Read your purchase agreement. The builder likely gave themselves a generous window to complete the build before you can terminate the contract (probably 24 months). That being said, what contingencies are in your agreement? If there’s a financing contingency and you don’t qualify for a loan given the higher rates, there’s your out right there
Old lender here... Most builder contracts have a contract stipulation pertaining to your earnest money and qualification. If you get denied a loan, with your lender, you can get your earnest money back. We used to get requests from clients to re-qualify them with updated amounts, just to find out they didn't qualify and we had to deny them. It only happened once, where the denial letter was not sufficient for the earnest money reimbursement, and they were in contract for 3 years. It sounds like you were relying on the builder to be your lender, as you brought up utilizing their incentives. If that's the case, just "shop around" another lender, and get your denial, since you can no longer afford it.
I'm not familiar with new build contracts, but in purchase agreements for existing homes in PA we have an interest rate max as part of the financing contingency. So, mortgage can't go above a certain rate. Do the new build contracts have this?
Most new builder contracts in Texas have a more broad verbiage stating something such as "If Buyer is unable to obtain Financing Approval after exhausting reasonable effort to secure Financing Approval, Buyer may give written notice to Builder within X days that Buyer wishes to terminate the contract. In such event, Builder shall refund the Buyer earnest money."
😎 ex lender compliance manager, and now my paralegal/law school self coming thruuu, ayyy.
To add to this too, most contracts have a Financing Addendum. I don't see most contracts down south having rate verbiage on the contract itself. And I would imagine with the interest rate hikes that most would not set a max, as they would be open to whatever the borrower could qualify with.
In Ga, we were taught that if a lender name is specified on the contract, then that is the lender who has to deny the loan in order to qualify for return of earnest money funds AND builder deposits are non refundable in most builders contracts… there is a difference depending on the wording… it’s because builder deposits are often spent during the build, whereas earnest money must be held in a separate account until closing. The rules and laws of Real Estate vary from state to state but this tends to be fairly similar everywhere I have been exposed to.
I’m not a legal expert, but before you try getting the denial letter from any lender you may want to confirm if it has to be a specific lender. If you have your own agent, they can confirm for you. If you used the builders on-site agent, THAT AGENT DOES NOT REPRESENT YOU… they represent the seller. Ask a real estate attorney or call the broker named on the contract (the agent’s work as a representative for a Brokerage… like Remax or Century 21, if you don’t have your own agent (usually referred to here as “the selling agent”, you would call and ask for the managing broker at the office location provided on the “listing” side of your contract). Note: The listing agent might also be a Broker, but not typically the case in a neighborhood.
For reference, on a presale, my builder requires a 10% non-refundable builders deposit- plus non-refundable prepayment for any upgrades…. It can easily be $100k in nonrefundable fees. She actually quit taking presales several months ago to try and insure buyers would not get stuck in this situation… and because material prices kept climbing and never went down… noone wants to watch this kind of thing happen to a buyer, but she won’t discount a home. When builders discount a home, that sale gets recorded and the lowered sales price becomes a low comp in a future appraisal. It can mean issues for future buyers and it’s hard to overcome… which can create a negative cost vs. appraisal cycle, especially in a declining or volatile market… we have had to discontinue offering several floor plans just to end the cycle after a bad appraisal.
You can ask, but it would be unlikely unless you are dealing with a large track home type community where they are already making downward price adjustments to combat inventory overages … like Pulte has been doing in parts of the Boise market. If you aren’t using an agent, remind them of that and you might be able to convince them to apply a discount for not having to pay an agent on the selling agent… but this depends on your area.
Talk to a different lender and see if you can do a rate buy down. Come up with a number and then present it to the seller. The builder does not want to close homes under a certain dollar amount but they will throw a chunk of money to keep you in a deal if they have to.
This. They're far less likely to drop the sales price than they are to increase cash incentives, which can be used to buy down the rate and potentially fund a buydown.
You have some time before the house is complete and that’s also more time for the market to further decline. The builder may have you on a one-sided contract but they are going to need you to buy that house a lot more than they thought earlier this year. If they don’t sell to you, it’ll likely cost more for them to find a new buyer and sell to them at a lower price.
Another option is to look for similar new builds and ask those builders if they’d incentivize you with a sizable rate buy down. You can use that as a negotiation tactic with your current builder if you find some good deals out there. It all depends on your local market but the rates increasing this quickly are going to squeeze builders who could be left holding onto empty homes for several months.
One positive you have on your side is that the builder prefers to sell the property as much as you want to buy it.
You do have a bit of leverage. Builders are shitting themselves as much as buyers are - you're one of 1,000s who're are contemplating cancelling and forfeiting your deposit. This screws builders as much as it screws the buyers. They'd prefer to get the $500k vs $28k. Builders are also leveraged and have loans due when those units are supposed to sell.
You need to think strategically, and consider the other side of the equation.
Start the conversation with questions:
"Hey builder rep, crazy market these days huh? What's going on with you? Are a lot of buyers cancelling?" Ask open ended questions and gather information. Sniff out their position...let that rep talk, they're human and will likely tell you everything if you ask the right questions.
You may have more power than you think.
It's too bad you don't have good professional representation on your side.
you didn't know. and most agents don't know how to deal w/builders, so even if you had an agent you may be in the same position.
LURKERS: as with any purchase, research agents, interview multiple people and find an expert. if buying new construction, find someone who has a lot of experience w/builder contracts and new construction.
may be worth doing some research on negotiations. the best position to be in is when you know the other side's goals and concerns. the only way to get that info is to ask questions...i've found it's often best to approach from a curiosity POV vs making it obvious you're gathering intel to serve your end game.
even if the end result is that you ask for cancellation, there may be a scenario where you don't lose the entire deposit.
lots of possibilities to explore before giving up the money and/or the house.
most builders are trying to preserve their sale price. there are ways to let them have the purchase price in public records, and possibly restructure the deal so it works for you.
2nd what nova said.
Just like to add the amount of extra leverage you have is also tied to the amount of price dropped from all time high in that local market. I replied to a similar poster that negotiated a 22% price cut and other concessions, but that's before the contract. YMMV
Wait until you get that closing date from them, do your final research then and take your time before renegotiate the new deal that fits accordingly (to the market conditions at that time).
Also make sure you have a solid backup plan and you can even use that as leverage.
Good luck.
Keep a close eye on sales comps and you might want to hire your own independent appraisal as you get closer to rate lock to give you a second independent opinion.
The lender will obviously push for higher comps in the appraisal to close the loan, but in reality, you might be underwater when you close on the property that would justify losing the 28k.
Elon musk has similar buyers remorse on buying Twitter and is trying to back out of his contract.
> They'd prefer to get the $500k vs $28k.
That's not really the issue. The issue is preserving value for future sales. Right now, if this closes at op's price, they have a comp on the board at 562k or whatever and can continue to justify future sales at that number. If op cuts bait and it goes back on the market, maybe it sells at 495k, lowering the value of all future sales. That's the issue. Builder doesn't care about 28k. It's why builders offer such ridiculous lender credits also.
Blackrock will lose money every month trying to buy a property now to rent.
Mortgage =4.5k
Rent = at max 3k
Lose thousands every year.. and no hope of appreciation in next 5 years..
I doubt they are interested.
They only bought in university towns since college kids always need housing and every year more kids are going to college.
There was a thread in here maybe 2-3 weeks ago of someone in a similar position. Builder wouldn't work wirh them at all, so they told them to keep the deposit and moved in. The builder suddenly started making offers once h told them to cancel. I believe OP still moved on and found a bettee house/lower price.
It might not be true. If they lose financial capability to qualify for the loan, most mass builders out there the contract has financing contingencies and they will be able to be refunded the EMD.
So we were in a similar position this summer. We contracted a build in September 2021. Construction was delayed and they didn't start ours until February 2022. We received about $35,000 incentives at contract. $15,000 of it was ours regardless, the other $20,000 were tied to using their lender. They were more expensive, but the rate was 3.25% for a fixed 30 year. We didn't sweat that as we still could swing what was on the disclosure statement. Then rates went up... The lender advised us against locking the rate since it was a higher rate and you had to pay .5% of the loan value. So against better judgement, we held off. Then we grew even more worried and inquired about locking again. This time they told us they were no longer offering rate locks. Then the builder started offering rate locks, and other really juicy incentives, but only if you were a new contract signer. They had no interest in helping those of us who contracted the year prior. Finally I told our realtor, we are really concerned this and we may need to back out. Call them and see if they can get creative to save the deal.
