Dallas, TX – Rising prices in housing market have been an issue for both home builders and people looking to buy a new home for some time now, but the latest increase in lumber and iron prices has pushed this issue even further.
Construction cost increased to a whole new level that made one Dallas-Fort Worth home builder to inform all of his 164 buyers that the cost of their homes will likely increase and the construction period will might be delayed for up to a year despite all these customers have a contract with him.
The letter from Altura Homes, which builds single-family dwellings from $200,000 to $500,000 in nearly a dozen developments across North Texas, is the latest example of builders scrambling to adjust to a market that has seen home prices skyrocket more than 10% in the past year, and with at least another 10% increase likely in the coming year.
The June 8 letter cites the rising cost of construction materials for possibly forcing the builder to raise prices. The letter also blames a disruption in the supply of materials and a labor shortage for delays in the construction schedule of up to 12 months.
“Thus we are allowing certain customers to cancel their New Home Residential Sales Agreement (“purchase contract”) with us now and seek other housing options, like a completed new home or existing home in the resale market,” read the letter, which was signed by Kelly Hoodwin, Altura Homes vice president of sales and marketing. “Should you choose to cancel your purchase contract, we will refund all amounts paid to us and we will release you from any future obligations.”
A copy of the letter was provided to the Fort Worth Star-Telegram by a prospective buyer, who declined to be interviewed out of fear that the builder would cancel his contract for speaking out against the company. The prospective buyer said he was in touch with a handful of other clients of Altura Homes, all of whom were afraid to speak publicly.
The buyer told the Star-Telegram he hadn’t decided whether to roll the dice and proceed with buying a new home, even if he doesn’t know what the final price will be or when it will be ready to move into, or accept Altura Homes’ offer to cancel the contract.
HOME BUILDER TRANSPARENCY
Reached by email, Hoodwin verified that the letter had been sent to 164 buyers but declined to elaborate, except to say that the main goal was to be transparent.
Altura Homes’ situation comes just weeks after a Fort Worth couple lost their dream home when the builder abruptly canceled their contract, arguing that the buyers had become argumentative in demanding too many changes and fixes during construction of the home. The builder then promptly relisted the home for more than $110,000 higher than the original sales price.
It’s not common for builders to abruptly cancel contracts for new home construction, but several incidents have occurred in recent months. One couple reported having their contract canceled in May in the Austin area, according to news reports, and 15 people in the Salt Lake City area had their contracts ripped up as well.
HOME BUYERS CAN AVOID SURPRISES
The situation reinforces the importance of having a lawyer look over a sales contract before signing, said Sriram Villupulam, finance and real estate professor at UT Arlington. Even if buyers can’t persuade a builder to remove language in a contract that allows the builder to raise prices in response to market factors, they should at least be aware of the possibility so they aren’t caught off guard when it happens.
The sellers’ market gives home builders an opportunity to take advantage of buyers, who have few other options for finding homes in such a tight market, Villupulam said.
“Builders are responsible for accounting for the time and cost (materials, labor etc.,) uncertainty in pricing a new home when writing up a contract,” Villupulam said in an email. “Again, a builder is supposed to foresee all the risks and bake all those into the price of a new home, and not the home buyer!”
“If everything can change, then why do we need a contract in the first place?”