"...I am really set on using this builder and community for a variety of reasons, so I'm hoping for advice to make this work as the attorney gets back to us. But I really can't sign that contract as-is..."

Obviously, you need your own attorney to review the situation and advise you.

If we take your comment, above, at face value, you have just created a quandary for yourself haven't you?

If the builder will not negotiate the contract, you have a decision to make...

Good luck!

I don't blame you at all. I personally wouldn't sign it either. I'm not an attorney, so the only thing I can tell you is get a good real estate attorney like you are planning to do. An attorney will know if the contract crosses the line...because I really don't believe a builder can force you into using their lenders. Everything you stated is meant to force you into using their lender.

Builder's contracts are always, of course, more favourable to the builder. It is good you are having your own attorney review, as many buyers don't before they sign.

Ultimately, you really need to discuss with your attorney as the law in your area will apply. It is possible this builder has never had the contract as written "challenged" before execution of it before (as said, many probably sign without review) and aren't even personally aware of the unreasonableness of it. They just hired their lawyer to draft something up for them, and trusted them to do it right, and their lawyer just protected their interests (to point of maybe unreasonableness). They may or may not be stubborn about any suggested changes, and you may be surprised to find that they are actually quite agreeable to changes - they were just never asked about it before.

I suspect part of the reason for the better terms with their preferred lender is they may get other perks with that lender in respect to their own financings, AND they may have a better experience with past financings and closings. They may have had a couple bad experiences where buyers using their own lenders at end ultimately could not close, whereas with a preferred lender closings may have gone smoother in the past for them.

It is not unusual at all to see contracts where they require either a significant deposit or 100% of upgrade cost, as those are often changes they can't recoup costs of if they have to ultimately sell the home as a spec home, such as if you failed to close. But yes, many of the other terms are particularly biased against your interests. Some are rather usual...like if financing falls through. You can make your offer conditional on financing approval, but if at the end of the day you can't close, they probably have a lot of costs and are going to want to keep your deposits.

A couple of things--the builder will know BEFORE you ever choose a lot or house plan which houses can/cannot be built on which lots.

I'm not surprised the builder is not BBB accredited. BBB accreditation requires a minimum a monthly fee and an application process. I don't honestly think I've ever seen a builder, large or small, that was BBB accredited.

I suspect if you look at the contract further, you'll find something about property damage, builders insurance, etc.

And, of course, the contract feels one sided. The builder had the lawyer write it to favor them. Wait for your lawyer's response. My guess is that unless the builder is hurting for business there won't be much negotiation room for deposits, etc.

I suspect part of the reason for the better terms with their preferred lender is they may get other perks with that lender in respect to their own financings

Like their lender letting the builder be paid even if there are problems?

For example, our builder called our lender to make a payment. Our lender sent out their inspector but before releasing the money, the lender had us look it over to make sure it was right. It wasn't. Even though it looked like the floors were completed, they had to be ripped out because the slab was not level by more than an inch in 10'.

Thankfully we were able to hold back a significant amount of our money until the builder finished the floors. That was only one example.

How much you want to bet that if you go with their lender, they won't be so accommodating?

If you won’t change your mind about using this builder no matter what, I’m not sure why you even posted.

They are not asking for a huge financial commitment from you. But they are asking for a real commitment, since they don’t have a prior relationship with your bank. They’ve obviously been burned by someone not on the approved lenders list before. Their approved lenders means they know they will get paid. It doesn’t mean that they will get paid regardless of their completion or lack of completion. But they have confidence in the financial solvency of their bank.

Change orders are fairly standard to be paid in full up front. That’s not really an issue with the upgrades. If it is an issue paying for them out of pocket, then you shouldn’t do upgrades.

BBB is a non issue. Completely non issue. They don’t do what you think they do. They’re just marketing.

You have some concerns that need clarifying, But I don’t see anything too far out of the ordinary as to run away. Which you wouldn’t do anyway if anyone did tell you that this was a bad idea.

If you won’t change your mind about using this builder no matter what, I’m not sure why you even posted.

Re-read my post. I never said that. All things considered, if I were going to move and build, this is the particular community I want to build in, and the community only has this builder. This is a move of want, not need. I'm asking for help with the nuances of a situation where I would like to work with this builder but the contract is unreasonable.

They are not asking for a huge financial commitment from you. But they are asking for a real commitment, since they don’t have a prior relationship with your bank.

"Huge" financial commitment is one of scale. I am not building a million dollar home. For the type of home I am building in a low cost area, giving up that cash per their legal terms is a huge risk.

For example, after signing the contract they give 5 days to have a loan application approved. Per their legal contract, if using an outside lender, if the loan application is not approved in those 5 days they can LEGALLY take all 25k of my deposits. This is completely unreasonable considering the builder has standing inventory, plenty of identical lots to sell, etc. There are no damages incurred in 5 days of an empty lot sitting empty, and certainly not $25k worth.

They’ve obviously been burned by someone not on the approved lenders list before.

