I-Team: North Texas home buyers told to pay more or have builder's contract cancelled
PROSPER, Texas (CBSDFW.COM) - It has never been more expensive or harder to buy a home in North Texas.
Even after signing a contract and putting down a deposit to have a new home built, some North Texas buyers have had their home contracts cancelled.
In the fine print of most new home builder contracts is a builder's right to terminate clause. It can also be called a cancellation clause or a convenience clause.
This often overlooked fine print gives the builder the ability to change the previously agreed upon price or simply back out of the deal.
Citing an 'unprecedented' increase in costs, in the past year several North Texas builders have cancelled contracts then sold the houses for more on the open market.
"It felt like a stickup," said Lane Sharon, who signed a contract in July for a home to be built in Celina. "We were told you either pay more money or lose your home."
Seven months after Sharon signed the contract and put a $10,000 deposit down, the builder, Our Country Homes, sent Sharon a letter notifying him of a 15% price increase.
In the letter, the company's president wrote, "This, unfortunately is not an easy letter to write but one that simply cannot be avoided due to the current market conditions."
Our Country Homes' president explained in the letter that because of an increase in material and labor costs it was raising the price of Sharon's home.
When Sharon did not agree to the new adjusted price, Our Country Homes exercised the builder's right to terminate clause in the contract and cancelled the deal.
"They lied to us," said Sharon. "When we signed the contract, he (a company's sales executive) looked at me, straight to my face, and said, 'I can guarantee that Our Country Homes has never canceled homes contracts before. We never will in the future.'"
Our Country Homes declined an interview request from the CBS 11 I-Team but did provide a statement.
"While price-escalation provisions and no-fault or convenience termination contract clauses are commonplace in the construction industry, they have not been frequently exercised in the residential context. That, unfortunately, has changed over the last year and more and more DFW builders find themselves having to either increase prices or cancel contracts, especially in circumstances like the present where construction has not yet begun, and prices are continuing to climb. As a homebuilder, you never want to be in the position of canceling a customer's contract."
The North Texas home builder also noted even with the 15% increase, the price of home offered to Sharon was below market value.
For the past year, the CBS 11 I-Team has heard from many would-be home buyers who have seen their dream of home ownership taken away after builders cancelled contracts.
Online, local home builder reviews include dozens of complaints about several North Texas home construction companies cancelling contracts, at times just weeks before closing.
Real estate attorney Rachel Khirallah said for the past six months she has received calls every week from buyers seeking legal advice after a local builder cancelled a contract.
"I've probably received over a 100 calls on it," Khirallah said.
While she understands why builders want to protect themselves from a rise in material and labors costs, Khirallah said buyers are typically not afforded the same protections in contracts if the price of a home goes down.
"These are very one-sided contracts," she said.
With the current demand on housing, real estate attorneys said there's not a lot buyers can do about it. Some buyers have filed lawsuits against builders but most home contracts require disputes to go to arbitration where attorneys said the outcomes have been mixed.
"Unfortunately, really the only thing buyers can do is write to their Congress person and let them know that builders should not be allowed to have these unilateral termination clauses in their contact," she said.
The CBS 11 I-Team reached out to more than 30 local state lawmakers who represent the DFW area, asking them if they believe legislative action is needed to address this issue. Most of the state lawmakers contacted declined to comment, while others said they simply didn't know enough about the issue.
Khirallah said that's part of the problem.
"I hope by this story and others that lawmakers understand the problem that's happening and try to do something about it because we have to show our consumers that we care about them too," Khirallah said.
