Builder wants to cancel contract. What can I do?

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Builder wants to cancel contract. What can I do?

Melanie Liu
Member since 2021 · 11 posts · 4 votes

We signed the purchase agreement back in December 2020, and it was scheduled to be completed by 4/15/2021. However, the builder has been delaying the building, and recently we were told that they wanted to cancel our contract due to building cost increase, or we can accept the $100K increase in price. BTW, the builder hasn't even started digging yet. 

What options do we have now? Does this happen to other buyers / owners? I'm mad because if they could have told me much earlier that they couldn't deliver on time / price, then I would have moved on to another house. After months of delay and big appreciation in general market, it's hard to find another house at that price range.

Like to hear your suggestions. The house is in Texas.

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Charlie MacPherson
China, ME · Member since 2014 · 3k+ posts · 4k+ votes
5y

@Melanie Liu  It's not surprising as lumber prices have skyrocketed in the last year.  If the builder followed through with the build, he might end up with a significant loss.

That said, a contract is a contract.  If there's no language in the contract about unforeseen increases in material pricing, he may be stuck and you need the advice of an attorney.

My suggestion is to see if you can get him to pay you for the release.  Again, work with an attorney on that.

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  • Charlie MacPherson
    China, ME · Member since 2014 · 3k+ posts · 4k+ votes
    5y

    @Melanie Liu  It's not surprising as lumber prices have skyrocketed in the last year.  If the builder followed through with the build, he might end up with a significant loss.

    That said, a contract is a contract.  If there's no language in the contract about unforeseen increases in material pricing, he may be stuck and you need the advice of an attorney.

    My suggestion is to see if you can get him to pay you for the release.  Again, work with an attorney on that.

    13Reply
  • Corby GoadeBusiness Member
    Investor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes
    5y

    I can't answer this question specifically without reading your contract, but....it's a contract, you are not in default, sounds like the builder is. The entire point of the contract is that you've already agreed to price and terms, you don't get to choose not to perform because you don't like it any more. 

    Think of it this way- what if your builder was on schedule and everything was going well, but you lost your job and went to the builder and demanded that they decrease the price by $100k because it had become too expensive for you to fulfil your end of the deal. They probably wouldn't go for that, would they? That's exactly what they are doing to you.

    What does your realtor say? They should be pushing back VERY hard on your behalf. 

    Sorry you are dealing with this- best of luck. 

    12Reply
  • Melanie Liu
    OP
    Member since 2021 · 11 posts · 4 votes
    5y

    @Charlie MacPherson Thanks, Charlie! I emphasize with the builder on the increased building cost, but they could have told me much earlier about this, so I could have moved on to other investment. The communication with this builder is very poor - they basically ignored my emails and inquires altogether. 

    1Reply
  • Melanie Liu
    OP
    Member since 2021 · 11 posts · 4 votes
    5y

    Thanks, Corby! I made a newbie investor's mistake by not having a buyer agent - I was introduced to this project by a friend who bought a house in the same sub-division before. I'm in MA and the house is in TX, and that made it even more difficult to deal with this builder.

    0Reply
  • Melanie Liu
    OP
    Member since 2021 · 11 posts · 4 votes
    5y

    Does this experience happen to anyone else? Am I the only unlucky one here?

    1Reply
  • Mak J.
    Member since 2018 · 234 posts · 44 votes
    5y

    A agent would not have helped you out as by law, agents are not suppose to give legal advice per agent license regulation. But by law, agents are suppose to tell you to seek attorney to get the contract read (Optional for you)

    You should have attorney looked at the contract. But I am sure you may have never thought this could have happen as builder contracts are one sided contracts and non-negotiable to a greater extend.

    you may want to hire a attorney to have him read the contract and see your options. If possible, and contract allows, go after builder stating cancelling the contract cost you now more because you have to pay premium to another builder as prices have gone up. Also delay is costing you additional rental expenses. If contract is cancelled, this will cause you more in rental expenses. But attorney would be best to advice you as those contracts are pages long and one sided.

