Contract Cancellations Roil D-FW New Home Buyers
North Texas buyers face unprecedented obstacles in the hunt for houses. With building materials costs soaring and a shortage of properties for sale, some buyers are seeing their new home purchase contracts canceled. Or they are told they’ll have to come up with more cash to close the deal when the house is ready months down the road. Such situations were unheard of until recently — and are raising eyebrows of longtime market watchers.
“It’s a real frustrating time,” said Ted Wilson, principal with Dallas-based housing analyst Residential Strategies. “I’ve never seen anything like this in my career.”
Builders have sold thousands of houses in the Dallas-Fort Worth area that they haven’t even started. And so many thousands of homes are in sales backlogs that some builders have stopped taking contracts for further sales. But if builders find that the profit on a planned house has evaporated because of construction delays, they may go back to the buyers for more money or just kill the contract and return the deposit.
That happened to Heather Wilson earlier this year when a builder canceled her contract to buy a new house. “It does seem — to me at least — a rather questionable practice and one where a builder (or builders) is trying to take advantage of the hot housing market and ditching valid contracts so they can resell them to higher bidders,” Wilson said in an email. Wilson, who moved here from Southern California, said she soon heard of other cases where buyer contracts were terminated on new homes. “We ended up buying an existing home and forgoing the new build route entirely,” said Wilson, who just moved into her house in Frisco.
Most new home purchase contracts include clauses that protect a homebuilder from losing money on the deal if construction costs spiral. Some homebuilders are giving themselves even more wiggle room with “termination for convenience” clauses that allow them to kill the contracts at will, said real estate agent Todd Luong with ReMax D/FW Associates. “Builders have been quietly adding this new verbiage into their sales contracts this year, and buyers are getting caught off guard,” Luong said. Basically, the builders can cancel their contracts for any reason now. New construction homebuyers need to be very careful and read the fine print before signing anything or paying any deposits.”
Buyers may not have a choice if they want a new house. The shortage of properties for sale in North Teas is so severe that builders can’t keep up with new home demand, and the existing home market has a record low inventory. There are reports that a few builders aren’t pricing their houses but are taking bids on the properties when they are completed.
“There have been a few situations where they release houses on an auction basis to maximize the price of a house,” Ted Wilson said. “In more normal times when pricing is reliable, builders don’t need to do that...