Derby Hill Owners

[PerryChase]

Any good-faith deposit money is generally refundable. Builders generally refund that money to avoid litigation. If they sell the house to someone else, they haven’t incurred any “loss” so they’d have no valid reason to keep your deposit.

[SD Realtor]

Housingbear, I have dealt with many of the developers. Be very wary. In general, when you put up good faith money to hold a reservation that money is not in jeopardy. However, once you do sign the purchase contract, the contingency period is VERY VERY short. It is in no way comparable to a standard Residential Purchase Agreement issued by the California Association of Realtors that are used for resale homes. I have reviewed 2 purchase agreements for 2 different couples in the past month, from different developers yet they were virtually identical from the contingency removal point of view. What I found were as follows:

Basically, the way the developers work is that once they approve you for a loan, (WHETHER YOU USE THIER LENDER OR NOT!) your contingencies are pretty much 100% removed.

The due diligence period that is inherent in resale homes is pretty much nonexistent. Now since the home is new you should not need to hire inspectors, etc…

Basically the sales offices promise to have your loan approval done within 5-7 days after you sign the contract. So if you sign that contract, be darn sure you want the home.

By not using the preferred lenders you essentially receive NO builders incentives. The builders incentives are substantially reduced from last summer.

If you select the preferred lender, but then down the line change your mind and don’t want to use the lender, you end up paying a 1% penalty to that preferred lender!! Now this I found crazy and needed to follow up more on but did not yet. JUST MAKE SURE YOU ASK!!!

If you pry hard enough most of the sales people will tell you that most of the buyers are signing the purchase contract but floating the loan. Thus they are not locking in and banking on the fact that rates will not rise by the time that they get within 30-45 days of closing.

You can go ahead and work with the preferred lender and obtain an extended lock period however they will ding you for 1/4-3/8 cost that they build into the rate of the loan. They will also give you a 1 time option to grab a lower rate if mortgage rates decline while you are waiting for your escrow to close.

For now that is all I remember, there are a few more things but I cannot urge you strongly enough to SCRUTINIZE that contract. Bring it to an attorney or ask a realtor friend if you can. Don’t let it scare you out of buying the home, just know what you are signing.

Finally the answer to your post is NO. If you sign that contract and get the loan approved, and then try to walk and buy a lower priced home they WILL keep your deposit. Now if the pricing dumps by more then the deposit amount, then you do it anyway right? However I cannot emphasize enough how locked in you are once you sign that contract.

(Note signing the contract is different then reserving a home)

SD Realtor

[gn]

SD Realtor,

When a buyer “reserve a home” with some good faith money & prices go up, the buyer benefits from the appreciation.

If prices go down, why would a builder allow the buyer to walk away (getting the good faith money back) ? It just seems like a lose/lose proposition for the builder.

[PerryChase]

No it’s not loose/loose, the builder gets a commitment for planning purposes.

Think about it in terms of a contract. If you rent your house and the tenant breaks the lease. You’re only entitled to compensation to the extent of your losses. If you rent the house back out immediately at a higher rent then you have no loss thus the tenant who breaks the lease is not liable for anything.

If the builder is able to turn around and find another buyer, then there’s no loss to him.

[SD Realtor]

Hi gn –

I cannot give you the reasoning behind why the builder structures things in the way they do.

I read the contracts, then ask questions, like what if we do this or what if we do that. Then I sit down and explain it to my clients AWAY FROM THE SALESPERSON. Then we go together and talk to the salesperson. In general the salespeople are not thrilled with my presence. In all cases the answer from the salesperson is we keep the earnest money. Now I “would say” that if there was a tragic situation, or perhaps job loss, or something that you would show them to be an extenuating circumstance that is out of your control, then you most likely could get them to refund you the earnest money.

SD Realtor

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