And plenty of people have been burned by unscrupulous and dishonest builders. I'm here to protect myself, not to take on a company's baggage as some sort of noble deed.

That’s not really an issue with the upgrades. If it is an issue paying for them out of pocket, then you shouldn’t do upgrades.

That's a blanket statement if I ever heard one. Most of the production builders around here are charging much less for upgrades (1-2% of the base price, or 20% upgrade cost nonrefundable). Additionally, many of them do not charge for upgrades until constructions has begun.

I have the cash to pay for the upgrades upfront, but I am uncomfortable given the legal terms.

Change orders are fairly standard to be paid in full up front.

These are not change orders. These are chosen upgrades that are put into a spec sheet and contracted in AT TIME OF SALE. A change order is something that changes after build has begun. The builder, according to their contract, charges a significant fee for change orders.

Again, they are deviating from production builders in the area. Interior upgrades selected at time of sale by most production builders I have encountered do not require 100% upfront payment non-refundable.

Ultimately, you really need to discuss with your attorney as the law in your area will apply. It is possible this builder has never had the contract as written "challenged" before execution of it before (as said, many probably sign without review) and aren't even personally aware of the unreasonableness of it. They just hired their lawyer to draft something up for them, and trusted them to do it right, and their lawyer just protected their interests (to point of maybe unreasonableness). They may or may not be stubborn about any suggested changes, and you may be surprised to find that they are actually quite agreeable to changes - they were just never asked about it before.

Without having had the opportunity to talk to the builder directly, this is also the sense I am getting based on the company's history and talking with the listing agent.

The area seems to have a lot of USDA financing, VA financing, etc. It seems reasonable to assume they have a fair number of financing problems. I come in with a conventional loan pre-approval, excellent credit, current homeowner on a conventional loan, have actually read the contract, etc. Highly possible they've never been challenged before.

As you stated up front, you need to discuss this with a good real estate attorney. The replies here are from knowledgeable people, but obviously you still have concerns. A good real estate attorney will be familiar with practices in your area and can address your particular needs.

They have a few preferred lenders and only offer a $2500 closing costs
concession for using a preferred lender. The lenders they offer do not
appeal to us (different reasons for each company) and will end up
costing us significantly more in the long run than the lender we
pre-approved with.

That closing cost concession is no concession ... they will more than make up for it.

On our last visit, however, they gave us a blank contract to go over
with our realtor. It turns out they have completely different terms
depending on if we use their preferred lender or not.

This is a sleazy practice, where the lenders and builder have a symbiotic relationship to suck as much money as possible out of the home buyer.

They are getting kickbacks from the lenders to steer buyers to them.

It might be legal, but it's sleazy.

agree with lazy_gardens.

this is simply too cozy.

They are a 'production' 'track' builder. WALK away!!!!! They are trying to make money 'anyway' they can!!!!!!!!!!! They are trying to use new Techniques’ to make money!!!! It's a CON!!!!!!!! Track builders are getting more and more sleazy.!!!!!!!!!!!!!! I've said this before, they are building something that at least 99% of the public have NO idea what it actually cost to build!!!!!! They are doing everything they can get keep making their HUGE profit!!!!

Okay, that was a slog and lots to take in. I understand why you're reluctant; all contracts are designed to protect the writer's interests, but these terms are too much. Too many possibilities of trouble, too much risk. Still, if you want into this neighborhood, you must use this builder.

Is this possible: Go with their financing options for the build ... and a few months after the house is finished, refinance with your own choice. This protects you from the "no refunds" thing, yet also allows you to have what you really want in the long run. Yes, it makes some difference with the money-up-front stuff, but I think I'd put up with that to have the certainty of being able to back out in case of trouble.

Since you're willing /able to pay more up front, I suspect you're not a buying-this-house-by-the-skin-of-your-teeth buyer. Since you're reading and investigating, I suspect you're not a gullible buyer -- and the builder doesn't like that.

They are not asking for a huge financial commitment from you. But they are asking for a real commitment, since they don’t have a prior relationship with your bank.

I can see that. They have no idea whether you're easily able to pay for this project or whether you're barely able to scrape together the downpayment. Banks and lending institutions aren't all equal. They don't want to build this house just as you want it ... then have you walk away, which is easier to do if you have only put down a couple thousand dollars. I see it from their side ... but, as the buyer, I wouldn't like it.

Basically you have to choose:

- Accept their terms and get the house you want.

- Back away and make a different choice.

My take on it: Sometimes God tells you not to do things by throwing obstacles in your path. I think you should listen.

They are trying to make money 'anyway' they can!!!!!!!!!!!

As opposed to all the other people in business who are actually social workers in disguise?

The concerns about the BBB are unfounded. As stated above, BBB is a marketing tool. It doesn't do what you think it does. If you want to know about the builder, check with the county records to see about pending and settled lawsuits.

It's not unusual to request payment for upgrades even when the contract is still in the signing stage. It protects the builder.

