In my recent blog post, "Check Out My New Obsession!" I deep dive into Mattamy Homes's new builds on the other side of the freeway from where we live in Anthem. I am truly obsessed with 2 of their floor plans.
As I was writing the blog post, I fought the urge to give all the tips, disclaimers, and warnings that come with buying a new build. However, that wasn't the purpose of the post. In this particular post, I was merely sharing my professional admiration for this builder's floor plans, and if someone shared that same admiration, I encouraged them to check it out WITH a realtor. In fact, I've written a previous post about why you need a realtor to represent you when purchasing a new build, so I felt I was in the clear with this cheery, admirable post.
I have had my fair share of bad experiences with speck homes, however, the experience I had this past week has me so bent out of shape I'm compelled to share today's blog post with a disclaimer & a warning.
Let's go buy a new build!
When you decide you'd like to purchase a newly built home and design it from the ground up, the builder's agent will convince you with incentives to use their lender and, with much trickery, explain how you can use the builder's realtor to represent you as well. These incentives seem flashy, but when you look at the fine print, they are just wiggling numbers around.
They will likely pressure you to sign a 50-page purchase contract ASAP, send over earnest money ASAP, and say something like, "The money is refundable and you won't be locked in till X point."
This is what happened to one of my clients. They went in without our a realtor (we didn't know each other at this point) and told the agent their max monthly budget and max purchase price, the agent promised they would help them stick to that, and they paid $25,000 "earnest" money. They picked the lot, made some structural decisions, and later went to the design center to select all their finishes. All along the husband is asking the builder's agent where they were at budget-wise, and asking the builder's lender what his monthly payment was looking like and both the lender and the agent would not give them a straightforward answer.
Spoil Alert: They never actually did tell the buyers the final numbers until after it was too late for the buyers to back out.
They asked for a $15,000 deposit for the design center which my client didn't have. From the get-go, the buyers explained to the builder how much cash they had and were willing to front. Yet that was not taken into consideration one bit. The husband reached out to terminate the contract under the impression they would be refunded their 25k per their many verbal conversations. Their request for a refund was declined no matter how hard they pushed.
This is where I came into the picture. I studied the contract and it was quickly clear to me that they were misinformed from the very beginning. I reviewed the contract with my client and walked them through every section that protected the builder from refunding ANY kind of deposit retained from the buyer.
There are two other brutal clauses I feel I should share as well...
Loan Qualification - One of the clauses implies that if the builder's lender does not find the buyer qualified to move forward with the purchase of the home (meaning the buyer cannot afford the monthly payments/loan amount/down payment requirements, etc.) then the buyer must go seek out another lender to approve them (that won't happen), and if they cannot get loan approval within 10 days they will, by default, move forward with the purchase of the home expected be paid in CASH. They say "in cash" because that's a loophole for them to say they tried checking all their boxes and the buyer failed to come through via loan OR cash. If the buyer cannot provide the cash (which they won't), then the buyer has "defaulted" on the contract. In another small print section of the contract, if the buyer is in "default" that implies that it's the buyer's fault that the contract fell through and thus the builder is entitled to and WILL keep ALL deposits, fees, and collected funds from the buyer. Which could be anywhere from $5,000 - $100,000.
Appraisal Addendum - If the appraisal comes in lower than the agreed-upon purchase price, the buyer must come up with the difference in cash. The builder will not lower the price or offer any incentives to assist the buyer in purchasing a home above the appraised value. From personal experience, this is almost guaranteed to happen. Builders sell over-priced houses, it's what they do. So, of course, the appraisal will come in low. Here's the kicker: if the buyer cannot provide these additional funds, they will be in "default," but this time, the builder will retain 100%-200% of the earnest money. Not only will they keep the buyer's money, but they will charge them an additional fine (doubling their cash out of pocket).
