Real Estate

Possible to back out of pre-construction home contract?

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  • Jun 14th, 2019 4:48 pm
[OP]
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Jan 3, 2007
247 posts
92 upvotes

Possible to back out of pre-construction home contract?

We bought this pre construction during the peak of the bubble 1.5 yrs ago, and now that the homes are built and people are moving in (our closing is in 2 months), they are selling them at $70-100k loss from what they paid. I'm just wondering if anyone knows if its possible to back out of the contract? I'm ok with losing the deposit we paid since it's still less than the current houses loss in value. Or would it depend on each builders contract?
60 replies
Deal Addict
Jan 1, 2017
1326 posts
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Did you buy the house to live in it or sell it? If to live in it why try to back out? The price will be back higher in a few years. I’d you are living in the house you won’t lose anything.
Deal Expert
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Aug 2, 2010
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Here 'n There
mik3 wrote: We bought this pre construction during the peak of the bubble 1.5 yrs ago, and now that the homes are built and people are moving in (our closing is in 2 months), they are selling them at $70-100k loss from what they paid. I'm just wondering if anyone knows if its possible to back out of the contract? I'm ok with losing the deposit we paid since it's still less than the current houses loss in value. Or would it depend on each builders contract?
The answer is in your contract so read it and see. I doubt it. That's why there is a contract! You agreed to pay a certain amount for the property. Why should the builder just let you off the hook 'just because' you don't feel like following through what you agreed to?
Newbie
May 6, 2019
28 posts
8 upvotes
If I were you, I would close with the builder and then look to either keep it or sell and just take the loss.

Chances are if you 'back out' by ignoring the closing notices, the builder will come after you. There is a legally-binding signed contract between the builder and you, drafted by lawyers well-rehearsed in this area and specifically to combat those who look to break the contract.
It's not as simple as losing your deposit to the builder and hoping that'd be the end of the story.

Usually the only thing the builder will negotiate with you is extending the closing date to give you more time to arrange a mortgage. But for this, the builder charges a per diem penalty.
Deal Guru
Feb 9, 2009
10627 posts
8964 upvotes
mik3 wrote: We bought this pre construction during the peak of the bubble 1.5 yrs ago, and now that the homes are built and people are moving in (our closing is in 2 months), they are selling them at $70-100k loss from what they paid. I'm just wondering if anyone knows if its possible to back out of the contract? I'm ok with losing the deposit we paid since it's still less than the current houses loss in value. Or would it depend on each builders contract?
No you cant...the builder will sue you for not closing.

Close and if you want out, then you can sell, but i dont see it being a smart idea to sell now. 70k is a lot but not as big a deal if your going to live in the house long-term... ,you will win over time.
Deal Guru
Feb 29, 2008
13824 posts
10037 upvotes
I still hate to read stories like this. Builders still haven’t learned and selling with gains baked into the price. Should be illegal IMO or there should be insurance the purchaser can buy to not get wrecked.
Sr. Member
May 3, 2013
643 posts
199 upvotes
Toronto
So in resale cases, if a buyer backs out of an agreement and the seller puts it up on the market and sells it at a lower price, the seller can go after the buyer to make up the difference. This hasn't happened in the past however many years because the market kept going up. I suspect, but never seen this happening, that builders for pre-con may do the same thing.

I'm flabbergasted by the number of posts where people ask "can I break a contract". First of all, a contract is a contract. If you can break it, then why bother with a contract. If you want to, or plan to break it under certain conditions, have that part of the contract :). Second of all, read your contract to see what you have agreed to. Unless you provide a copy of your contract here, no one can give you a definitive answer. Thirdly, "I did not know", "I did not read", "TDLR", are not valid excuses for breaking a contract.

On a lighter note, I know of at least one builder who gave significant discounts back to existing buyers because the market price dropped (and the builder had other units to sell in the area). Hats off to that builder, but it's not an obligation, just a very nice courtesy.
Deal Guru
Feb 29, 2008
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realtorhome wrote:
On a lighter note, I know of at least one builder who gave significant discounts back to existing buyers because the market price dropped (and the builder had other units to sell in the area). Hats off to that builder, but it's not an obligation, just a very nice courtesy.
Every. Uilder should. E helping purchasers in the event that their product fetched way less than their lofty predictions. Builder should share some responsibility. Stop pricing homes with built in, ridiculous markups.
Deal Expert
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JayLove06 wrote: I still hate to read stories like this. Builders still haven’t learned and selling with gains baked into the price. Should be illegal IMO or there should be insurance the purchaser can buy to not get wrecked.
JayLove06 wrote: Every. Uilder should. E helping purchasers in the event that their product fetched way less than their lofty predictions. Builder should share some responsibility. Stop pricing homes with built in, ridiculous markups.