Preferred lenders provide all kinds of benefits to the builder. It's that simple. It's one of their big profit centers.

Your realtor will get a fee, too. You can't get that fee credited to your account if you didn't use a realtor.

The builder is taking on a lot of risk as is the developer and their lender. The contracts are written to try to off-load some of that risk on to you. That's good business on their part.

Everyone will have their hand out.

While everyone wants that new shiny house, I would suggest you look at existing homes that are less than 5 years old. Not a lot of wear and tear, most of the issues can be identified and you know what you are getting.

The first home we built was a tract home like this...I completely understand not wanting to build this way, but I am also aware that sometimes that's the only way you can get in the area you want. That was the situation we were in at the time. I had done a complete gut/remodel/addition on a 100 yr old farm house with a local small builder and loved it...we were moving to an area where small builders weren't an option as there was no land not owned by production builders and there was NOTHING on the market that met our needs our could be rehabbed to meet our needs within the budget....so production build is what we did. I agree with everyone that the contracts are 100% in favor of the builder and it depends on the builder (I'm assuming it's really how much they get from the lender) on what they're willing to allow you to negotiate. I was able to change nothing in my contract yet my cousin building at the same time with a different builder was able to make adjustments... BUT what I will tell you in hindsight...I wouldn't do ANY upgrades. I did the ones that we thought made sense...wood flooring throughout, cabinets...the things that seemed wasteful or very intrusive to do later. I regretted it. With the flooring, we paid a ridiculous amount to upgrade to was still crappy. It was still builder grade. Same with cabinets. We would have been money ahead to build basic and add the upgrades after possession. Had I done that I would have gotten better flooring for 1/2 the price. I did rip out my counters and used the original ones in the garage. I got a higher level granite for the same price they were offering level 1. I wish I'd done that with the floors and cabinets! Just something to think about....could save you some money upfront and heartache in the end. Good luck!

50% of upgrade cost is typical in my area. Surprised that 20% is in yours, that is a pittance. Hope you negotiate something better. While Robin loves to rant about this, it all does seem pretty sleazy. Ah the compromises people make for tract housing - the whole thing is really sad.

robin0919, "lol".

I would walk away. Or buy an existing house. That way you know what you are getting.

The builder cannot penalize you financially or charge you more for using your own lender. That's a violation of federal law, last I read. What's the relationship there? Sounds a bit too close for me. Was it disclosed? The difference in terms for using your own lender is a big RED FLAG.

You need an experienced REAL ESTATE attorney to review this for you, not just any attorney! Please make note of this. You need one better than the builder's attorney.

The BBB thing is not important. Anyone can be listed on the BBB and "accredited", even the worst scammer, if he pays the fees. Builders open a new company for every or almost every development and then close it down to minimize liability. Length of business for founders is entirely irrelevant to your deal.

Very common provisions for tract builders. I know some of the best in my region and a few who are not.

Tract builders offer you... more house that you can usually get from a custom builder at that price, more often than not, designed by a team of licensed architects who have refined the design for both cost and function. They have vetted their lender, but usually don't know yours. I'll bet they know the difference in successful loan approvals between their lender and buyers who bring in their own. In CA, the builder purchase contract must be reviewed and approved by the Dept of RE.

So they've offered you some great incentives to use their lender. Less commitment, less deposit, more flexibility. Or you can use someone they don't have a track record with, build a home for you with upgrades you want and if your lender fails to close your deal, they have to sell this now custom home to someone else, holding the bag while they fix the situation.

Upgrades often don't appraise, and would require more down payment anyway, so prepaid upgrades is how builders protect the transaction from buyers not having adequate monies to close.

So they've offered you some great incentives to use their lender. Less commitment, less deposit, more flexibility. Or you can use someone they don't have a track record with, build a home for you with upgrades you want and if your lender fails to close your deal, they have to sell this now custom home to someone else, holding the bag while they fix the situation.

I agree with the gist of what you're saying, though again I wouldn't call anything we are doing "custom." Putting in all hard floor in the main living areas, just like every spec home ever...is not a custom upgrade. (Larger homes with random carpet and hard floor segments all over the main level do not sell well—hence why you rarely see a spec home with the base flooring scheme.) Same with half-wall stairs instead of stair railings. These are the kind of "upgrades" I am doing...things the builder has already shown they will do themselves when they spec a home to sell.

They really don't offer "upgrade" options that anyone would consider custom or weird. One brand of hard flooring, 4 colors of brown available—all I'm paying for is putting it throughout one level of a home.

Upgrading from a half-wall to stair railing...they don't offer anything in that upgrade that would put the home at risk for sale. All their spec homes do the stair rails.

The way they've structured their upgrades makes it very difficult to choose anything that would put them at risk to sell the house themselves. At all. Which leads me to believe that strict terms for "upgrades" and never refunding "upgrade deposits" is really a cash flow problem on their end.

General update: Yes, I've sent the contract over to a REAL ESTATE attorney, he just hasn't gotten back to me yet.

;) Good!

ditto....