Builders backing out of new construction deals.

8 Replies

Anyone else having issues with builder's/turnkey providers issuing cost increase letters to the purchase contracts of new construction turn key properties.

We have had 2 homes in Central Florida in escrow for over 4 months and we are now getting notice that they are increasing our purchase price by 13%. But we should be happy because they have raised the price by 20% to anyone signing a contract today.

Basically destroying the cashflow on the deal. We can cancel the deal and get all of our deposits back plus interest. Just really upset.

I completely understand your frustration, @Tom Price !  If that home was constructed at the time of contract then this is ethically on par with a scam.  If it has been in construction during the escrow period or if the building began at escrow then unfortunately it is what it is.  You know well what the costs of building supplies has done and builders are not in position to warranty against the future costs of commodities, but rarely are we seeing such quick spikes in prices.  In such instances it is unfortunate, yet understandable to see the increased costs passed on, in part or in hole, to the end-user.

Back to the basic tenant of investing — let the numbers tell the story.  If the new numbers don’t work then be on to the next one.  If they work, then 13% less is not ideal, but it still works and yay!

New construction contracts always favor the Builder. Review the fine print to see if there is any escalation clause which would allow the Builder to increase the purchase price during the construction / escrow period. If so, then it's your call to continue or cancel. In my opinion, the Builder should honor the original contract purchase price but I haven't reviewed your contract.  To play it safe, have your Real Estate Attorney review the contract to see what your options are.

@Tom Price , hey, I got a friend going through the same thing. Duplex with $25K increase, builder has a greater cost basis on one so that’s why it’s more expensive. No difference in the property except a $40 project price increase.

Price: $360k

Rent: $2590

Sq ft: ~2,000 (2 bed 2 bath)

Also, the average price per sq ft of recently sold properties is $140 and Property is $184 per sq ft. Right around a 0.72 RV ratio.

Take the earnest money back or wait 6 months and bite the bullet and go through with it? What did you decide?

@Tom Price I had heard that this was happing but have not had it happen to me yet. I am preparing my buyers who look at new construction of the possibility of this happening. At this time though there are almost no new builds for sale so Builders have nothing to lose by doing this. They know that they will still sell that house. 

I understand I have been in construction for 40 + years.

I put these houses in escrow 5 months ago. They just got permits one last week and one today. 

Then I get the letter. It is frustrating because they told us we would have delivery 1St of June. That is why we went forward with them. But taking 5 months just to get permits was really unfortunate. I understand the price spike but the rents have actually gone down from the projections they gave us. 

Like was said there is not much to choose from out there. Not going to buy for the sake of buying.

  I can feel your frustration, I can see the hard position it puts you in but if Florida's building materials prices are anything like here in Oregon, a 15% isn't as horrible as I'd expect.

  Lumber over in Linn county is 5x what it used to cost. Some wire is 3x, and pvc is ridiculous. 

  To be clear I'm not saying 100% it isn't optimistic or underhanded in this specific situation as I don't know enough to make any judgment. My family's construction company though are struggling to make bids as whatever it is, it will be too low in a couple months.

  I sympathize with you as a fellow investor but sympathize with companies who'd be losing money to build on a bid based 4 months ago.

Originally posted by @Tom Price :

Anyone else having issues with builder's/turnkey providers issuing cost increase letters to the purchase contracts of new construction turn key properties.

We have had 2 homes in Central Florida in escrow for over 4 months and we are now getting notice that they are increasing our purchase price by 13%. But we should be happy because they have raised the price by 20% to anyone signing a contract today.

Basically destroying the cashflow on the deal. We can cancel the deal and get all of our deposits back plus interest. Just really upset.

As @Will Fraser , building supplies have skyrocketed and pine is the new gold.  So in an attempt to mitigate this, builders are requesting more money as construction comes to an end. It is an unfortunate situation for many. I myself lost a $2,000 deposit on a new construction because financing fell through from their lender and interest rates jumped over 1% from when I initiated the deal. These are crazy unpredictable times!

Also, see you're from Bend, lived there a few years myself, real estate is CRAAAAZZZYYY there :)

Cheers,

Forrest Faulconer