Don't Trust The Builder

By
Mortgage and Lending with Mason-McDuffie Mortgage, Conventional Loans, Jumbo Loans, FHA, 203(k), USDA, VA, NMLS #138061 MMCD #1141
https://activerain.com/droplet/5j2n

Don't Trust The Builder

 

     Shiny objects.  Fancy Counters.  "Design credits".  Closing cost help.  All this can be yours, if you just trust the builder.  Their escrow/title company.  Their lender.  Your own representation?  You don't need that!  Someone with a fiduciary duty to you?  Don't worry about it!

 

     But what about the buyer who bought a high-end home from a well known builder with electrical defects that caused a fire?  Followed by the builder fighting tooth and nail to avoid liability, causing a nightmare for the new home owners?  What about the builder who Don't Trust Buildersinsisted the buyer not have a home inspection (after all, it's new, PRISTINE, construction!), and during the home inspection (which they got at my insistence - funny, their in-house lender wasn't insisiting) they discovered electrical outlet covers with nothing but dry wall behind them?? What about the builder who wasted the buyer's time with their own "in house" lender promising the moon and the stars (we wouldn't preapprove them because they didn't qualify) - after putting in notice, and planning their move, the builder's lender delivered the bad news - they didn't qualify.  What about the builder who took a $120K deposit from an unrepresented buyer, then did just about everything they could to keep that deposit and keep the buyer from buying the home (home values went up during the construction phase and the builder was sitting on $120K!).

 

     What about (the most recent case, and 1 of 2 recent cases where a builder acted really shady) the builder who offered the buyer $8K to use their "preferred" lender (and ONLY if they used their preferred lender), and then stuck one sentence into a 60+ page contract stating the buyer would be responsible for costs that are usually covered by the seller.  Guess how much that cost the buyer?  Yep, you guessed it.  About $8K.

 

Here's the only 3 facts you need to know:

 

- The builder cares about THEIR BOTTOM LINE.  That's it.  They don't care how they get there

 

- The builder IS NOT LOOKING OUT FOR YOU.  Neither are their sales reps - they're there to sell for the builder, and that's where their loyalties lie. (same with their lender)

 

- If the builder is pushing you to NOT be represented by someone that would have your interests at heart, there's a reason for it.

 

     As a buyer (and ESPECIALLY FOR FIRST TIME BUYERS), it may seem appealing to purchase new construction.  And it can be!  Many builders do beautiful work on new homes, but a buyer NEEDS representation.  That huge builder contract that is often amended 3-5 times over the course of construction is not a list of suggestions.  It's a legally binding document, often with thousands of dollars at risk for buyers attached to it, and it is always, always, always written to benefit the builder and only the builder.  

 

     Delays on the builder's end?  That's OK, it's covered in the contract.  Delays on the buyer's end?  Sorry buyer, you're out of luck, and the builder may be keeping your deposit.  

 

     Buyers, you need a real estate agent - a fiduciary.  You need a lender that cares about you and your family's financial picture, not just quoting a rate and moving on to the next buyer getting that shiny builder credit.  I'd even go so far as to say a buyer should be using their own escrow/title company whenever they can - buyer's need people ON THEIR TEAM.  

 

     One final note:  Any builder that tells you you don't need an agent, or don't need an inspection, or don't need any part of a transaction that protects and benefits you, you need to walk away from, or better yet, be firm with.  It's YOUR HOME.  It's YOUR FUTURE.  Be firm, and demand YOUR PROTECTION.  And don't trust the builder.  All of the above "What about the builder who..." experiences are things I've seen first hand.  It happens.  Don't let it happen to you.

 

 

 

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Re-Blogged 1 time:

Re-Blogged By Re-Blogged At
  1. Ginger Harper 04/16/2019 12:11 PM
Topic:
Real Estate Industry
Groups:
Realtors®
The Lounge at Active Rain
"Whacked"!!!
Bananatude
Bartender, Make it a Double
Tags:
builders
new construction
real estate industry
bad business
shady

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Jerry Newman
Brown Realty, 210-789-4216,www.JeremiahNewman.com - San Antonio, TX
Texas REALTOR, San Antonio Military Relocation

Great post, John. As we have heard the bad news from many  buyers who thought the builder was looking out for their interests. Buyers really need to be aware of those three facts that you pointed out above. It makes better sense to have your OWN representation. After all, most builder's are willing to pay the buyer's agent commission.

Apr 16, 2019 08:02 AM #19
Rainmaker
397,121
Matt Brady
Skyline Home Loans - Del Mar, CA
Lending With Competence And Character

I started to reply to this post and then deleted it to calm down. I appreciate that you think you bring value to your clients but you do not bring more value than I do.