    3Reply
  • Jenning Y.
    Investor · USA · Member since 2015 · 168 posts · 243 votes
    5y

    @Melanie Liu

    I read an article on Wall Street Journal not a long time ago told the same  story.  A couple signed a contract to buy a new-built home, the property was almost ready but just before the delivery, the contract was canceled by the builder. The buyer said the builder later sold the property at a price probably more than $100k above their contracted price.  

    But in their contract there's a special clause allowed the builder to exit.  And the builder said the buyers were too picky and were difficult to deal with and it was impossible to work with them.  No sure which side was right.  Look like eventually the buyer could not do anything about it in their case.

    So if you  want to fight, try to find an attorney and study the contract, to see whether worth the fight.   Lots of special clauses can be inserted into a contract.

    2Reply
  • Harry Gamble
    Flipper/Rehabber · Birmingham, AL · Member since 2016 · 68 posts · 33 votes
    5y

    @Melanie Liu I agree an attorney should be consulted to review the contract and go from there. Also, if the builder is licensed with your state’s home builders licensure board, it may be worth contacting them as some states licensure associations have funds set up that can reimburse homeowners for actions of licensed home builders under certain conditions

    3Reply
  • Bruce Dashiell Kallaher
    Lender · Westlake Village, CA · Member since 2016 · 12 posts · 5 votes
    5y

    Personally I’d bail out on the investment.  The builder is in default and wants you to pay for it… bail and start fresh.  Lumber prices are stabilizing now and will be back to normal pricing soon enough.  

    5Reply
  • Eric James
    Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes
    5y

    @Jay Hinrichs  ?

    0Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    5y

    I know someone who hired a contractor to build their house.  Prices went up, but the builder had to stick to the original purchase agreement as the increase in cost had nothing to do with the people having the house built.  They might drag their feet finishing it.  

    As someone else mentioned if the prices went down, would the builder give you a rebate?  If you walked because the house was worth a lot less than what you paid, what would the builder say.

    Stick firm and threaten to get a lawyer involved.

    4Reply
  • Jack Swank
    Contractor · California, CA · Member since 2020 · 32 posts · 27 votes
    5y

    @Melanie Liu

    I’m a general contractor in California. We include language into our contracts used for material escalation. If you still wanted to move forward, I would suggest evidence of material quotes from back in December and current price quotes from Contactor. Really question him! Did he drag his feet on ordering material too late? That would be on him. A good contractor has nothing to hide and would want to work with you. We have experienced cost in many materials like wood, steel, concrete, etc. COVID has been this loop hole for many excuses.

    2Reply
  • Patrick Gledhill
    Member since 2020 · 23 posts · 13 votes
    5y

    I work for a general contractor (industrial not residential) but this sounds like horrible business on their part. Plus if they were supposed to finish by April, what sort of Liquidated Damages are you able to collect since they have breached contract? Even if they gave you the worst contract imaginable and you signed it. I would still fight them for lost money. And threaten legal action and smearing their name across the internet. If the market value went up 100k in the last year like it did here in Denver they should at the very minimum split that loss with you 50/50. Write them a nasty letter first to show them you are serious and see how they respond. Ask them if they would be willing to resolve the matter without expensive lawyer fees. And if they refuse then bring in an arbitrator... if that fails then look for a lawyer. Don't just let them get away with this. Especially if you have sunk your hard earned money into the land or anything else for this. Not right for them to just wipe their hands and make it your problem. 

    2Reply
  • Melanie Liu
    OP
    Member since 2021 · 11 posts · 4 votes
    5y

    Thank you all so much for your replies. Very helpful! My contract didn't include a clause about escalating price or cancelling contract, so I guess that's why the builder wants me to accept the new price instead of cancelling the contract directly - he knows that he doesn't have the right to do so. I've contacted a couple of local attorneys, one said "take or walk", the other one would like to review the contract for $500, which is reasonable. I'm hesitating because the sub-division is basically built for rental, and will be managed by the same builder for rental management after completion. I don't want to have a tough relationship with the builder later on even if I can win the fight.

