas, was over counter tops. The buyers had been very specific in color granite they wanted, and were paying extra to upgrade. They had been under contract for approximately three months, and were due to close in less than two weeks. On a preliminary walk through, they discovered the builder had installed completely different granite than what had been requested. The buyer had requested something very light, and what the builder installed was almost black. Believe me, the builders are making plenty of money off these deals. You would think they’d eat a few thousand dollars to correct an obvious mistake. Like many of these deals though, this wasn’t the case in this scenario. While they were willing to give the buyers their deposit back, this builder was unwilling to fix their mistake. They simply told the buyers to close as planned, or they’d let them withdraw from the contract.

This is not only because they knew they could have new buyers on the property within a few days, but our market is hot enough that the property had likely appreciated over the three months the buyers had been under contract, as more comparables became available in the area. That means not only could the builders put the property back on the market and have it immediately under contract again, but that they could also likely do that with a higher sales price than the original.

There’s also the tendency to builders to generally be “bullies.” They’ll attempt to get buyers to use their “in-house” lender, their “in-house” title company, etc. In some cases they’ll adopt an adversarial position in the transaction. In one recent new build transaction I was a part of the builder was demanding the buyer close on the day the property was “complete.” Now they know that part of the buyer’s process in closing their loan is getting a completed appraisal. The way appraisals work on a new build is there’s an initial inspection, and the buyer gets an appraisal report with a value “subject to completion.” Then, once the property is complete, the appraiser is sent out a second time. They confirm the property is complete per the contract, and provide a revised report with no contingencies. So in this situation, the builder was trying to force the buyer to close, or risk losing his deposit, even though they knew he had to have his completion report in order to close.

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Luckily we were able to navigate this deal for the buyer, and closed as planned. This is partly because the builder was late ordering the appraisal per the contract, and late installing sod because the landscaper ran a truck into one of the home’s columns. Yes that’s right, ran a truck into a column. Of a brand new home. So obviously these areas provided us with additional negotiating advantages.

Now with all this said, I never discourage borrowers from going after new builds. I totally understand that special feeling of living in a brand new clean home, that no one else has lived life in. That’s a feeling that you can’t get anywhere else. When handled properly, all these issues can be navigated. I’ve simply met way too many people that have gone under contract on new builds, directly with the builder’s agent, and no representation of their own. Then they get steered into using the builder’s lender and other affiliates, and have no one that’s truly on their side.

So if you’re craving that brand new home – where you can still smell that slight hint of saw dust (maybe it’s just me, but I love it), then go for it. Just expect the unexpected, and have the right team on your side. Have an experienced agent, and experienced, effective lender who know how to look out for you throughout the transaction, and guide you through the inevitable surprises.

If you’d like to discuss a new build home purchase, or any other scenario, feel free to reach out with questions to brandonjones@jonesgroupswf.com or get started immediately at http://www.jonesgroupswf.com/apply-now/






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