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New House purchase - would you waive the condition?

caribbeansun

caribbeansun

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Ontario, Canada
DW and I find ourselves in a rather unexpected position. We have spent months designing a new home and finished that process back at the end of Nov/05 at which time we signed a deal with the builder that was conditional on the sale of our existing house. That condition runs out at the end of March and we haven't had an offer on our house yet. This seems to be commonplace in our particular area for homes in the price range of ours. The entry level and second level homes are booming still but the higher end has stalled out.

So, the builder has called us and told us that in order to extend our condition at the end of the month it's going to cost us an additional $28,000 on the price of our property - combination of increase lot levies and building costs. There's a 5-6 month build time if we go firm.

What would you do?

This has been an emotional rollercoaster for both of us but particularly DW as she had her heart set on her "dream home.":confused:
 
Don't let your emotions lead you into a trap. Unless you can afford to own both houses for a considerable length of time, I would back out and wait until the present house sold. This is a sure route to financial distress.
 
Personally, I would drop the price of my existing home by $15,000 and see what happens before the end of the month. I'm assuming you're working with a realtor. Then make sure they really market it for the next few weeks.

It's really a bite if you have to spend 28K more on your new home. But what would be even more of a bite would be to pay 28K more and then find out you still had to reduce the price of your existing home substantially to sell it. Drop the price of your existing home now and hopefully you can save the 28K.

Good luck!
 
You don't mention anything about how much you would lose by walking away. I'm assuming there is some ernest money involved in the new house. You need to factor that in.

You also don't mention whether prices are increasing for houses in your new neighborhood or not. If they aren't, the builder is basically trying to milk you. He may not be able to find a buyer as easily has he says. Most important is that if the prices are flat, you can always get the same house once yours sells.
 
Our local paper had an article this am about builders asking for additional $$$ due to increased building costs, but also because if buyers balk...they can re-sell to the next guy for increased $$$$ due to recent double digit increases in many RE markets. The article mentioned that since the builders are the ones who supply the contracts, it usually gives them this out and generally the only way around this provision is to bring it to your lawyer for review and revisions before you sign.
 
In answer to questions:

- no cost to walk away, our deposit would be refunded 100%
- market in this area is increasing, a new block of lots was made available a few weeks ago and almost all sold out immediately
- the increase in land fees is legit as there was an increase about 2 weeks after we put our deposit down but we were protected because we had the deposit on the lot. In comparison of other areas the land prices here are lower than average in comparable areas (for how long is the question)
- I believe the increasing building costs are legit as well based on what I've seen and read in the papers around here
- I agree on the "I can take one hit but not the other". Dropping the price of my house AND increased cost is a no go. In other words, if we don't go firm we'll have to walk away. I'd have 5-6 months to sell before being in the position of carrying two places, then the carrying costs (interest only) would be in the $3-4k/month range so I'd have about 8 months before I'd blow through the $28k.

Silly part is I do financial stuff for a living but in this case I have a fool for a client. I suspect I'm looking for ways to rationalize an irrational decision ie. financial vs. emotional

I really am hating this!:(
 
caribbeansun said:
...
Silly part is I do financial stuff for a living but in this case I have a fool for a client. I suspect I'm looking for ways to rationalize an irrational decision ie. financial vs. emotional

I really am hating this!:(
Click to expand...
Sounds to me as if yoiu need to bring in someone whose judgment you trust and use them as a sounding board/investment counselor.
 
I think some of the risk depends on how fast the new house is appreciating?

I know several people in California that put down deposits on new houses and by the time they were built.. they could sell them at a huge profit.

If prices are accelerating, why not hold onto the new house and if all else fails.. sell it when its completed and pocket the profits.
 
As a Realtor, my advice is to talk to a very creative mortgage broker.

I have a client who just applied for a "bridge loan," which is a second on the old house. Then as soon as she did that, we had an offer on her house. Not that it was magic, but a bridge loan will work for you, unless your mortgage broker will not even consider it.

The mortgage broker can really make or break a deal.
 
Dave - unlikely to have a big profit in 5 months in this market. Some appreciation is likely but how much is a guess. I suspect it will play out similar to the changes in new construction pricing since they're still building in the area - it will likely go up another $30k in the fall which would be when ours would close.

Cindy - financing isn't an issue. Our existing house is clear and we had them do a line of credit in anticipation of having to fund progress payments between the start of construction and the closing of a deal on our existing house.