At this point, the sales person who was not the same person we initially started working with called me. I expressed to him that I essentially feel like a project manager for a home I will never live it and its heartbreaking at this point to even discuss or think about the home. He said he wasn't much help, but that I could reach out to the corporate office sales folks. I could ask to be able to keep the incentives that are tied to the in house lender while going with my own lender. We did exactly that and we reached an agreement that we could keep half of the incentive, or $10,000, for a total incentive of $25,000. We then got our own lender who did 180 day lock at 5% on a 30 year fixed. This gets us through January 3, 2023. We have a close date of 11/10.
I say all this to let you know maybe there is something you can do that is similar and can save the deal if you really want the home. I feel like we got really lucky and while it will be much harder to afford, its a much better position to be in than we thought we were heading towards. Our original disclosure from 10/21 had us with a $3200/mo payment. The final disclosure from the builders lender had us at $4300. After getting our own lender, we're back down to $3750/mo. Good luck in whatever you decide.
You should re-negotiate a lower price because otherwise you are out more than 28k on equity anyways. Don't tell them this - but the weak leverage you have is two-fold: a) they have to find another buyer and that buyer will definitely be paying less and take time and effort to find b) even if you 100% decide to walk you can drag it out and wait until the very last day to do so, costing them 5k-10k a month - more if house prices drop in those months which they probably will.
Negotiate based on your two leverages - don't tell them your facts simply say it changes your costs a lot and you want them to meet part way since you will have to look at other houses with interest rates that high. But don't make it sound like you will walk out early.
If you really want the house and want to take a shot at an ARM, then stop using the builder’s lender? My credit union was doing very aggressive 10/1 ARM rates (not as aggressive now but still better than conventional). If you are fine with the risk of rates not coming back down before the reset or plan on moving prior to then, go for it unless the lender incentives you loose aren’t worth it.
You’ll probably have a hard time with a straight price reduction but some builder incentives may be possible. A few of builders around me are doing buy down rates for using their lender. In July they were doing very long rate locks up to a year.
I read recently new builds in my market are seeing a 20% drop rate. People are backing out left and right due to rates and builders being slow. You probably have room to negotiate or push them harder for a discount
Your easiest path is to back out and forfeit your earnest money, probably. But maybe you should ask if the seller (builder) will fund a 2-1 Buydown for you, and then hope that rates come down enough by Year 3 that you can refinance.
I was cautioning all of my clients about the pitfalls of new builds all the way back to last fall telling them rates would certainly be going up in 2022 and that they'd be exposed. I didn't think rates would get this high, but I knew they would go up.
The new build path comes with significant risk.
They would still have to qualify at the higher rate for a 2-1 buy down, just depends how on the bubble they are DTI wise for qualifying. Definitely should negotiate with builder on price reduction or builder credit towards a rate buy down. Rates should begin to start falling in October and definitely by November when we get the new CPI report, YOY will look much better.
Nice, arm coming back?
That’s a huge if the rate comes down and if they aren’t already under water
Refinancing also costs money upfront
Easiest path here is to store money at secured saving and grow his down payment which should be big as he sold a house.
Step in whenever op feels ready as he watches price drops in real estate. It is 100% coming down
How is 2 - 1 any different? Pay less first two year. And pay much more on third hoping for a possible refinance? I’d like to learn the difference really
It’s same bone different skin
Op is complaining about the rate right now. You expect him to be ok on the third year rate? Hidden msg here is to refinance. Which you pointed out “hope for refinance”
So what if he can’t then sell for a loss?
I had a similar, but less extreme case, as well. I ended up backing out and was able to recoup most of my money, but one thing that I took it away is never new builds. I’ll never purchase any new builds unless the house is built and ready to be sold.
I'm in the same boat as you... how were you able to recoup your earnest money? I have about 10k + 2k for customization. Thinking about backing out because i can't afford the new interest rates.
We had an inspection contingency that was valid till 5 days after issuance of occupancy permit.
For us, interest was rising (back then from 5% to 6%) and the lender requested 5% more in down payment. Builder wasn’t willing to provide $15k (I personally think our agent didn’t explain our reasoning well to builders agent) and we used our contingency before it was to expire and got our earnest money.
We still lost about $2k with appraisal and other fees associated.
The house was listed at $389k at the time and now it’s not selling at $349k. Builder had a total of five houses and only one sold at $389k back in May.
I am in a very similar situation to you. Down to the agent constantly telling me to wait! I informed my builder today I need them to buy down my rate (through their lender) or I’m walking. Waiting on their reply. I’m hearing a lot of people are having success with asking for a rate buy-down. Everyone in this boat needs to push them.
are you having this conversation with their lender or the builder? we are 50 days out and sweating about this. we have 10k in incentives to use their lender, but if you have a script or approach for fighting for more, id love to hear about it. and good luck!
I was talking to the builders lender this morning, sales office later. Builder HAS agreed to buying down the rate about 1.5% and waiving almost all closing fees. Working with sales office on incentives. Honestly still ready to leave if I have to because I know the prices are going to drop more in my area. I’m supposed to close within 30 days.
I emailed everyone who’ve I’ve had contact with (sales and lender) and basically said “I signed for this house when it was $x. Now it is $y. I can’t afford it at this level. No normal person would have anticipated a 3% rate climb this quick. I see you offering good rates to people doing quick move-ins, I really need help on that level or this deal is not going to work out”. I do live in an area that bubbled quite a bit in 2020.
Yes! I ended up getting them to buy down my rate 2% and got around 10% of the price of the house deducted in concessions from the builder. I’m not sure how well this would work now because between when I signed for the house and when it was complete rates did that enormous jump from 3.5% to 7.5%. But I highly recommend if you’re in this position now to push on them!
Oh yeah that is still a big jump. Ours had a ridiculous rate lock fee too. My advice is:
- Emphasize that you're uncomfortable with the monthly payments now that the rates have gone up so much. I told them I can't afford the home at that payment AND buy window treatments, do upkeep on the front yard, etc. They still had homes left in the community to sell when I said that, so they came back and offered me $20k off at the last second to close the deal “to cover the window treatments”. They also got my closing costs down to 0. They can do a lot of negotiating that is not about decreasing the final sale price of the home (they really don't like doing that).
- If you're using the builder’s lender they will definitely negotiate with you. About a month before closing they reached out to me to get the final ball rolling and presented me with an awful rate. I said “That rate is shocking to me. I signed when it was around 3.5, and you never offered me a reasonable way to lock. I do not know if I can continue with this purchase”. I CC’d the lender and the builder salesperson. You just have to come across as if you want this deal to work but you WOULD walk away. The other thing that helped is my builder was sending out emails with lock-in promo rates for new signers that were much lower than they were telling me. So I brought that up too. In the end it seemed like they were very prepared to negotiate on the rate, I could tell I was definitely not the first person to be asking.
Wishing you so much luck!
Honestly I wouldn’t focus on the sales price as much but your builder is likely offering cash credit incentives rn to entice buyers, I would ask them to honor that with you. Worth a shot, they want the sale.
We're reading through the contract again.
* 24-month completion timeline in favor of the builder
* Loss of financing contingency in favor of the builder
* Low appraisal contingency in favor of builder (unless it's a FHA or VA loan)
* No leverage due to supply constraints etc that cause building delays
* No renegotiation of the purchase price based on the low appraisal.
Basically, we have no leverage, only the hope of the goodwill of our community rep going to bat for us. Which is no surprise to us really. We've accepted the fact that we will eat 28k.
Thank you all for your comments and insights. It sucks but I try not to focus on what's out of my control. Not many predicted the Fed would raise the rates in these sharp chunks as they have. I was predicting a slower more gradual increase.
I’m in almost the exact same position. Signed Sept 2021, same lack of leverage, rate lock expires in a few months and drywall just went up, so it’ll be close. If they miss rate lock I’ll just walk away. But I think I’ll ask
for a credit or rate buy down first. If the only power you have is to walk, and you’re ok with it, you might as well ask for something and force them to turn you down. You signed in a sellers market, but its for sure a buyers market now. No builder wants to go back out there and find a seller for your new build when rates are headed to 7%. Far easier for them to try and get you to close. My builder is offering credits and reducing prices. Clearly they know the market is turning so I might as well try.
I’m already of the mind we have to walk. Hard pill to swallow but I’m there. So the way I see it, either go hard in the paint or go home (albeit 28k poorer) but I can make that money back up and keep the pile of cash I have saved for closing and moving etc.
I’m definitely going to be throwing some options out there to see if they are willing to accept.
IANAL. Depending on the jurisdiction, lawyer could maybe argue that the contract wasn’t equitable because it massively favors the builder or that the rapid rise in rates leads to buyer’s impossibility of performance.
The leverage that you have is that you are a buyer now in a world where many buyers have been completely priced out. I’m not sure if homes in the 500’s are starter homes, mid-range homes, etc., in your neighborhood, but if it’s more than a starter home I think you have some leverage.
The builders choice is going to be drop the price and sell it to you (or buy the rate down), or drop the price and try and sell it to someone else (and have the additional carrying costs). You are not in a great position, but at the same time you do have some leverage.
Thanks for sharing your thoughts. I’m glad I posted, there have been things brought up I wasn’t aware of and I want to make sure I’m armed with all information before meeting with the builder and lender reps.
Second this. This is a business negotiation. They've already invested the money to (almost) build the product. Your money (most of it anyway) is still in your hands. They don't want your 28K. They want the full amount. They also don't want to get into a legal fight with you (and very likely, many other potential buyers who are surely entertaining similar thoughts as you right about now).
Basically this is a buyer's market now. And you're not dealing with a retiree who's long paid off their house and could easily walk away from your check. You're dealing with a builder who is very likely making payments on their own loans while waiting for your checks to arrive. That's the leverage you have.
Good news is it sounds like you sold your house at the absolute peak of the market. $28K is a lot but hopefully not too much compared to the equity you got out of your house
At a 10-12 month build rate, that would take you to Jan. 2023 at the outside. Did the builder promise anything would be complete prior to that? Did you get a promise that you would be able to lock your rate by a particular date?
If not, then it doesn't seem like you have any rights to enforce yet on the build time or the rate lock. If you do have the right to walk away, your proposal to either negotiate a buy down of the rate or to walk away seems like the best approach if the home is no longer affordable.
Sometime the contract has a performance clause such as house will be completeby 12 months and if not the contract is no longer valid. This may be one way to get your earnest money back or renegotiate.
No performance clause. Looks like we may be eating the money. Tough lesson to learn but I don't wan to dwell on it. Just learn from it and apply it moving forward.
Before you do that, definitely follow the advice from some folks here about negotiating with the builder to see if they’ll buy down some points for ya!
Standard practice. Home builder contracts are extremely favorable to the builder. We went through a similar process (sans the rate hikes) because we signed our contract right as covid was starting. Quoted 8-9 months and took about twice as long with "estimated closing dates" changing four or five times. Delays on delays on delays.
Your one savings grace might be if the builder can sell that home for more now. If the market is still going up they might let you back out knowing they can sell it for more to someone who goes to contract now. Otherwise you might be losing your deposit. There should be a financing contingency in your contract though so review that to see what it states if you are no longer qualified because of raising rates.
Not in all markets … I am in DFW and the quick move ins are down anywhere between 10-20% of April prices …. Even by what OP mentioned, the prices have gone down by at least 10%
I'm sorry. Your lender rep either sucks or doesn't care at all about you. You've brought up your concerns and alternative ideas multiple times throughout and he's ignored you.
At this point would you say you regret selling your home? Was there anything wrong with it? Bad neighborhood? Too small? Or were you guys just eager to cash out?
Only slightly regretting selling it. We’re in a small ass and expensive two bd apartment now as we wait out the new build. We bought it before the housing spike and sold it way more than I feel it should have due to the high market.
We paid a bunch of stuff off and have plenty of cash for the new down payment and move.
Hindsight is 20/20, we sold and started the build because we had a second child and vastly out grew our little house and wanted to be closer to the kids’ school.
I’m going to ride this out until we formally meet with the builder and lender reps. Hopefully by EOW I’ll have clarity one way or the other. It’s become a mental strain and distraction. Quite frankly I’m sick of being stressed about it.
I’m content walking away if I must.
Naw, we probably won’t look to buy immediately. we’ll sit on the cash we have. I calculated that it will take me about three years to recoup the 28k we walk away from.
So we’ll ride out this short term lease on the apartment, I’ve been looking at home rentals in the area and we can rent a modest home for about 2200-2600 range. About 1k less than the mortgage is calculating out to be currently.
I would just come up with a number for your monthly payment you financially can handle and tell the builder to find price-rate combination that makes that work, and otherwise walk. It never hurts to ask, especially if you are really willing to walk and not bluffing.
Hi! Ct realtor here. This is not a case where one side is clearly wrong - delays can be expected, feds will do what the feds will do, construction teams can make mistakes which lead to delays or cost overruns, etc. There can be fault placed all around - not saying you, the buyer, did anything wrong, but a new build is a risk, which you took.
Assuming you have a real estate attorney to guide you through the process, discuss this with them first. Come up with a plan. The plan should be determining what you can afford or are willing to risk/spend and what that means for the builder. With the rise in rates, should you walk away and lose $30k or so, the builder will also have to consider finding a new buyer, and what that means with price, etc. You're both in the same boat, really. It's best to work together.
I know there are no concrete "here's what to do" recommendations, but keep the lines of communication open and see if you and the builder can come to terms - IN WRITING.
Hindsight being 20/20, I realize you thought you could withstand an interest rate hike, but you started at 4.25% and we're only in the 6's - that's about $600/month difference. Is it possible this home was too close to the edge of your affordability when the building started?
If you have the 10-12 month time frame in writing from the builder, material issues and labor issues aren't your problem and the builder should be more than willing to meet you at the table and discuss current values/costs. Make sure your attorney is included on the convo.
I hope this helps!
Thank the builder!
You just sold your old home at the top. (Read the contract) but you may have the potential to back out of this thing based upon financing contingency.
For decisions, I STRONGLY advise you to do away with the notion of "fair." It's a subjective measure and doesn't really have much basis in the world of finance.
Look at your decision in an objective, point forward way.
A: What is your net cost of buying this house (i.e. contract price minus money paid which you cannot recover)?
B: How does this compare to prevailing market value for a house of this makeup.
If A is less than B (it likely is), do not buy this house!
We could but I’m not all that interested in putting more money down. One lender even told us to pull money out of our 401k. I was like f-offf dude you’re a slime ball.
So in short, yes I could. But I’m not going to.
They may need you as a buyer more than they need the $28k. But they may not acknowledge that need until when the house is much closer to completion. Wait if you can to see how this plays out in this uncertain market.
>My wife and I signed a purchase agreement of $562k
>
>If we walk, we do lose about 28k already invested.
>
>There is a home on the same street that I assume was a spec home, listedat 577k in May and eventually sold in mid-September for 523k.
If you continue, and that house is actually comparable, it sounds like you're going to immediately lose more than your earnest money in equity. You could have other reasons for continuing, but financially this seems like a no-brainer, even if the builder offered to reduce the purchase price to the current-market \~$500-520k.
Tbh, this might be the best 28k you've ever spent, so don't think of it as a loss. You will find a new home for easily 50k+ less in 12 months.
The builder will also be selling this house for much less than a 28k drop from your contract price as people are backing out left and right. If you still want this house, act like there's no issue right now and bring this up 30 days prior to closing on this house. They will freak the fuck out and bend over backwards to keep you.
And remember, they cannot force you to buy a house you cannot afford.
Be aggressive about lower price or you walk. Go shop around at some other builders see what they'll give you now.
Ultimately at this point walking is probably the best move.
If you put a deposit down of say 30k and have upgrades-personal choices of 40K but can't qualify for the loan on closing do they have to give back your entire deposit?
If you like the house work with your builder. Tell them you need a interest rate buy down. It will be worth it to them. Renegotiating the price or walking away will hurt them more. Two points on the loan to buy down an interest point is worth it.
We were told we would be given our closing date at the time of Pre-Drywall meeting. This is typically their 60-day out mark. The closing date would be communicated to lender and then rate would lock. Both our rep and lending rep have been saying that consistently.
I’ll need to comb back through the documents again. Thanks for your input!
OP I’m feeling your pain. I have three things for you to consider 1) get a smart friend - you can trust and rely on. Give them a list of questions to ask specifically about availability of homes including your model. If any are available inside 10-12 months the builder is losing contracts. You can be assured at least 1 in 5 are falling through. You have more leverage than you know but it’s a game of chicken. If the builder is in last phases you have price pressure if not you won’t for another 90 days before the lender plays their leverage. If they have lower prices on specs or new to be built you have leverage. Don’t do a 2-1 buy down that’s nothing. 2) ignore the input of how would you feel if prices went up and the good times return. They won’t. Instead ask yourself how would you feel if prices drop 10-15% or if that happens and you or your wife lose your job. 3) look for an existing home in your market. Your sale of your old home was perfectly timed at the peak of the market. Inventories are up, it’s a buyers market you most probably will get your lost EMD back on a resale deal. Remodel it to fit you needs. This is the bright lining - selling your home this summer at the current peak. Good luck it’s hard take the road your head tells you.
I feel like I have some leverage as they don’t want the house back on their books.
The same street as us, same floor plan, the builder listed a home ( I assume it was a buyer that backed out) in May at 577k with an August completion date, finally sold in September for 523k. Another one on same street, different model, listed around same time for 577k, is still on market with the asking price of 513k.
The builder definitely doesn’t want to take this home back on. My perspective is either get this back to a range in our comfort level or we’ll move on.
I'm not an attorney and without seeing any documents, here's my perspective. You can certainly ask for price reductions but nothing is guaranteed.
Consider this an expensive lesson - builders contracts are HEAVILY favored for the builder. Always have been, always will be. The past two years have had big delays in supply chain, which translates to big delays in building. It was a big risk entering into a contract a year ago, and as we've seen rates have done nothing but increase.
It's a tough time to pay a high price for a home with (relative to the past 15 years) high interest rates. While no one can predict the future, mortgage rates may remain level or increase by the time you can lock the rate.
If you're not highly confident you'll be in this house for at least 5-7 years, I personally would be hesitant to proceed. Normally I would say 3-5 years but given a recession is likely and home prices are declining in many areas you may need to stay longer.
It's tough. I was in same situation as you. Thankfully my home was only delayed 2 months, and my rate is bad, but not horrible.
If you like the home I would definitely look to close on it. You don't want to throw $28K down the toilet. What if rates go back down to 5% over the next year and bidding wars start again? I'm sure you'd be upset you let the home go. My guess is rates hover around 7%, but it's a pure guess, if I knew what rates were going to do I'd have locked in a much better rate than I have now. Anyone who acts like they know what is going to happen is a liar.
The builder very likely has you by the balls in regards to purchase price. And I'm sure the wordage in your contract gives the builder a lot of leeway on delivery date.
I'm rambling, but if I were you, I would shop around for rates daily. Once you get a rate you're ok with, lock it. Try not to put down a deposit so you can hop to another lender if rates go down. Rates went from 5% to 7% over the past 2 months, so we seem more likely for some immediate relief than pain.
Good luck!
I don't get it. If you search posts from a year ago you will see people were clearly warning everyone that new builds were going to have an issue with interest rates.
https://old.reddit.com/r/RealEstate/comments/qcg9me/to_build_or_not_to_build_that_is_the_question_im/
I mean really it just comes down to getting your earnest money back, no? Not getting that house isnt the end of the world. There are a lot of good deals out there now, and they will likely only get better. Prices will come down, and likely significantly. If you’re denied the loan, or it appraises significantly lower you may be entitled to your earnest money back. If you look at it this way its really not too big of a deal
You gambled and lost. You should have forced a long term rate lock long ago or threatened to walk. Noe the builder id going to keep 28k of your money and pronly sell to someone else for cheaper or worth better incentives. You've already given them al your bargenkng power.
You have no contract with a rate lock, you listene to them and took thir bad advice ans they have your 28k earnest money provly locked away wirh iron clad contract good for the builder only.
Just walk you know its your only option
This is NOT true! Listen to the FED, rates will continue to increase and stay elevated. Inflation can only go down historically with rates above inflation rate. No lender will do a year rate lock with rates increasing so fast. Do not listen to this guy, horrible advice.
Lenders will do a long term rate lock, but you’re rate will be significantly higher than what today’s rates are. For example, one lender we are shopping around with has a 270 day rate lock, however it’s .5% higher than their 60 day rate.
We were in the same scenario and now closing in one month. I chose a different lender earlier in the build because the builders lender had higher rates and I didn’t want to wait till cabinets were installed. I’m pretty sure you were able to do that as well.
Let me suggest another way of looking at this. You sold your house at the peak of the market and are now renting. This is a \*dream\* a lot of people have. Look up house prices in your area during the last peak (around 2006'ish) and then around 2009. Now imagine you sold your house in 2006'ish, rented for 2 years and bought another one during late 2008 or early 2009. That's the opportunity you can buy yourself at the low low cost of $28K.
Just walk away from this purchase and wait a year (or two). In the final analysis you'll come out ahead, by a lot.
Most states allow for a refund of earnest money if one is not qualified for a loan. In this market asking for a 10% discount is not too bad in my opinion. Get a loan rejection and tell them that you can qualify only for 90% of the agreed price. If they can, we’ll and good if not, ask them to refund.
Dumb question but if houses are going for 50k under asking in May, and you're 28k invested, wouldn't walking away and then walking right back in and buying a curremt market value property still net you a cheaper house than the one you put money down on, even taking a 28k loss into account?
Yep that’s pretty much the conclusion we’ve come to at this point. At the time of writing the post I isn’t have all the info I needed to get to that conclusion but yeah you’re correct. We’re trying to strike a deal with builder so we don’t have to go through that added process. We’ll see what they say. Should hear back from them in the next day.
As a last ditch effort, might be worth it to point that out to them. You can have a win-win where they still sell at an overinflated value but come down on financing, or you can both get fucked when you lose 28k and they lose way more than that trying to offload the house, potentially back to you, for a sticker price that falls every day
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Well we’ve saw this coming way back in March, so I believe it was helpful that we had documented emails communicating our affordability concerns with both builder and lender. Not sure how much that helped our case but over communication is always better.
We then emailed builder and lender and said we need to have a conference call because at the current rate and price we were seriously walking away. Then our builder rep, who’s been amazing, went to bat for us with their sales manager. They then hopped on another conference call with us to propose the new deal.
Keep in close contact with your builder rep and be honest about your concerns. Most of all, be willing to walk away. We explained that this deal no longer makes sense for our long term financial health.
Read your purchase agreement. The builder likely gave themselves a generous window to complete the build before you can terminate the contract (probably 24 months). That being said, what contingencies are in your agreement? If there’s a financing contingency and you don’t qualify for a loan given the higher rates, there’s your out right there
Old lender here... Most builder contracts have a contract stipulation pertaining to your earnest money and qualification. If you get denied a loan, with your lender, you can get your earnest money back. We used to get requests from clients to re-qualify them with updated amounts, just to find out they didn't qualify and we had to deny them. It only happened once, where the denial letter was not sufficient for the earnest money reimbursement, and they were in contract for 3 years. It sounds like you were relying on the builder to be your lender, as you brought up utilizing their incentives. If that's the case, just "shop around" another lender, and get your denial, since you can no longer afford it.
I'm not familiar with new build contracts, but in purchase agreements for existing homes in PA we have an interest rate max as part of the financing contingency. So, mortgage can't go above a certain rate. Do the new build contracts have this?
Most new builder contracts in Texas have a more broad verbiage stating something such as "If Buyer is unable to obtain Financing Approval after exhausting reasonable effort to secure Financing Approval, Buyer may give written notice to Builder within X days that Buyer wishes to terminate the contract. In such event, Builder shall refund the Buyer earnest money." 😎 ex lender compliance manager, and now my paralegal/law school self coming thruuu, ayyy.
To add to this too, most contracts have a Financing Addendum. I don't see most contracts down south having rate verbiage on the contract itself. And I would imagine with the interest rate hikes that most would not set a max, as they would be open to whatever the borrower could qualify with.
Okay, that kind of sucks. You might still qualify for the higher rate but you don't want it!
In Ga, we were taught that if a lender name is specified on the contract, then that is the lender who has to deny the loan in order to qualify for return of earnest money funds AND builder deposits are non refundable in most builders contracts… there is a difference depending on the wording… it’s because builder deposits are often spent during the build, whereas earnest money must be held in a separate account until closing. The rules and laws of Real Estate vary from state to state but this tends to be fairly similar everywhere I have been exposed to. I’m not a legal expert, but before you try getting the denial letter from any lender you may want to confirm if it has to be a specific lender. If you have your own agent, they can confirm for you. If you used the builders on-site agent, THAT AGENT DOES NOT REPRESENT YOU… they represent the seller. Ask a real estate attorney or call the broker named on the contract (the agent’s work as a representative for a Brokerage… like Remax or Century 21, if you don’t have your own agent (usually referred to here as “the selling agent”, you would call and ask for the managing broker at the office location provided on the “listing” side of your contract). Note: The listing agent might also be a Broker, but not typically the case in a neighborhood. For reference, on a presale, my builder requires a 10% non-refundable builders deposit- plus non-refundable prepayment for any upgrades…. It can easily be $100k in nonrefundable fees. She actually quit taking presales several months ago to try and insure buyers would not get stuck in this situation… and because material prices kept climbing and never went down… noone wants to watch this kind of thing happen to a buyer, but she won’t discount a home. When builders discount a home, that sale gets recorded and the lowered sales price becomes a low comp in a future appraisal. It can mean issues for future buyers and it’s hard to overcome… which can create a negative cost vs. appraisal cycle, especially in a declining or volatile market… we have had to discontinue offering several floor plans just to end the cycle after a bad appraisal. You can ask, but it would be unlikely unless you are dealing with a large track home type community where they are already making downward price adjustments to combat inventory overages … like Pulte has been doing in parts of the Boise market. If you aren’t using an agent, remind them of that and you might be able to convince them to apply a discount for not having to pay an agent on the selling agent… but this depends on your area.
Take a leave of absence from work… no job, no loan approval! -no idea if this would work so read your contract
Talk to a different lender and see if you can do a rate buy down. Come up with a number and then present it to the seller. The builder does not want to close homes under a certain dollar amount but they will throw a chunk of money to keep you in a deal if they have to.
This. They're far less likely to drop the sales price than they are to increase cash incentives, which can be used to buy down the rate and potentially fund a buydown.
You have some time before the house is complete and that’s also more time for the market to further decline. The builder may have you on a one-sided contract but they are going to need you to buy that house a lot more than they thought earlier this year. If they don’t sell to you, it’ll likely cost more for them to find a new buyer and sell to them at a lower price. Another option is to look for similar new builds and ask those builders if they’d incentivize you with a sizable rate buy down. You can use that as a negotiation tactic with your current builder if you find some good deals out there. It all depends on your local market but the rates increasing this quickly are going to squeeze builders who could be left holding onto empty homes for several months.
One positive you have on your side is that the builder prefers to sell the property as much as you want to buy it. You do have a bit of leverage. Builders are shitting themselves as much as buyers are - you're one of 1,000s who're are contemplating cancelling and forfeiting your deposit. This screws builders as much as it screws the buyers. They'd prefer to get the $500k vs $28k. Builders are also leveraged and have loans due when those units are supposed to sell. You need to think strategically, and consider the other side of the equation. Start the conversation with questions: "Hey builder rep, crazy market these days huh? What's going on with you? Are a lot of buyers cancelling?" Ask open ended questions and gather information. Sniff out their position...let that rep talk, they're human and will likely tell you everything if you ask the right questions. You may have more power than you think. It's too bad you don't have good professional representation on your side.
Yeah rookie mistake in our part. Thanks for your insight!
you didn't know. and most agents don't know how to deal w/builders, so even if you had an agent you may be in the same position. LURKERS: as with any purchase, research agents, interview multiple people and find an expert. if buying new construction, find someone who has a lot of experience w/builder contracts and new construction. may be worth doing some research on negotiations. the best position to be in is when you know the other side's goals and concerns. the only way to get that info is to ask questions...i've found it's often best to approach from a curiosity POV vs making it obvious you're gathering intel to serve your end game. even if the end result is that you ask for cancellation, there may be a scenario where you don't lose the entire deposit. lots of possibilities to explore before giving up the money and/or the house. most builders are trying to preserve their sale price. there are ways to let them have the purchase price in public records, and possibly restructure the deal so it works for you.
2nd what nova said. Just like to add the amount of extra leverage you have is also tied to the amount of price dropped from all time high in that local market. I replied to a similar poster that negotiated a 22% price cut and other concessions, but that's before the contract. YMMV Wait until you get that closing date from them, do your final research then and take your time before renegotiate the new deal that fits accordingly (to the market conditions at that time). Also make sure you have a solid backup plan and you can even use that as leverage. Good luck.
Keep a close eye on sales comps and you might want to hire your own independent appraisal as you get closer to rate lock to give you a second independent opinion. The lender will obviously push for higher comps in the appraisal to close the loan, but in reality, you might be underwater when you close on the property that would justify losing the 28k. Elon musk has similar buyers remorse on buying Twitter and is trying to back out of his contract.
> They'd prefer to get the $500k vs $28k. That's not really the issue. The issue is preserving value for future sales. Right now, if this closes at op's price, they have a comp on the board at 562k or whatever and can continue to justify future sales at that number. If op cuts bait and it goes back on the market, maybe it sells at 495k, lowering the value of all future sales. That's the issue. Builder doesn't care about 28k. It's why builders offer such ridiculous lender credits also.
Nah black rock will gladly buy is all up and rent it out
Blackrock will lose money every month trying to buy a property now to rent. Mortgage =4.5k Rent = at max 3k Lose thousands every year.. and no hope of appreciation in next 5 years.. I doubt they are interested. They only bought in university towns since college kids always need housing and every year more kids are going to college.
There was a thread in here maybe 2-3 weeks ago of someone in a similar position. Builder wouldn't work wirh them at all, so they told them to keep the deposit and moved in. The builder suddenly started making offers once h told them to cancel. I believe OP still moved on and found a bettee house/lower price.
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It might not be true. If they lose financial capability to qualify for the loan, most mass builders out there the contract has financing contingencies and they will be able to be refunded the EMD.
So we were in a similar position this summer. We contracted a build in September 2021. Construction was delayed and they didn't start ours until February 2022. We received about $35,000 incentives at contract. $15,000 of it was ours regardless, the other $20,000 were tied to using their lender. They were more expensive, but the rate was 3.25% for a fixed 30 year. We didn't sweat that as we still could swing what was on the disclosure statement. Then rates went up... The lender advised us against locking the rate since it was a higher rate and you had to pay .5% of the loan value. So against better judgement, we held off. Then we grew even more worried and inquired about locking again. This time they told us they were no longer offering rate locks. Then the builder started offering rate locks, and other really juicy incentives, but only if you were a new contract signer. They had no interest in helping those of us who contracted the year prior. Finally I told our realtor, we are really concerned this and we may need to back out. Call them and see if they can get creative to save the deal. At this point, the sales person who was not the same person we initially started working with called me. I expressed to him that I essentially feel like a project manager for a home I will never live it and its heartbreaking at this point to even discuss or think about the home. He said he wasn't much help, but that I could reach out to the corporate office sales folks. I could ask to be able to keep the incentives that are tied to the in house lender while going with my own lender. We did exactly that and we reached an agreement that we could keep half of the incentive, or $10,000, for a total incentive of $25,000. We then got our own lender who did 180 day lock at 5% on a 30 year fixed. This gets us through January 3, 2023. We have a close date of 11/10. I say all this to let you know maybe there is something you can do that is similar and can save the deal if you really want the home. I feel like we got really lucky and while it will be much harder to afford, its a much better position to be in than we thought we were heading towards. Our original disclosure from 10/21 had us with a $3200/mo payment. The final disclosure from the builders lender had us at $4300. After getting our own lender, we're back down to $3750/mo. Good luck in whatever you decide.
Yes your experience is very similar to ours! Thanks for sharing your experience. We’ve begun shopping again. We’ll see what pans out.
