We had two more new-build homes pending and have decided to walk away.  It’s not that they are bad deals, it’s an issue of where to put our money to the best and highest use, right now.  A lot has happened since we signed contracts on these homes last December, including several more purchases, market changes, and other new business endeavors.

We had two nearly identical homes on contract:

  • Purchase price: $224,000
  • Builder incentive: 1.6% toward closing costs ($3,584)
  • Earnest money depost: $2500

We’d put 5% down and with a track record of $8,000 in closing costs, our out of pocket per house would have been $15,616.

When our closing date came near, we discussed some options with the builder and the builder’s lender.  Builders are negotiating now and are dealing with a lot of cancelled contracts.  It’s not the take it or leave it situation it was a couple years ago.  We told the builder we were considering cancelling because the deals were not as appealing to us as they originally were.  We asked for a price adjustment, a better incentive on closing costs, and we left it somewhat open to what they were willing to do.  Never be the first to name a price if you can help it.

The builder’s sales person suggested that we offer $206k for the homes, and so she did on our behalf.  We had also let her know that we recently bought two other homes from this same builder, and in light of this we are now leveraged out and may not qualify under the same terms we were originally discussing, or at all.  This may leave the door open to get our earnest money back.  They use their discretion in giving it back - sometimes they do, sometimes they don’t.  They admit they have fairly limited loan programs and when they cannot give you what you want, they may give your deposit back or allow you to get outside funding while still keeping the incentive they offered.  In this case, they had told us they would not give us our deposit back because although we bought two more homes from them (better deals), it was our decision to do so.  Never hurts to ask as they are extremely inconsistent.

So the sales person goes to her boss with the suggestion of $206k.  She had her own rationale for how she came up with that number and she was pretty sure it would be accepted.  It was not.  The boss came back with this counter offer:

  • Purchase price: $216,000
  • No incentive toward closing costs

This would make the out of pocket 5% down + $8,000 cc = $18,800 per house.

This is over $6k more out of pocket for the package, and thus a worse deal than the original.  We also have one other family member buying the same house in the same neighborhood, and the same options have been offered there.  The builder knows that all three homes will either be bought or cancelled, depending on how the negotiations end up.  We’ve already been told that if we cancel, they will drop the price and put them back on the market.

Today we cancelled the deals.  We didn’t expect the negotiations to slide backward and we decided we don’t have the energy to keep trying.  We are involved in another deal with this builder now and I have to say, the homes are great, the loan officers are tough.  It has been very time consuming and frustrating to say the least.  On the two homes we just cancelled, we had been handed off to three different loan officers, we had to begin again with each one, and there were at least three other people that were calling for duplicate information and to question our decisions.

For example, we take title as sole and separate property every time.  It’s a way to spread our assets out.  It’s not the lender’s concern why we take title the way we do.  You have I think five choices on the form, and you simply check the box for the way you want.  I don’t need to explain to a woman why my husband is not on the title for my home.

So we’re walking and giving up our $5k in deposits.  It’s less than the $6k+ we’d overpay out of pocket with their scenario.

I have one apparent critic in the blogosphere who believes I’m teaching mortgage fraud with this situation.  It occurs to me that maybe others think this too.  I’m not sure what could be read as fraudulent, but let me be clear: I am not encouraging mortgage fraud.  What I am encouraging is that you treat builders like any other sellers.  Negotiate, look for a win win, inquire early and often, question everything, be advised that an in-house lender is looking out for #1.  And above all, don’t be afraid to walk from the deal if you don’t want it.  Do not get sucked into an emotional attachment to the house or an obligatory feeling that you “should” close.  As investors, it’s about numbers, leverage, and opportunity cost.  Last I checked this wasn’t fraudulent.