Other info - this is the last lot that backs onto greenspace in the currently open development site plan. Additional greenspace lots will not open up until 2007 at the very earliest. This particular area is experiencing high demand as there is easy access to the main highway for commuting purposes. Prices in this area have increased more than prices 1/2 hour away in almost any direction (other than towards the major city that people are commuting to). I believe staying in our existing house and buildng later on would increase the gap between the value of existing house and the future new house which I don't relish.

Option 2 - I could purchase the lot outright for the old price, saving me $14,500 and pay the increased building costs of $13,500.

Option 3 - say the heck with the whole thing, continue to try to sell our place, once it's sold purchase a resale in that area and then wait until 2007 to build the "dream". This alternates from a great idea to one I dread after having spent every day last summer fixing the place I'm in now.
 
Wouldn't you just love a crystal ball right now??
We had a situation like yours when we were building. Our hse didn't sell- we asked for 1mth extension from builder and had realtor heavily market hse we were living in. At the time many houses were for sale at our listing price. We backed out of builders contract-got full refund and then our hse didn't sell for another yr. Can't imagine what we would have done if we had went along w/builder.
Once our house sold we found a different builder who was just wonderful. Built our home w/many of the extras the other builder was charing us for but with the new builder they were included. Bottom line is we got a better house,more sq footage for less than the old builder was charging us. Best part is- the original building area has gotten very overgrown with houses and now we say we wouldn't have been happy there- because we ended up with a lot at the end of a cul de sac on a street w/only 7 houses in a wetland area where we know there will be no further construction. I have always been a firm believer in things happen for a reason and our hse not selling quickly sure backed that believe up.
Emotions sure can get in the way- we thought the first hse we designed was our dream hse and the location was perfect and were devasted when we had to back out(almost didn't on pure emotion). I realize every situation isn't the same-but try to put emotions aside and think what you would recommend someone else to do. Good luck
 
In option #2 you could keep the land location through purchase and build later when your house is sold. The lot (as you descibe it) will apreciate in value and even if it didn't, its a desireable location for you to live.

This will give you time to sell your house. When your ready to build, if you chose to build your dream house elsewhere (you never know) the lot that you purchased is in a desireable location and is resaleable.

I don't really care for property with builder tie-ins but they are necessary in some very desireable locations and can't be avoided.
 
I'd say, Start building at the agreed-on price.

Drop the price on your existing home.

Put some $ into making your house more sellable.
 
We are in a similar situation but not quite as far along. Since we are in a lake setting a lot of properties sell as seasonal homes. Of the ten houses on our point, six are seasonal with only occasional use by the owners.

As of now we have decided to sell our existing house first, maybe for a delayed possession or by making other arrangements for the buyers to use it or something else on the lake, and let that sale determine our budget for our new house.

Maybe the neighbors will buy our house and slip in their dock, and give us some time to build and move, just to get rid of us. They would appreciate being able to hand-pick their neighbors and dock-mates. :cool:

It sounds like the difference in our situations is that what we now have is highly desirable, so we may have more freedom to dicker.
 
caribbeansun said:
Other info - this is the last lot that backs onto greenspace in the currently open development site plan. Additional greenspace lots will not open up until 2007 at the very earliest. This particular area is experiencing high demand as there is easy access to the main highway for commuting purposes. Prices in this area have increased more than prices 1/2 hour away in almost any direction (other than towards the major city that people are commuting to). I believe staying in our existing house and buildng later on would increase the gap between the value of existing house and the future new house which I don't relish..
Click to expand...

I think you need to do whatever you can to save your dream house.

About 7 years ago, I found a new house in a new track of homes just being built, with the perfect lot and a gorgeous view. That could never be obstructed. Theres nothing I love more than a fantastic view out the backyard
Anyway.. at the time, the house was $300K. I'm thinking "geeze, these people are out of their mind" My house was the same size and half that price.
7 years later, I'm stilll in my house looking at a wood fence and my dream house is over $700K and way out of my price range.
 
Worse case scenario, could you rent out your old home if you couldn't sell it? If this is the case, and since you mention that house values are of the increase, maybe you'd even be able to sell it later for more?

In any event it would help you carry the extra expense in the short run.

I know most people don't really want to get involved in being a landlord, but as a worse case scenario, it might give you some peace of mind.
 
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