Homebuyers Warned To Watch For Details In Building Contracts
LEHI, Utah – With the price of lumber skyrocketing, real estate experts are warning homebuyers to pay close attention to contracts with builders and understand who is responsible for rising construction costs.
“Does the builder have the right to cancel? Does the builder have a right to increase the purchase price? Those are things that a buyer should be aware of and understand prior to even going under contract,” said Kreg Wagner, legal counsel for the Utah Association of Realtors.
Wagner said sections of contracts that buyers possibly glossed over in the past are suddenly very important because of the intense competition for available housing in the state.
“It varies from builder to builder to builder,” he said about the language in the contracts.
In February, the National Association of Home Builders calculated that rising lumber prices have added more than $24,000 to the price of a new, single-family home since April of 2020.
The executive director of the Salt Lake Home Builders Association said the entire housing industry is under immense pressure right now because all aspects of home building are going up in price.
“We do everything we can to keep housing affordable and we’re just passing along what’s occurring in our everyday life,” said Jaren Davis. “So, it’s land. It’s labor. It’s materials. I can’t even think of something that isn’t difficult right now in that process of being able to build.”
Davis said he agrees with homebuilders being able to pass along increases in building materials to the buyer but doesn’t agree with contracts that allow builders to back out for any reason—saying such one-sided agreements are completely unfair.
“What if you’ve sold your home?” Davis said. “What if you’ve met the maximum of your financing capabilities, and they come back and they say, ‘I’m sorry. I’m canceling my contract and, oh, by the way, if you want to buy it back from me it’s $35,000 more.’”
Davis said some builders are waiting to put a home on the market until it’s nearly complete so that they can accurately account for the increases in building materials.
Various housing groups, along with the National Home Builders Association have asked the U.S. Department of Commerce to find ways to increase lumber production, writing in a March 12 letter that the price increases have place a huge financial burden on homebuilders.
“Homebuilders and construction firms that have signed fixed-price contracts are forced to absorb these crippling increases in materials prices and costly delays in deliveries; there is a significant risk that many of these firms will be forced out of business,” read the letter.
Bottom line, the contract will determine what the builder is allowed to do, which is why Wagner encourages potential buyers take extra time to fully understand the agreement.
“Don’t let emotion dictate the terms of the contract,” Wagner said. “If you feel overextended or you’re uncomfortable with certain terms, really take a minute to take a look at it.”
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