Geez, now I've heard it all! The builder is at fault? They are not twisting the buyer's arm to buy the last time I checked. You buy it you own it. You don't like that then don't buy it. Even a kindergartener knows that!

By your incredibly warped thinking then if the price goes up instead the builder should be able to cancel the contract too and resell it at a higher price. What's good for the goose is what's good for the gander, as they say.
[OP]
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Jan 3, 2007
247 posts
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Thanks for the replies. Yeah I know I can't break a contract, was just wondering if there could be an out clause where you lose deposit or something like that. I'm guessing best thing would be for me to get a lawyer to check the contract. If not, eat the loss and get the house. You play the market, and sometimes you lose :(
Deal Addict
Jan 1, 2017
1326 posts
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Did you buy to live in it or to sell? You are not really eating a loss if you will be living there.
Deal Guru
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Mar 23, 2008
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JayLove06 wrote: Every. Uilder should. E helping purchasers in the event that their product fetched way less than their lofty predictions. Builder should share some responsibility. Stop pricing homes with built in, ridiculous markups.
So the buyers should kick back money when the house appraised for more than they agreed to in the contract as well?

OP, your other risk is that you may have issues with your mortgage. You should investigate that too. Banks don’t like lending money without being fully covered by the equity.

C
[OP]
Member
User avatar
Jan 3, 2007
247 posts
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CNeufeld wrote: Banks don’t like lending money without being fully covered by the equity.
Yep that's the big problem. Our deposit is now as if we didn't give any deposit, so we have to give more to cover the drop in price AND then more to give a downpayment for the mortgage. And yes I bought this as an investment. Very screwed.
Deal Guru
Feb 29, 2008
13824 posts
10037 upvotes
CNeufeld wrote: So the buyers should kick back money when the house appraised for more than they agreed to in the contract as well?
I have no problem with that. Remember, if the values goes up, the builder can just cancel the project and give the deposits back without interest. So I'm not going to shed a tear for the pour builder.

It's one thing if the appraisal is off by 10-20K. But $100K? 125K? That's a greedy builder that marked up the price to the extreme.
Sr. Member
May 3, 2013
643 posts
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Toronto
JayLove06 wrote: It's one thing if the appraisal is off by 10-20K. But $100K? 125K? That's a greedy builder that marked up the price to the extreme.
Last I checked, no one is forcing the buyers to buy.
Deal Guru
Feb 29, 2008
13824 posts
10037 upvotes
realtorhome wrote: Last I checked, no one is forcing the buyers to buy.
Sigh. There’s a reason why we have a better business bureau. No one is being forced to buy anything and yet there are rules in place to protect buyers from bad deals.
Banned
Jun 1, 2017
513 posts
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mik3 wrote: Yep that's the big problem. Our deposit is now as if we didn't give any deposit, so we have to give more to cover the drop in price AND then more to give a downpayment for the mortgage. And yes I bought this as an investment. Very screwed.
Firstly, do NOT buy pre-construction home since it takes long time and you don’t know what will happen during the waiting period.
Secondly those politicians are animals since they just screw home owners even they know that would make people lose amounts of money. But they don’t care.
Deal Guru
Feb 29, 2008
13824 posts
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neilsmith43 wrote: Firstly, do NOT buy pre-construction home since it takes long time and you don’t know what will happen during the waiting period.
Secondly those politicians are animals since they just screw home owners even they know that would make people lose amounts of money. But they don’t care.
This is true too. Problem is precon allows people to save up the money. Resale thry need to have that money saved. I see the benefit of both. But like you said, you avoid these problems by buying resale. Bidding wars in the good ole days pushed a lot of people to buying precon. Then builders started bumping up the prices of course.

As far as the new rules, I never liked how sudden they came into effect. Really screwed manynpeople over.
Deal Addict
Dec 20, 2018
4641 posts
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JayLove06 wrote: Sigh. There’s a reason why we have a better business bureau. No one is being forced to buy anything and yet there are rules in place to protect buyers from bad deals.
BBB isnt to protect for bad deals or mandate mandatory free refunds
Deal Guru
Feb 29, 2008
13824 posts
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StatsGuy wrote: BBB isnt to protect for bad deals or mandate mandatory free refunds
of course it’s here to protect customers by insuring the marketplace isn’t littered with unscrupulous business practices.

Tarion is the closest thing we have to that and they’re run by the builders.

They peddle the whole “if anything happens you have tarion, don’t worry” at the sales centres. Funny language in the contracts. People complain about affordability but throw their arms up when builders are artificially inflating prices by charging to the moon in a place like Oshawa?

Builders are protected. So should purchasers.

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