    0Reply
  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
    5y
    Originally posted by @Melanie Liu:

    Thank you all so much for your replies. Very helpful! My contract didn't include a clause about escalating price or cancelling contract, so I guess that's why the builder wants me to accept the new price instead of cancelling the contract directly - he knows that he doesn't have the right to do so. I've contacted a couple of local attorneys, one said "take or walk", the other one would like to review the contract for $500, which is reasonable. I'm hesitating because the sub-division is basically built for rental, and will be managed by the same builder for rental management after completion. I don't want to have a tough relationship with the builder later on even if I can win the fight.

     The covid price increases we've seen in lumber are unprecedented. The only logical thing for you to do would be to walk. You'd have to be insane to think it's a good idea to fight a builder in court to force them to build you a house they don't want to build at a $100k loss only to then have handle your property management after the fact. Nothing about this scenario is going to work in your best interest over the long haul. Sometimes you just have to cut bait and move on.

    11Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    5y

    Settle with them. If they believe the current build will lead to $100k loss, offer them to settle for a $50k buyout of the contract. 

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  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
    5y
    Originally posted by @Russell Brazil:

    Settle with them. If they believe the current build will lead to $100k loss, offer them to settle for a $50k buyout of the contract. 

     Pie in the sky bro. They ain't paying out $50k. A lawsuit like that would cost her at least $50k and proving $50k in damages is not a sure thing. It's actually pretty unlikely. Dropping $50k for a year long battle and a so so shot at a $50k or even $100k settlement? Bad bet.

    This is just where it's at with new builds right now folks. Last year your boy JWise just bought himself this 30 Acre plot of land so that I could build me a mansion... As I talk to you right now, I have contacted zero builders because I know how jacked up new construction is right now. Only smart play is to wait it out. This situation could have been seen a mile away.

    1Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    5y
    Originally posted by @James Wise:
    Originally posted by @Melanie Liu:

    Thank you all so much for your replies. Very helpful! My contract didn't include a clause about escalating price or cancelling contract, so I guess that's why the builder wants me to accept the new price instead of cancelling the contract directly - he knows that he doesn't have the right to do so. I've contacted a couple of local attorneys, one said "take or walk", the other one would like to review the contract for $500, which is reasonable. I'm hesitating because the sub-division is basically built for rental, and will be managed by the same builder for rental management after completion. I don't want to have a tough relationship with the builder later on even if I can win the fight.

     The covid price increases we've seen in lumber are unprecedented. The only logical thing for you to do would be to walk. You'd have to be insane to think it's a good idea to fight a builder in court to force them to build you a house they don't want to build at a $100k loss only to then have handle your property management after the fact. Nothing about this scenario is going to work in your best interest over the long haul. Sometimes you just have to cut bait and move on.

    one thing is certain in litigation its far more expensive to be the plantiff than the defendant.. And really what are your damages  ??? 

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    3Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    5y
    Originally posted by @James Wise:
    Originally posted by @Russell Brazil:

    Settle with them. If they believe the current build will lead to $100k loss, offer them to settle for a $50k buyout of the contract. 

     Pie in the sky bro. They ain't paying out $50k. A lawsuit like that would cost her at least $50k and proving $50k in damages is not a sure thing. It's actually pretty unlikely. Dropping $50k for a year long battle and a so so shot at a $50k or even $100k settlement? Bad bet.

    This is just where it's at with new builds right now folks. Last year your boy JWise just bought himself this 30 Acre plot of land so that I could build me a mansion... As I talk to you right now, I have contacted zero builders because I know how jacked up new construction is right now. Only smart play is to wait it out. This situation could have been seen a mile away.

     Of course they arnt going to pay out $50k, but I bet they get a $10 or $15k offer to settle by asking for $50k. 

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    District Invest Group545 Reviews
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    1Reply
  • William Jenkins
    Real Estate Broker · St. Louis, MO · Member since 2014 · 206 posts · 194 votes
    5y

    @Jay Hinrichs - "one thing is certain in litigation its far more expensive to be the plaintiff than the defendant" - This is not necessarily correct.  Many times a contract will entitle the prevailing party to legal fees in addition to damages.  I've used this a few time in the past to my advantage, but you need to be fairly certain that you are going to win.  It is a double edged sword.  

    Also assuming the above isn't in the contract, the plaintiff could seek an attorney to take it on contingency.  I've also used this a few times in the past. 

