Deposit back on a new build?

Question

Does anyone have advice or tried to get a earnest money deposit on a new build? I went under contract for a 2nd town home in my primary residential development thinking it would be a good way to dip my toe into the world of rentals and property management. I've since partnered with a more experienced investor and am under contract on a property that will bring in significantly higher returns. I now would like to get the $5K back and put it towards a 2nd property with much higher returns and not waste one of my personal loans. I am hearing that it is very hard to re coup on a new build.

Michael S. · Answer

Review your Purchase Contract carefully.  Regardless if the contract is a standard Realtor contract or a builder specific contract, there are usually a few clauses in the contract outlining scenarios when the earnest funds can be returned.  Often there is a clause referring to purchaser's failure to qualify for financing. Failure to qualify for the loan is traditionally the #1 reason a buyer gets their earnest money back.  Another "out" allowed for the buyer is during the inspection period, but the inspection out is not a guaranteed out since the seller may agree to all inspection repair requests to keep the contract alive. There are a few other ways to cancel a contract and retain your earnest depending on your situation.  Best to consult with your (buyer's side) agent and your lender.

Good luck!

Michael King · Answer

I own several new builds that are rentals. I love them because there's low risk something will go wrong for the first 3-5 years at least, and in the first year or 2 it's under warranty.

So long as it's in a good school district and close to facilities and amenities, and can get positive cash flow, you're in a good spot with it.

Aaron Poling · Answer

Take a close look at your sales contract and see if there is any kind of out that you can use. Most builders have pretty comprehensive contracts so it is doubtful that there is something in there. If there isn't then you could try talking to the builder rep and asking for a release with an EMD reimbursement. If not then it may be best just to honor the contract and make the purchase. Even if there are better options out there it doesn't mean that isn't still a good option.

Good Luck! Aaron