'There wasn't much we could do': Some new home construction homebuyers see unexpected price hike

Samantha Kummerer Image
BySamantha Kummerer WTVD logo
Thursday, May 5, 2022
Some new home construction homebuyers see unexpected price hike
Cary resident Jay Ward and his family thought they found their dream house, but the process of closing the deal turned into a nightmare.

CARY, N.C. (WTVD) -- Jay Ward and his family thought they found their dream house, but the process of closing the deal turned into a nightmare.

The Cary family had rented a home for years and were finally ready to buy a house last January.

"We're getting to that point, what we really want to settle down in this area. We've been here for a few years. We love living in this area. So, it was we just felt like it was that right time to start looking," Ward said.

Their search led them to a new development just miles down the road. The family was able to sign a contract and design a new construction home.

"We saw this as our forever home," Ward said. "With it being a few miles down the street. We're like, 'Man, we can't wait to go out there every week and just watch it grow.'"

Except for months, it didn't grow. Ward said while other homes started getting built in the neighborhood, progress was stalled on their house. Then in April 2021, the family received a request from the builder for $30,000.

"We're ready to watch this, start this whole process start and then the brakes get slammed, you know, before we've even gotten out of the gate," Ward said.

He said the request came as a surprise since they signed a fixed-price contract. In a fixed-price contract, both the builder and buyer agree to a cost before construction begins. This differs from a cost-plus contract where the buyer gets an estimate of what the project might cost but allows more leeway for the builder to not eat the cost when the price of supply or labor increases during construction.

Ward said he worked with a lawyer and their builder eventually dropped the request, but still, construction didn't progress.

"As frustrating as it was, there wasn't much we could do," Ward said. "But on the other side too, because we knew we had gotten in at a good time. We're also watching the market explode. So even though it's taking longer than we expected. We felt comfortable even just from the investment perspective."

Around six months later, the builder terminated the entire contract.

"It was so out of the blue. It was so unexpected," Ward remembered. "It completely threw our world upside down because now we've been waiting almost a year for our home to be built. Watching market prices go up and that was the thing you know, here we've lost the house and, man now we have to start this process all over."

Unfortunately, situations like the Wards are happening more and more as the Triangle's real estate market remains hot.

Jerimiah Jackson is a real estate attorney at Jackson Law. He's worked in the Triangle for nearly 20 years and said he's heard of some builders asking buyers to pay up to six figures more.

A big factor driving this situation is the low supply of homes in the Triangle and the rising costs of supplies.

A recent Zillow report found Raleigh has around 70% fewer houses on the market than in early 2020, which ranks it as the top area in the nation for the loss of inventory.

In addition, the price of building materials has increased by 30% in the past two years, according to the National Homebuilders Association.

"Just an absolutely perfect storm of labor costs, overruns, and increases but then also the land itself spiked," Jackson said.

He explained builders are looking at the increased value some of their homes have accumulated since construction began and weighing it against the price the home is under contract for.

"They're looking at the contract. Why should we build this house for this price? Where we can breach, break it and go build it for somebody else at a different price, a better price," Jackson explained.

He said while it's not right to increase the price of the fixed contract or to break it altogether, it's not necessarily illegal and an increasing number of builders are getting away with it.

"It's an absolute breach of contract. But the buyers left with a shortage of lawyers to even listen to them," Jackson said.

He said the lawyers who will listen often decide the cost of the fight isn't worth it.

"The builder controls the market right now, your seller and builders hold all the cards right now," Jackson said.

Ward did discuss his options with a lawyer who told him it would be an 'uphill battle' and costly fight.

"I was like, you know, it's not worth it," Ward said. "To be honest with you, at that point, the joy of building a new home, it's kind of killed at that point."

Ward said he sees and hears of many buyers choosing to just pay the additional money.

"They simply don't have an alternative. Who else can build their house in the next year?" Jackson said.

He said buyers should have an attorney review their contract before signing and understand if builders might change their contract during the process.

Jackson also explained while these situations are happening, they aren't the norm. He said there are still many good builders in the market who won't terminate contracts.

If buyers are considering new construction, Jackson advised them to find a good realtor, have a lawyer review the contract beforehand, and ask for recommendations on the builder before building.

While sellers do have a lot of power in the market, Jackson said there are actions buyers can take if they feel wronged.

Jackson advises people to file a complaint with the Better Business Bureau and the North Carolina Attorney General's Office.

He also said the North Carolina Bar Association also offers consultations for buyers who might be considering legal help.

More than a year after his first attempt at buying a home, Ward is using the lessons he learned to find his forever home. His family recently signed another new construction contract.

This time Ward said he is encouraging other homebuyers to find a good realtor and thoroughly research builders beforehand.

Unfortunately, prices have increased in the Cary area past their budget, so the family is choosing to build in Pittsboro instead.

Ward said his family is moving forward with 'hesitant excitement.'

"It will be a nice happy ending to what has been a difficult chapter," he said.