I recently spoke with another agent whose client came to them asking for help because their elderly mother was pressured to sign one of these contracts at midnight. She, along with my client, and SO MANY OTHERS, agree to all of these absurd terms without even knowing it. The builder, of course, won't walk you through all the documentation and addendums, so how would they ever know what they are walking into unless they had their own REALTOR to represent them?
I know most people read through these documents before signing, but that's not enough. They are worded strategically to confuse and make the buyer feel at ease. It can be incredibly confusing for the untrained reader. When reviewing just one sentence of the 50-page contract with my client, they said, "I don't even know what that means! I thought it meant X but you're telling me it means Y."
My point is, that these contracts are NOT for the faint of heart. They are written by big-city attorneys to cover the builder from every single angle. Take them to court, you will lose because their contract (that you signed) is strategically created to ensure they don't lose one penny on you. The builder's lender does NOT represent you, they represent the builder. I've seen them move around money without my clients even realizing it and even lie to my face (or, rather my ear, as it was all over the phone) as the buyer's agent. The builder's agent does NOT represent you, they represent the builder. I've seen them over-promise and underdeliver so ruthlessly that a buyer would have foreclosed on their newly built home 3 months into owning it if they proceeded with the contract they (sadly) signed. Then to in-turn lose all their deposit money (tens of thousands of dollars) because they "defaulted" on the contract solely out of being uninformed, misled, and not represented.
Whew. I can feel my soapbox getting taller and taller as I write this.
Because I don't advise against buying new builds and I sometimes encourage clients to take the new-build route, I have to give a disclaimer and a warning:
Disclaimer:
If you purchased a new build without a realtor and felt like you had a smooth transaction, it's probably because you had enough money to comfortably pay all the extra fees and higher purchase price, and/or you didn't know what was going on behind the scenes. Odds are, you didn't get all the incentives available to you either. I believe new builds are great if you are particular about your finishes, you want to choose your lot and floorplan, and most importantly you have extra cash in the bank on design fees and paying for an over-priced house. If you would like to buy a new build, you also should be the kind of buyer who may not be overly concerned with what your monthly payment looks like. You may not even know what that number is until 5 days before closing if you're lucky.
A new build may be for you if you have the funds and you like the home enough to lose money on it. For some people, it's worth it!
Warning:
If you do not have a REALTOR represent you in purchasing a new build, I can guarantee that things are going on behind the scenes that you don't know about. You will also be unaware of possible negotiables and incentives.
I can 99.99% guarantee that if you give a builder any funds, you will never see those funds again even if they say things like, "You're not locked in," or "It's refundable, don't worry." Those are all half-truths. Unless you meet their impossible short window of timelines that set you up to fail, then you might have a .001% chance that you'll be refunded, after the layers and layers of people you'll need to fight with to get it.
I can 99% guarantee that if you do not have a REALTOR represent you, there will be documents you sign that you will not fully understand and in turn, agree to and are legally bound to fulfill. I say 99% instead of 100% because maybe you are an attorney and in that case, you may know how to understand these documents.
Lastly, do NOT believe any promises made verbally. They are not legally binding, they are not the full truth, and they will likely be misleading. Especially if what the agent/lender says is contrary to what is in the contract.
My Plea with you...
Call me before you ever sign anything... Ever. Call me. Just call me!
I am so distraught by how much money my clients have recently lost to these builders. I'm sick to my stomach and feel terrible. I can't even imagine how my clients feel and how they are coping with losing their savings because they were pressured, sold to, and unrepresented.
My client told me last night on the phone, "Just tell all your clients what happened so they don't make the same mistake we did." There you have it.
I don't share this with you to convince you against ever buying a new build, I share this to ensure you are represented by a REALTOR if/when you do because I want you to know what you are agreeing to, I want you to get all the incentives possible, I want you to be given all the disclaimers (fees, extra costs, etc.) so you're prepared and don't default on your contract, and I want your loan structure to be transparent. If you are fine with those agreements, terms, and conditions, then by all means, let's get you a new build!
If you're in the market, I know some floor plans that are my newest obsession ;)
Sincerely,
Jessica Doberneck of:
