Homebuyers face higher prices, unexpectedly canceled contracts in new home construction – NBC 5 Dallas-Fort Worth

The booming housing market highlights the fine print of many deals between builders and homebuyers. Months after signing contracts to build new homes, some buyers have said their builders are threatening to give up their deal unless they can find thousands more to buy the home.

Read on to learn more about what drives the changes and what to know if you’re building a new home.

“We were incredibly frantic”

Days before their new home’s scheduled closing date, Britney Chan said their builder had raised the price.

“Either we pay $ 30,000 more or they would just cancel our contract,” Chan told NBC 5 Responds.

Chan said the builder cited the rising cost of materials as the reason for the price change. The couple said they initially signed a contract with their builder in August 2020 and spent months choosing finishes, ordering furniture and preparing for the move.

“We were incredibly frantic. We reached out to our real estate agent and unfortunately that’s when she told us it was something they were allowed to do, ”Chan said.

Chan said the family rushed to find additional funding to cover the price hike.

“We were able to cover the costs,” Chan said. “To this day, I am still, believe it or not, still in shock. “

The impact of the pandemic on the construction of new homes

During the pandemic, the cost of wood has skyrocketed. Prices fell this summer, but overall construction costs are still significantly higher than pre-pandemic levels, explained Dr. Luis Torres, a research economist at the Texas Real Estate Research Center.

“When we closed the economy and then reopened the economy, supply bottlenecks became a problem,” Torres said.

He pointed to data from the Bureau of Labor Statistics which showed that overall prices for building materials had risen 19.4% in the past 12 months. The cost of steel mill products alone rose 108.6%.

Torres said some automakers may have deals with suppliers that could cushion some of the increases, but prices remain volatile.

“This is what we are living in now, is that they [the builders] can’t plan ahead because they don’t know how much those inputs are going to cost them one, two or three weeks in advance, do they? Or a month or two months, ”Torres said.

Buyers take a closer look at the fine print

Real estate lawyer Tonya Johannsen said builders were talking about clauses in contracts that allow builders to cancel for any reason.

“Home builders are going through their own contracts to find ways out,” Johannsen explained.

She said most termination clauses are not new to many standard construction contracts, but are in the spotlight due to the current market. The clauses allow builders to walk away and find another buyer.

“You think, oh, that’s what everyone else signs and so you sign,” Johannsen said. “Until recently, it was good.”

She tells homebuyers to understand the fine print before signing.

“Tell them you want to take the contract with you. They don’t like you doing this because they’re salespeople and they want you to sign them up right away, but there’s nothing forcing you to do, ”Johannsen said.

“Call a lawyer and sit down and go over it with them and say, the worst thing that can happen to me – what is it?” And, where is it in this contract so that I know? Johannsen said.

“They took us completely by surprise”

Zach and Brooke Green said they signed on to build a house in Farmers Branch for $ 479,000 in July 2020.

They said the house was nearing completion when they received a letter from their builder dated July 30, 2021 canceling their contract and returning their money.

The couple shared the letter with NBC 5 Responds – which points to a clause in the couple’s contract that allows the builder to terminate the deal.

“They took us completely by surprise,” said Zach Green.

The couple said they later saw the home they planned to buy listed for sale with an asking price of $ 712,825.

The Greens have said they are leaving and working to buy another house, but the experience has left them at a stalemate. Their rental home was sold to a new owner who was unable to extend their lease much longer. With large dogs, they struggled to find a temporary place to live.

“Since we had to leave our rental home, we’ve basically been surfing the couch,” Brooke Green said.

What the builders say

“This is one of the most important numbers, if not the biggest that I have heard of as we have lived through it,” said Phil Crone of the Dallas Builders Association’s history. the Green.

Crone said the association advised members to be clear with homebuyers about potential cost increases or delays. He said builders should keep buyers informed during construction to avoid surprises.

A recent article published by the National Association of Home Builders highlights the price changes that continued in 2021.

“We’re almost playing hard with different price increases every now and then. But, if you plan ahead and empathize with your owners, you can have a really proactive and positive conversation and get through that together, ”Crone said.

The Greens and the Chans were clients of Megatel Homes.

NBC 5 Responds asked Megatel Homes about the experiences described by each consumer.

In an email, a lawyer for Megatel writes, in part, “These are extraordinary circumstances that home builders and potential homeowners find themselves in the new home market right now. The purchase contract that all buyers sign has similar terms and conditions that are used by builders nationwide as well as throughout Texas – this is not a unique circumstance.

The company said it is not discussing individual buyers and said a limited number have been affected.

NBC 5 Answers asked about the situation described by the Greens. In a follow-up response, Megatel wrote, in part, “… there are provisions in the contract which are outside of price escalation which result in termination by either party and reimbursement of all amounts due plus damages in accordance with in the contract, if applicable. “

The Greens told NBC 5 Responds they didn’t want to cancel the contract and wanted to keep the house they signed to build.

You can read the two Megatel responses in full below.

These are extraordinary circumstances in which home builders and potential homeowners currently find themselves in the market for new home sales. The purchase contract that all buyers sign has similar terms and conditions that are used by builders nationwide as well as throughout Texas – this is not a unique circumstance. Although the company does not discuss the individual circumstances of its customers, the very limited number of buyers that we had to make this difficult decision to contact have had the option of either paying for the costs of materials and labor. escalation or terminate their agreement and receive a full refund of all monies paid. These customers choose to go ahead or not, at the customer’s option, to conclude the sale voluntarily on the basis of clear contractual terms and in accordance with industry standards. The purchase price of most properties sold is below market value to date, and buyers now have instant equity in their new homes. – Megatel Houses

The purchase contract that all buyers sign has similar terms and conditions that are used by builders nationwide as well as throughout Texas – this is not a unique circumstance. While Megatel does not discuss the individual circumstances of its customers at 12701 Mercer Parkway, there are provisions in the contract that are outside of price escalation that result in termination by either party and the reimbursement of all amounts due plus damages in accordance with the contract, if applicable. – Megatel Houses

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