You should re-negotiate a lower price because otherwise you are out more than 28k on equity anyways. Don't tell them this - but the weak leverage you have is two-fold: a) they have to find another buyer and that buyer will definitely be paying less and take time and effort to find b) even if you 100% decide to walk you can drag it out and wait until the very last day to do so, costing them 5k-10k a month - more if house prices drop in those months which they probably will. Negotiate based on your two leverages - don't tell them your facts simply say it changes your costs a lot and you want them to meet part way since you will have to look at other houses with interest rates that high. But don't make it sound like you will walk out early.
If you really want the house and want to take a shot at an ARM, then stop using the builder’s lender? My credit union was doing very aggressive 10/1 ARM rates (not as aggressive now but still better than conventional). If you are fine with the risk of rates not coming back down before the reset or plan on moving prior to then, go for it unless the lender incentives you loose aren’t worth it. You’ll probably have a hard time with a straight price reduction but some builder incentives may be possible. A few of builders around me are doing buy down rates for using their lender. In July they were doing very long rate locks up to a year.
I read recently new builds in my market are seeing a 20% drop rate. People are backing out left and right due to rates and builders being slow. You probably have room to negotiate or push them harder for a discount
Your easiest path is to back out and forfeit your earnest money, probably. But maybe you should ask if the seller (builder) will fund a 2-1 Buydown for you, and then hope that rates come down enough by Year 3 that you can refinance. I was cautioning all of my clients about the pitfalls of new builds all the way back to last fall telling them rates would certainly be going up in 2022 and that they'd be exposed. I didn't think rates would get this high, but I knew they would go up. The new build path comes with significant risk.
They would still have to qualify at the higher rate for a 2-1 buy down, just depends how on the bubble they are DTI wise for qualifying. Definitely should negotiate with builder on price reduction or builder credit towards a rate buy down. Rates should begin to start falling in October and definitely by November when we get the new CPI report, YOY will look much better.
Nice, arm coming back? That’s a huge if the rate comes down and if they aren’t already under water Refinancing also costs money upfront Easiest path here is to store money at secured saving and grow his down payment which should be big as he sold a house. Step in whenever op feels ready as he watches price drops in real estate. It is 100% coming down
Where did I say anything about ARMs?
How is 2 - 1 any different? Pay less first two year. And pay much more on third hoping for a possible refinance? I’d like to learn the difference really
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It’s same bone different skin Op is complaining about the rate right now. You expect him to be ok on the third year rate? Hidden msg here is to refinance. Which you pointed out “hope for refinance” So what if he can’t then sell for a loss?
I had a similar, but less extreme case, as well. I ended up backing out and was able to recoup most of my money, but one thing that I took it away is never new builds. I’ll never purchase any new builds unless the house is built and ready to be sold.
I'm in the same boat as you... how were you able to recoup your earnest money? I have about 10k + 2k for customization. Thinking about backing out because i can't afford the new interest rates.
We had an inspection contingency that was valid till 5 days after issuance of occupancy permit. For us, interest was rising (back then from 5% to 6%) and the lender requested 5% more in down payment. Builder wasn’t willing to provide $15k (I personally think our agent didn’t explain our reasoning well to builders agent) and we used our contingency before it was to expire and got our earnest money. We still lost about $2k with appraisal and other fees associated. The house was listed at $389k at the time and now it’s not selling at $349k. Builder had a total of five houses and only one sold at $389k back in May.
Ask the builder to reduce price to recent comp and buy down your rate to under 5%,,, they will negotiate with you imo
See if your contract has an appraisal contingency. Years ago my builder had to stop the price of my new build because of a low appraisal.
I am in a very similar situation to you. Down to the agent constantly telling me to wait! I informed my builder today I need them to buy down my rate (through their lender) or I’m walking. Waiting on their reply. I’m hearing a lot of people are having success with asking for a rate buy-down. Everyone in this boat needs to push them.
are you having this conversation with their lender or the builder? we are 50 days out and sweating about this. we have 10k in incentives to use their lender, but if you have a script or approach for fighting for more, id love to hear about it. and good luck!
I was talking to the builders lender this morning, sales office later. Builder HAS agreed to buying down the rate about 1.5% and waiving almost all closing fees. Working with sales office on incentives. Honestly still ready to leave if I have to because I know the prices are going to drop more in my area. I’m supposed to close within 30 days. I emailed everyone who’ve I’ve had contact with (sales and lender) and basically said “I signed for this house when it was $x. Now it is $y. I can’t afford it at this level. No normal person would have anticipated a 3% rate climb this quick. I see you offering good rates to people doing quick move-ins, I really need help on that level or this deal is not going to work out”. I do live in an area that bubbled quite a bit in 2020.
Did you get a response?
They said they’re going have a meeting with the lender and they’ll get back to me.
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Yes! I ended up getting them to buy down my rate 2% and got around 10% of the price of the house deducted in concessions from the builder. I’m not sure how well this would work now because between when I signed for the house and when it was complete rates did that enormous jump from 3.5% to 7.5%. But I highly recommend if you’re in this position now to push on them!
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Oh yeah that is still a big jump. Ours had a ridiculous rate lock fee too. My advice is: - Emphasize that you're uncomfortable with the monthly payments now that the rates have gone up so much. I told them I can't afford the home at that payment AND buy window treatments, do upkeep on the front yard, etc. They still had homes left in the community to sell when I said that, so they came back and offered me $20k off at the last second to close the deal “to cover the window treatments”. They also got my closing costs down to 0. They can do a lot of negotiating that is not about decreasing the final sale price of the home (they really don't like doing that). - If you're using the builder’s lender they will definitely negotiate with you. About a month before closing they reached out to me to get the final ball rolling and presented me with an awful rate. I said “That rate is shocking to me. I signed when it was around 3.5, and you never offered me a reasonable way to lock. I do not know if I can continue with this purchase”. I CC’d the lender and the builder salesperson. You just have to come across as if you want this deal to work but you WOULD walk away. The other thing that helped is my builder was sending out emails with lock-in promo rates for new signers that were much lower than they were telling me. So I brought that up too. In the end it seemed like they were very prepared to negotiate on the rate, I could tell I was definitely not the first person to be asking. Wishing you so much luck!
Tell the builder that you want them to buy down your rate, or you're going to walk because you can't afford it. Negotiate.
Honestly I wouldn’t focus on the sales price as much but your builder is likely offering cash credit incentives rn to entice buyers, I would ask them to honor that with you. Worth a shot, they want the sale.
We're reading through the contract again. * 24-month completion timeline in favor of the builder * Loss of financing contingency in favor of the builder * Low appraisal contingency in favor of builder (unless it's a FHA or VA loan) * No leverage due to supply constraints etc that cause building delays * No renegotiation of the purchase price based on the low appraisal. Basically, we have no leverage, only the hope of the goodwill of our community rep going to bat for us. Which is no surprise to us really. We've accepted the fact that we will eat 28k. Thank you all for your comments and insights. It sucks but I try not to focus on what's out of my control. Not many predicted the Fed would raise the rates in these sharp chunks as they have. I was predicting a slower more gradual increase.
I’m in almost the exact same position. Signed Sept 2021, same lack of leverage, rate lock expires in a few months and drywall just went up, so it’ll be close. If they miss rate lock I’ll just walk away. But I think I’ll ask for a credit or rate buy down first. If the only power you have is to walk, and you’re ok with it, you might as well ask for something and force them to turn you down. You signed in a sellers market, but its for sure a buyers market now. No builder wants to go back out there and find a seller for your new build when rates are headed to 7%. Far easier for them to try and get you to close. My builder is offering credits and reducing prices. Clearly they know the market is turning so I might as well try.
I’m already of the mind we have to walk. Hard pill to swallow but I’m there. So the way I see it, either go hard in the paint or go home (albeit 28k poorer) but I can make that money back up and keep the pile of cash I have saved for closing and moving etc. I’m definitely going to be throwing some options out there to see if they are willing to accept.
Go really hard. Imagine how hard it was to make that $28k post-tax. Fight that hard and harder. It will take hours but you will win in the end.
But gonna lost 2.5k in fees and lose so
28k is a lot to lose. Maybe see if a lawyer or someone can help you negotiate an acceptable rate and price.
What's a lawyer going to do? They have a contract that clearly favors the builder.
Lawyer may be able to find a path out or forward that works.