    I'm not a fan of lawsuits although I've been involved in way more than my fair share.  I would suggest trying to work it out outside of court.  I would venture to guess lumber and materials costs are the primary reason behind the builders contract default.  These things are coming down..... Perhaps if/when they get to a point in the near future when he can essentially break even on your deal he will agree to perform and everyone can walk away unscathed. 

    For what its worth..... If this goes to litigation, I wouldn't suggest having the builder actually build the house.  I would simply try to get damages and move on.  I wouldn't want a house built for me by someone who just lost a lawsuit..... you will not be getting a quality product.   
     
     

    2Reply
  • Josh C.Pro Member
    Property Manager · Indianapolis, IN · Member since 2010 · 1k+ posts · 1k+ votes
    5y

    @Jay Hinrichs

    Typically I agree and people are sue happy. But wouldn’t she have real damages here? Her contracted investment went up 100k. Now the same product costs her 100k more to buy. Those sound real to me. If you had a contract with a stock broker to buy Tesla and they waited four months and said no it’s too much now. I feel they owe you those gains. She could have bought something else last December and participated in the gains had she not been in contract with this builder.

    Likely though, based on this builder’s garbage contract and the fact he hasn’t started he probably has no money anyway and this is a waste of time.

    2Reply
  • Daniel SmythPro Member
    Rental Property Investor · Rockford, IL · Member since 2019 · 471 posts · 342 votes
    5y

    @Melanie Liu

    I am just plain overwhelmed with this issue lately.

    Materials are more than double, and that's even with bulk and contractor discounts!

    Contracts are contracts, I know, but look for it to get worse, and not better. Every time prices go up, some wait for that chance when they will come back down. That never happens.

    I would sit down with the contractor, or have your finance person sit with you and the contractor, and re negotiate material prices!

    A good contractor should be able to show the before and after material numbers to you for comparison.

    I can understand the frustration, but you are not alone! To expect the contractor to eat inflationary material prices only works when that number is small.

    I am re-roofing a garage this week. Cheapest plywood is more than $50 a sheet today. Last year it was $38. Multiply that by 40 sheets and add the rising costs of other supplies, and this job I decided to wait and do this year instead of last year really cost me a lot!

    Rents gotta go up for my peeps, because waiting until next year will cost me more, and removing a garage is not an option!

    Good luck. Investigate, and dig deep!

    [email protected]
    2Reply
  • Christopher Winkler
    Specialist · Dallas, TX · Member since 2014 · 900 posts · 392 votes
    5y

    You are getting a message from above to get rid of them and find another. And the prices of lumber is falling dramatically now, so consider yourself lucky as we had a contractor actually go out of business during a rehab, and was using illegal alien labor that built like they do south of the border....

    1Reply
  • Daniel SmythPro Member
    Rental Property Investor · Rockford, IL · Member since 2019 · 471 posts · 342 votes
    5y

    @Melanie Liu

    As far as the contract, I doubt a judge would do any good. Don't expect a contractor to pay to get out of the contract, but do expect that any deposits of such that was paid to him, would need to be returned with interest.

    Good luck!

    [email protected]
    0Reply
  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
    5y
    Originally posted by @Russell Brazil:
    Originally posted by @James Wise:
    Originally posted by @Russell Brazil:

    Settle with them. If they believe the current build will lead to $100k loss, offer them to settle for a $50k buyout of the contract. 

     Pie in the sky bro. They ain't paying out $50k. A lawsuit like that would cost her at least $50k and proving $50k in damages is not a sure thing. It's actually pretty unlikely. Dropping $50k for a year long battle and a so so shot at a $50k or even $100k settlement? Bad bet.

    This is just where it's at with new builds right now folks. Last year your boy JWise just bought himself this 30 Acre plot of land so that I could build me a mansion... As I talk to you right now, I have contacted zero builders because I know how jacked up new construction is right now. Only smart play is to wait it out. This situation could have been seen a mile away.

     Of course they arnt going to pay out $50k, but I bet they get a $10 or $15k offer to settle by asking for $50k. 

    3Reply
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