I am going to assume that you have had a succesful career anf you have Real Estate agents that having experianced working with you use you as their "preferred lender" and even have borrowers cross qualify with you. DO you check your fiduciary responsibility at the door when you are represnting those buyers? No? Then what makes you think I do just because a builder does the same thing? I can offer counter examples for every point you made, but as the saying goes figures lie and liars figure. 

I would suggest that in the case you describe regarding electrical issues the fault lies as much with the city inspector. Your stating that they city signed off on the electrical installation before the drywall was installed and they were fine with bare wires just hanging in the wall?

Having closed over 1800 new construction deals, building two homes and remodeling over 30 I probably have enough knowledge and experiance to manipulate a client, you suggesting that I would is an insult.

Apr 16, 2019 08:56 AM #20
Rainmaker
3,180,369
Michael Jacobs
Pasadena, CA
Los Angeles Pasadena 818.516.4393

Hello John - Trust But Verify may need some updating, huh?

Apr 16, 2019 09:44 AM #21
Rainer
482,038
Dörte Engel
RE/MAX Leading Edge - Bowie, MD
ABC - Annapolis, Bowie, Crofton & rest of Maryland

Dear John,

There are very good and ethical builders out there, just as there are resale home owners like that. However, wouldn't it be good to verify your good taste with an inspection and pick your own (the best) lender you can find? In a common 30-year mortgage, that 1/8 percent less in the mortgage rate may be worth multiple free stainless steel sinks.

Apr 16, 2019 10:04 AM #22
Rainer
255,972
Stephen Turner
TriCorner Homes (TriCorner Realty) - York, PA
The BIG Guy of NEW HOME SALES

Sorry to hear of their tragedy. I've worked for builders the past 22 years. Some are great, others may not be. A good builder may think a home inspection is a waste of the buyers money, yet won't prevent the buyer from paying and having it done.

As far as lender goes, gone are the days of most joint ventures with builders so the builder really doesn't make money from a preferred lender anymore. Yet a good builder wants to work with local preferred lenders so that it's easier and typically the lender has a track record of closing on time, without surprises along the way. If the builder's own lender can't deliver that, then builder's I worked for usually replace those lenders who can!

Apr 16, 2019 11:37 AM #23
Rainmaker
1,807,605
Michael J. Perry
KW Elite - Lancaster, PA
Lancaster, PA Relo Specialist

First and foremost, Buyers need REPRESENTATION !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

Apr 16, 2019 02:56 PM #24
Rainmaker
372,915
Marney Kirk
Cummings & Co. Realtors - Towson, MD
Towson, Maryland Real Estate

John, we built our house, and we had issues with the builder too! Luckily I was the buyer, so I was able to handle quite a bit. I am of the strong opinion that buyers should have representation in new construction!

Apr 16, 2019 04:22 PM #25
Rainmaker
172,405
Melissa Spittel
Coldwell Banker Residential Brokerage - Westminster, MD
"Achieving Results Together "

Every buyer who is considering new construction needs to read this! You pointed out the most important facts, in an easy to understand format.

Apr 16, 2019 07:47 PM #26
Rainmaker
429,277
Diana Dahlberg
1 Month Realty - Pleasant Prairie, WI
Real Estate in Kenosha, WI since 1994 262-308-3563

Caveat Emptor -- Buyer Beware!  Every Buyer needs Representation. Great Post ... Agree with you!  Buyers need to be PROTECTED.

Apr 16, 2019 07:49 PM #27
Rainer
395,750
Rose Mary Justice
Synergy Realty Pros - Dandridge, TN
Synergy Realty Pros

I've seen many things you have discussed happen. Great Post and Congrats on the Feature.

Apr 16, 2019 07:54 PM #28
Rainmaker
489,282
Mary Hutchison, SRES, ABR
Better Homes and Gardens Real Estate-Kansas City Homes - Kansas City, MO
Experienced Agent in Kansas City Metro area

So agree with this post!  I don't do very many new builds but always, always advise a separate inspection before closing!  Another thing that irks me is the last minute punch list that never seems to get done before closing..as it should.

Apr 16, 2019 08:06 PM #29
Rainmaker
80,082
Karen Simms
Century 21 Arizona Foothills - Queen Creek, AZ
Horse Property Specialist

Great post!  Buyer's don't realize they do not have representation if they deal with the builder directly.  Many seem to think that if the builder does not have to pay a buyer's agent the buyer will save money.  Educating the buyers on this is the best practice.  That being said, many buyer's still don't listen. Buyer's need representation from a Buyer Agent looking out for their best interest.

