Can I get out of a new build purchase agreement?

15 Replies

Hi Everyone, about a month ago, i signed a purchase agreement with a builder for a house to be built and completed by Feb/March 2018. The house will be located in Fredericksburg VA. I put down $3000 when I signed. $3500 is due tomorrow, and another $3500 due in 1 month, which makes a total of $10,000 in earnest money. Here is my question: If I wanted to back out of this contract for whatever reason, what are my losses most likely be? Will I lose the 3000 or will they make me pay the entire 10,000 earnest money? or will they make me buy the house. The purchase agreement is vague and makes no mention of default, it only mentions the dates that each installment is due. I'm sure there are situations where people have gotten cold feet or have unforeseen circumstances, or whatever the case may be. My issue is the commute to work is going to be killer, an average of 1.5 to 2 hours each way from F'burg to Fairfax by car or train. Initially, I thought I'd sacrifice my time for greener spaces and larger spaces but now I'm thinking I may not be able to handle it. I'm seriously having doubts. I've heard of people backing out right before closing or durung inspection. So I am wondering if I have a better chance of backing out since it is way early in the process -- only 3000 of 10,000 has been paid, the contract has not yet been ratified, no pulling of building permits, and of course we are way ahead of breaking ground. Anyone have any ideas of the likely loss i would have to endure? i appreciate all input. Thank you.

@Caroline S. - It really depends on the purchase agreement and any other documents you signed. Since construction has not started, you have a better chance of only losing $3k. My recommendation is to pay an attorney $250-$500 to review and give you sound advise, which could save you $7k in the long run

@Chris Seveney Hi Chris, I've been told by few that an attorney should review my documents and a few others that I wouldnt need to seek an attorney because it should be written in the purchase agreement. It looks like I will be calling an attorney tomorrow, which is the same day the next installment is due. I dont want to pay it :-( . Wish me luck.

@Caroline S. - the builder is going to say you owe it whether or not its in the agreement. My recommendation is to have your attorney review and send a cancellation/rescind letter advising the builder you are no longer continuing on the deal. If the builder gets that from a lawyer, in more cases they will not fight it as it will cost them more to fight it than what they could get from you.

@Caroline S. Interesting that the EMD is paid in installments. Usually a builder will ask for the EMD upfront in one lump sum. Are you sure its an EMD deposit, meaning your money is being held in a separate escrow account? Has the land been taken through entitlements yet and when is the build start date? There are too many unknowns here to give you good advice and without looking at your contract, it would be hard to advise you. As far as the EMD is concerned, both parties have to agree to disperse the funds and there should be a termination/default clause in the contract. If it is a large builder, like Ryan Homes etc etc, they will most likely return your money if you bug them because they typically don't want to deal with the headache of you tying up the property over a few thousand bucks. I've had a handful of clients that have backed out of a new construction contract without contingencies to fall back on and in all cases, since they were large companies, the EMD was returned. In one case, I was shocked that they gave the client's money back.

Happy to chat, PM me.  Good Luck! 

@Dan Bernstein Hi Dan, I'm looking at the purchase agreement right now. Under a heading called "Purchase Price", subsection A: Earnest Money Deposit due upon signing 3000. This i already paid. Subsection B: 3500 additional payment due today. Subsection C: 3500 Other due in 1 month. I wish i could take a picture and post the language that follows. it really does not mention any default, but only mentions the charges that may incur if any changes are made to the agreement after certain days. Sigh. To give or not to give, the next 3500 that is.

@Caroline S. - Have you tried talking to the builder asking to back out of the contract?  He\She will be able to tell you whether that is an an option without losing any money even before contacting an attorney.  If they say no then I would suggest having an attorney involved. The contract itself should state whether the earnest money is refundable or not.  

@Vinod Dasani Hi Vinod, yes i spoke to the builder. it was a long, awkward conversation that basically said "we can, technically, get you for the whole 10,000 so you shouldn't back out, Caroline" but it was also fluffed with a lot of sugar coating as to why this is such an amazing investment. now I'm consulting an attorney. tick-tock, time is running out though.
p.s. the agreement does not state at all that the EMD is refundable. just simply states when each installment is due, and what type of extra charges of any changes to the agreement are made after some key dates.

Builders contracts typically highly favor the builder. Id say there is a 99.99% chance that the money youve already given them is a sunk cost, and there is a pretty good chance they are due the remainder of the $10k. If you used an agent on the purchase, they may have more leverage as their are some subtle threats they can make, but if you didnt use an agent, you wont have that leverage. I was able to get myself out of a new construction contract and get my EMD back, but being an agent, I had more leverage than you would generally be able to apply.

Have prices in Fredericksburg VA gone up significantly since you first signed the contract as they have in many other markets? If they have, then the builders may be thrilled to have you back out of the contract ...

@Russell Brazil   I would say she can get it back... unless it says non refundable specifically.. at least that's who it would be here  .. we have the Courtney clause in our deals.. we as builder think your bugging us to much we can cancel and give you your EM back plus 500.00 out of our pocket for your troubles.. I have all buyers sign that.. some folks you just want to cut lose if they are too much trouble during the process.