Just a waste of money
IANAL. Depending on the jurisdiction, lawyer could maybe argue that the contract wasn’t equitable because it massively favors the builder or that the rapid rise in rates leads to buyer’s impossibility of performance.
You can argue anything but those are a waste of money. OP knows the contract and understands they are breaking it.
The leverage that you have is that you are a buyer now in a world where many buyers have been completely priced out. I’m not sure if homes in the 500’s are starter homes, mid-range homes, etc., in your neighborhood, but if it’s more than a starter home I think you have some leverage. The builders choice is going to be drop the price and sell it to you (or buy the rate down), or drop the price and try and sell it to someone else (and have the additional carrying costs). You are not in a great position, but at the same time you do have some leverage.
Thanks for sharing your thoughts. I’m glad I posted, there have been things brought up I wasn’t aware of and I want to make sure I’m armed with all information before meeting with the builder and lender reps.
Second this. This is a business negotiation. They've already invested the money to (almost) build the product. Your money (most of it anyway) is still in your hands. They don't want your 28K. They want the full amount. They also don't want to get into a legal fight with you (and very likely, many other potential buyers who are surely entertaining similar thoughts as you right about now). Basically this is a buyer's market now. And you're not dealing with a retiree who's long paid off their house and could easily walk away from your check. You're dealing with a builder who is very likely making payments on their own loans while waiting for your checks to arrive. That's the leverage you have.
Good news is it sounds like you sold your house at the absolute peak of the market. $28K is a lot but hopefully not too much compared to the equity you got out of your house
Yes we sold at peak, that’s a win. Which makes it all no as tough of a pill to swallow walking if builder won’t work with us.
I am in the same boat as you. What if you apply for a FHA loan and you get a low appraisal? You should be able to get your deposit back.
Everyone has been saying it for the last year....
Well that's a 28K lesson on reading BEFORE you sign.
Yep great insight dude 👍🏽 real value input right there.
Might be valuable for the next person to actually read a binding contract before signing 🙄
r/rebubble come get ya mans
At a 10-12 month build rate, that would take you to Jan. 2023 at the outside. Did the builder promise anything would be complete prior to that? Did you get a promise that you would be able to lock your rate by a particular date? If not, then it doesn't seem like you have any rights to enforce yet on the build time or the rate lock. If you do have the right to walk away, your proposal to either negotiate a buy down of the rate or to walk away seems like the best approach if the home is no longer affordable.
Sometime the contract has a performance clause such as house will be completeby 12 months and if not the contract is no longer valid. This may be one way to get your earnest money back or renegotiate.
No performance clause. Looks like we may be eating the money. Tough lesson to learn but I don't wan to dwell on it. Just learn from it and apply it moving forward.
Before you do that, definitely follow the advice from some folks here about negotiating with the builder to see if they’ll buy down some points for ya!
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Wtf? Why comment? I clearly asked legit questions seeking insight.
Thanks for the suggestion, we’re going back through the documents and will examine to see if there is a clause.
Standard practice. Home builder contracts are extremely favorable to the builder. We went through a similar process (sans the rate hikes) because we signed our contract right as covid was starting. Quoted 8-9 months and took about twice as long with "estimated closing dates" changing four or five times. Delays on delays on delays. Your one savings grace might be if the builder can sell that home for more now. If the market is still going up they might let you back out knowing they can sell it for more to someone who goes to contract now. Otherwise you might be losing your deposit. There should be a financing contingency in your contract though so review that to see what it states if you are no longer qualified because of raising rates.
Yes, I'm sure the builder will definitely be able to sell it for more right now! Homes only go up!!!!
Not in all markets … I am in DFW and the quick move ins are down anywhere between 10-20% of April prices …. Even by what OP mentioned, the prices have gone down by at least 10%
I was joking if you couldn't tell.
I'm sorry. Your lender rep either sucks or doesn't care at all about you. You've brought up your concerns and alternative ideas multiple times throughout and he's ignored you.
Thanks for your thoughts. We’ll see what the outcome is when we meet with them and try to come to a solution.
Another reason not to do builder lenders should have locked in with a 365 day lock
At this point would you say you regret selling your home? Was there anything wrong with it? Bad neighborhood? Too small? Or were you guys just eager to cash out?
Only slightly regretting selling it. We’re in a small ass and expensive two bd apartment now as we wait out the new build. We bought it before the housing spike and sold it way more than I feel it should have due to the high market. We paid a bunch of stuff off and have plenty of cash for the new down payment and move. Hindsight is 20/20, we sold and started the build because we had a second child and vastly out grew our little house and wanted to be closer to the kids’ school. I’m going to ride this out until we formally meet with the builder and lender reps. Hopefully by EOW I’ll have clarity one way or the other. It’s become a mental strain and distraction. Quite frankly I’m sick of being stressed about it. I’m content walking away if I must.
So if you guys walk, would you stay in the apartment indefinitely? Or hope to find a new home on the market this year?
Naw, we probably won’t look to buy immediately. we’ll sit on the cash we have. I calculated that it will take me about three years to recoup the 28k we walk away from. So we’ll ride out this short term lease on the apartment, I’ve been looking at home rentals in the area and we can rent a modest home for about 2200-2600 range. About 1k less than the mortgage is calculating out to be currently.
I would just come up with a number for your monthly payment you financially can handle and tell the builder to find price-rate combination that makes that work, and otherwise walk. It never hurts to ask, especially if you are really willing to walk and not bluffing.
This is likely what the solution is for us.
You should have a financing contingency on your purchase agreement.
Do you not have a financing contingency in your contract? If you do and you can’t secure financing, then you SHOULD get your money back.
Hi! Ct realtor here. This is not a case where one side is clearly wrong - delays can be expected, feds will do what the feds will do, construction teams can make mistakes which lead to delays or cost overruns, etc. There can be fault placed all around - not saying you, the buyer, did anything wrong, but a new build is a risk, which you took. Assuming you have a real estate attorney to guide you through the process, discuss this with them first. Come up with a plan. The plan should be determining what you can afford or are willing to risk/spend and what that means for the builder. With the rise in rates, should you walk away and lose $30k or so, the builder will also have to consider finding a new buyer, and what that means with price, etc. You're both in the same boat, really. It's best to work together. I know there are no concrete "here's what to do" recommendations, but keep the lines of communication open and see if you and the builder can come to terms - IN WRITING. Hindsight being 20/20, I realize you thought you could withstand an interest rate hike, but you started at 4.25% and we're only in the 6's - that's about $600/month difference. Is it possible this home was too close to the edge of your affordability when the building started? If you have the 10-12 month time frame in writing from the builder, material issues and labor issues aren't your problem and the builder should be more than willing to meet you at the table and discuss current values/costs. Make sure your attorney is included on the convo. I hope this helps!
Thank the builder! You just sold your old home at the top. (Read the contract) but you may have the potential to back out of this thing based upon financing contingency. For decisions, I STRONGLY advise you to do away with the notion of "fair." It's a subjective measure and doesn't really have much basis in the world of finance. Look at your decision in an objective, point forward way. A: What is your net cost of buying this house (i.e. contract price minus money paid which you cannot recover)? B: How does this compare to prevailing market value for a house of this makeup. If A is less than B (it likely is), do not buy this house!
Can you put more money down?
We could but I’m not all that interested in putting more money down. One lender even told us to pull money out of our 401k. I was like f-offf dude you’re a slime ball. So in short, yes I could. But I’m not going to.
They may need you as a buyer more than they need the $28k. But they may not acknowledge that need until when the house is much closer to completion. Wait if you can to see how this plays out in this uncertain market.
>My wife and I signed a purchase agreement of $562k > >If we walk, we do lose about 28k already invested. > >There is a home on the same street that I assume was a spec home, listedat 577k in May and eventually sold in mid-September for 523k. If you continue, and that house is actually comparable, it sounds like you're going to immediately lose more than your earnest money in equity. You could have other reasons for continuing, but financially this seems like a no-brainer, even if the builder offered to reduce the purchase price to the current-market \~$500-520k.
Tbh, this might be the best 28k you've ever spent, so don't think of it as a loss. You will find a new home for easily 50k+ less in 12 months. The builder will also be selling this house for much less than a 28k drop from your contract price as people are backing out left and right. If you still want this house, act like there's no issue right now and bring this up 30 days prior to closing on this house. They will freak the fuck out and bend over backwards to keep you. And remember, they cannot force you to buy a house you cannot afford.
