Hurlbuthomes.com Blog

So earlier today, I helped a buyer write a contract on a new home they're purchasing here in the area. The home is a new home, not yet constructed. So the builder, as builders often do, has his own contract to purchase that outlines the way the builder would like things to be done. How much earnest money is required, access to the home, etc. But one paragraph stuck out to me and my buyer particularly. It basically said that as long as this particular builder was building in this community, that the buyer could not sell or rent their home. If the builder discovered that the buyer were selling the home while the builder was still actively building in the community, the builder would have the option to purchase the home from the buyer at the original price. That maybe wouldn't be so bad, but the paragraph went on to say: In addition to having the option to purchase the home back at the original purchase price, the buyer (now seller of the home) would be obligated to reimburse the builder for the closing costs the builder paid on the original transaction AND the transaction to purchase the home back!

Are you kidding me?

When my wife and I visited Arizona in 2006, we briefly considered purchasing a second home there. In Arizona at that time, things were moving so quickly, builders often put clauses like this in their contracts. In addition, you would be told up front that the price that was on the home at the time you signed the contract, would not necessarily be the price you ultimately paid for the home. If the builder had $20,000 - $30,000 in price increases during the time your home was under construction, you'd be obligated to pay the new, higher price at the time of closing. And people were lining up to sign those contracts.

In the case of this particular clause, if we were in a market like we had in 2006, you could pretty much guarantee the builder would be out of the community in 6 - 9 months. But now, it could be 5 or more years before some of these plats get built out and the builder is no longer "actively" selling in the community. So to sign a clause like that in my opinion is ludicrous in a market like we have today.

The moral of the story, you should absolutely know what you're signing before you sign it. If you're not working with a Realtor, make sure you connect with one ASAP so you don't end up in a sticky situation and blindly sign away rights you may be entitled to. And always, always, always, make sure you consult with an attorney on any legal contract you sign if you don't understand it.