Thank you for the great information! 

Apr 16, 2019 08:10 PM #30
Rainmaker
937,304
Brigita McKelvie, Associate Broker
Cindy Stys Equestrian and Country Properties, Ltd. - Lehigh Valley, PA
The Broker with horse sense and no horsing around

Good morning, John!

Great post!!  It is unfortunate, but true.  Unrepresented Buyers are taken advantage of by builders.  Think about it.  When getting a divorce, is it a good idea to use your soon to be ex's attorney?  Not at all!!!!  The attorney is only looking out for the soon to be ex's best interests.  Same goes for real estate.  The Buyer needs to have a trusted team representing them and looking out for their best interests.  

Brigita

Apr 17, 2019 05:32 AM #31
Rainer
27,362
Chuck Tanner
Keller Williams Realty - Atlanta, GA
Associate Broker "Let's Get You Moving"

This is one of the best post that I have read in a long time....well done! Take John Meussner's advice to heart.
I closed on a new construction in January. The subdivision agent told my clients that if they used their in house lender the builder would pay $5k toward their closing costs. My clients agreed. One problem, the rate was higher than my lender. (I used to be a loan officer) To be exact the rate was .625% higher. I talked my clients into walking away from the builder's lender (the builder own's the mortgage company) and using my lender. The buyers paid their closing costs. They will recoup the $5k in less than five years. The onsite agent hates me but OH WELL! My clients wrote a really great review for me. 

Apr 17, 2019 06:22 AM #32
Rainmaker
1,493,488
Marte Cliff
Marte Cliff Copywriting - Priest River, ID
Your real estate writer

I would hate to think that all big builders were that sleazy. I think there are good people and bad people in every profession. And yes, since a home buyer has no way to know which is which, everyone needs representation, home inspections, etc. They may also need an attorney to read that contract before they sign!

Apr 17, 2019 07:41 AM #33
Rainmaker
1,494,500
Amanda S. Davidson
Amanda Davidson Real Estate Group - Alexandria, VA
Alexandria Virginia Homes For Sale

John, I will never understand why so many buyers don't have their own representation when purchasing new construction and automatically go with the builder's lender thinking the incentive offered is always worth it. Sure, there are times that it is but, not always and if they had their own representation they'd have help in figuring that out. Not getting a home inspection on new construction is crazy and I see it happen all the time. 

Apr 17, 2019 09:06 AM #34
Rainmaker
1,206,659
Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience

As with any profession, there are good and bad builders.  While appraising and also during my lending, I have seen both. That said, buyers need to approach the purchase of a newly constructed home with open eyes. completely educated, and represented ...  just as they would with an existing home.  I would strongly suggest they use an agent that is experienced in new construction representation too.

My beef with builders is with the enticements they can offer buyers.  Sometimes the enticements are legitimate and benefit the client, no strings or hidden fees.  Other times, that is not the case.  It takes an educated and experienced eye to weigh the benefits VS the negatives.

As a LO, I can compete if I have a level playing field.  That is often not even an option in these cases.  I ask ... why it is allowed for builders, along with their Lenders, to offer these credits and enticements when others cannot?  This is what I have a big problem with. 

So far this Spring, I've had a handful of these situations to deal with.  It's very frustrating ... 

Gene

Apr 17, 2019 11:22 AM #35
Rainer
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Bud Rozell, ACI
Good Home Inspection - Dallas, TX
Residential and Commercial Inspections

I often state that I should charge exrtra for inspecting new construction. I don't, of coarse, but that doesn't mean that it's not a pain in the butt. I can insect it today or five years from today, but the problems don't just go away.

Apr 17, 2019 11:57 PM #36
Rainer
124,730
Robin Wells
RAW Chimney Sweep and Inspections - Penetanguishene, ON
Giving Peace Of Mind One Chimney At A Time

Great post thanks.  And for the most part very accurate.  There are a few minior exceptions to the 3 facts to remember.  I am not a builder, but am an exception to the rule.  #1 - not everybody is interested in only the bottom line!  In fact myself being mostly retired really only do the work still be cause I am certified - enjoy the work and love helping people.   It is possible to find those who love their work and really are doing it for the love of it versus the bottom line.  Not many but they do exist.

Apr 18, 2019 04:11 AM #37
Rainmaker
718,490
Pete Xavier
Investments to Luxury - Pacific Palisades, CA
Outstanding Agent Referrals-Nationwide

I've tried to warn others, only to hear..."we know them well" and/or "we trust them". Further down the road I'll hear of their totally preventable mistakes that is not only expensive, but toll taking in other aspects of life.

Apr 19, 2019 12:52 PM #38
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