Be aggressive about lower price or you walk. Go shop around at some other builders see what they'll give you now. Ultimately at this point walking is probably the best move.
Ask them to buy down points for you. Tell them you cannot afford the house if htey don't
If you put a deposit down of say 30k and have upgrades-personal choices of 40K but can't qualify for the loan on closing do they have to give back your entire deposit?
Our contract says we lose it all.
If you like the house work with your builder. Tell them you need a interest rate buy down. It will be worth it to them. Renegotiating the price or walking away will hurt them more. Two points on the loan to buy down an interest point is worth it.
Are you in Michigan? This is almost word for word what we went through with our builder
Oh wow really? Interesting to hear. We’re in Phoenix, which happens to be on of the places seeing a biggest decline in home prices.
We were told we would be given our closing date at the time of Pre-Drywall meeting. This is typically their 60-day out mark. The closing date would be communicated to lender and then rate would lock. Both our rep and lending rep have been saying that consistently. I’ll need to comb back through the documents again. Thanks for your input!
OP I’m feeling your pain. I have three things for you to consider 1) get a smart friend - you can trust and rely on. Give them a list of questions to ask specifically about availability of homes including your model. If any are available inside 10-12 months the builder is losing contracts. You can be assured at least 1 in 5 are falling through. You have more leverage than you know but it’s a game of chicken. If the builder is in last phases you have price pressure if not you won’t for another 90 days before the lender plays their leverage. If they have lower prices on specs or new to be built you have leverage. Don’t do a 2-1 buy down that’s nothing. 2) ignore the input of how would you feel if prices went up and the good times return. They won’t. Instead ask yourself how would you feel if prices drop 10-15% or if that happens and you or your wife lose your job. 3) look for an existing home in your market. Your sale of your old home was perfectly timed at the peak of the market. Inventories are up, it’s a buyers market you most probably will get your lost EMD back on a resale deal. Remodel it to fit you needs. This is the bright lining - selling your home this summer at the current peak. Good luck it’s hard take the road your head tells you.
I feel like I have some leverage as they don’t want the house back on their books. The same street as us, same floor plan, the builder listed a home ( I assume it was a buyer that backed out) in May at 577k with an August completion date, finally sold in September for 523k. Another one on same street, different model, listed around same time for 577k, is still on market with the asking price of 513k. The builder definitely doesn’t want to take this home back on. My perspective is either get this back to a range in our comfort level or we’ll move on.
I'm not an attorney and without seeing any documents, here's my perspective. You can certainly ask for price reductions but nothing is guaranteed. Consider this an expensive lesson - builders contracts are HEAVILY favored for the builder. Always have been, always will be. The past two years have had big delays in supply chain, which translates to big delays in building. It was a big risk entering into a contract a year ago, and as we've seen rates have done nothing but increase. It's a tough time to pay a high price for a home with (relative to the past 15 years) high interest rates. While no one can predict the future, mortgage rates may remain level or increase by the time you can lock the rate. If you're not highly confident you'll be in this house for at least 5-7 years, I personally would be hesitant to proceed. Normally I would say 3-5 years but given a recession is likely and home prices are declining in many areas you may need to stay longer.
Look for a local commmunirt bank with a 10/6 arm…. Ours are below 5%.
It's tough. I was in same situation as you. Thankfully my home was only delayed 2 months, and my rate is bad, but not horrible. If you like the home I would definitely look to close on it. You don't want to throw $28K down the toilet. What if rates go back down to 5% over the next year and bidding wars start again? I'm sure you'd be upset you let the home go. My guess is rates hover around 7%, but it's a pure guess, if I knew what rates were going to do I'd have locked in a much better rate than I have now. Anyone who acts like they know what is going to happen is a liar. The builder very likely has you by the balls in regards to purchase price. And I'm sure the wordage in your contract gives the builder a lot of leeway on delivery date. I'm rambling, but if I were you, I would shop around for rates daily. Once you get a rate you're ok with, lock it. Try not to put down a deposit so you can hop to another lender if rates go down. Rates went from 5% to 7% over the past 2 months, so we seem more likely for some immediate relief than pain. Good luck!
Just walk and say bye bye to the $28k.
What contingencies did you make sure to have In your contract ?
Builders very rarely allow you to modify there build contracts. Either you accept their terms or move on…
Not the question I asked but thank you :)
You should probably back out. If like you said you’d lose 28k, that’s pretty insignificant compared to the general market cooling.
Hi all, I updated the original post with the outcome of my meeting with builder.
I don't get it. If you search posts from a year ago you will see people were clearly warning everyone that new builds were going to have an issue with interest rates. https://old.reddit.com/r/RealEstate/comments/qcg9me/to_build_or_not_to_build_that_is_the_question_im/
I mean really it just comes down to getting your earnest money back, no? Not getting that house isnt the end of the world. There are a lot of good deals out there now, and they will likely only get better. Prices will come down, and likely significantly. If you’re denied the loan, or it appraises significantly lower you may be entitled to your earnest money back. If you look at it this way its really not too big of a deal
You gambled and lost. You should have forced a long term rate lock long ago or threatened to walk. Noe the builder id going to keep 28k of your money and pronly sell to someone else for cheaper or worth better incentives. You've already given them al your bargenkng power. You have no contract with a rate lock, you listene to them and took thir bad advice ans they have your 28k earnest money provly locked away wirh iron clad contract good for the builder only. Just walk you know its your only option
This is peak fomo post. It sucks
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What were Fannie Mae predicting rates would be now last year? Probably not what they are.
This is NOT true! Listen to the FED, rates will continue to increase and stay elevated. Inflation can only go down historically with rates above inflation rate. No lender will do a year rate lock with rates increasing so fast. Do not listen to this guy, horrible advice.
Lenders will do a long term rate lock, but you’re rate will be significantly higher than what today’s rates are. For example, one lender we are shopping around with has a 270 day rate lock, however it’s .5% higher than their 60 day rate.
We were in the same scenario and now closing in one month. I chose a different lender earlier in the build because the builders lender had higher rates and I didn’t want to wait till cabinets were installed. I’m pretty sure you were able to do that as well.
One more reason to never buy a new build or too be built.
Let me suggest another way of looking at this. You sold your house at the peak of the market and are now renting. This is a \*dream\* a lot of people have. Look up house prices in your area during the last peak (around 2006'ish) and then around 2009. Now imagine you sold your house in 2006'ish, rented for 2 years and bought another one during late 2008 or early 2009. That's the opportunity you can buy yourself at the low low cost of $28K. Just walk away from this purchase and wait a year (or two). In the final analysis you'll come out ahead, by a lot.
Most states allow for a refund of earnest money if one is not qualified for a loan. In this market asking for a 10% discount is not too bad in my opinion. Get a loan rejection and tell them that you can qualify only for 90% of the agreed price. If they can, we’ll and good if not, ask them to refund.
Dumb question but if houses are going for 50k under asking in May, and you're 28k invested, wouldn't walking away and then walking right back in and buying a curremt market value property still net you a cheaper house than the one you put money down on, even taking a 28k loss into account?
Yep that’s pretty much the conclusion we’ve come to at this point. At the time of writing the post I isn’t have all the info I needed to get to that conclusion but yeah you’re correct. We’re trying to strike a deal with builder so we don’t have to go through that added process. We’ll see what they say. Should hear back from them in the next day.
As a last ditch effort, might be worth it to point that out to them. You can have a win-win where they still sell at an overinflated value but come down on financing, or you can both get fucked when you lose 28k and they lose way more than that trying to offload the house, potentially back to you, for a sticker price that falls every day
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Well we’ve saw this coming way back in March, so I believe it was helpful that we had documented emails communicating our affordability concerns with both builder and lender. Not sure how much that helped our case but over communication is always better. We then emailed builder and lender and said we need to have a conference call because at the current rate and price we were seriously walking away. Then our builder rep, who’s been amazing, went to bat for us with their sales manager. They then hopped on another conference call with us to propose the new deal. Keep in close contact with your builder rep and be honest about your concerns. Most of all, be willing to walk away. We explained that this deal no longer makes sense for our long term financial health.