AUSTIN (KXAN) — More people in Austin are being forced to make a tough decision for their dream home: pay thousands of extra dollars or walk away and lose thousands.
One local realty company said folks who bought at the top of Austin’s housing market earlier this year or even earlier now find themselves trapped in confusing contracts with their builders.
“With interest rates, the homes are much cheaper,” said Tim Behe, an agent with Spyglass Realty. “Other homes, same exact floor plans, are actually $50, $60,000 less, and the builders haven’t been really working with the buyers at this point.”
Spyglass said about a dozen of their clients haven’t been able to get into their newly constructed homes on time. They said one client ended up breaking their contract with the builder and forfeiting their $25,000 deposit.
Spyglass said some unfair practices during the pandemic contributed to pricier contracts for new builds.
First, they said builders were pushing completion dates further out as they continued to sell and start building more homes.
Second, when supply was short, Spyglass said builders required buyers under contract to pay $25,000 to $30,000 more for their home or risk terminating the contract. If that happened, Spyglass said the builder would be able to put the house back on the market for $80,000 to $100,000 more, because the market was so hot.
“Many buyers that were under contract had to incur costs that the builders didn’t expect because of the pandemic. So, a lot of — a lot of buyers had to increase their sales price and pay that,” Behe explained.
Now that interest rates have risen, Spyglass said builders are bringing down their home prices but not re-negotiated with folks already under contract who may still be waiting for their delayed homes.
Behe said not only are some builders refusing to match today’s lower market prices, but buyers are also facing higher mortgage rates as their move-in gets delayed.
“A lot of buyers, when they went under contract for a new construction in January, February, the [mortgage] rates were in the threes. By the time it’s completed, now they’re in the sixes,” Behe said.
Some can no longer afford the home that was in their budget months ago.
Shelbi Orme and Madison Toles almost hit that point during their search. They’ve been saving up for their Austin dream home since they graduated from Texas A&M around 2016.
In 2019, the couple decided they couldn’t afford that, just yet.
“We moved to San Antonio, because real estate’s more affordable there, with the goal of always continuing to save up for the down payment to move back here,” Orme said.
They picked back up their search in Austin a few months ago amid rising interest and mortgage rates, which went from 4.5% to 5.5% during their home search.
“Sure enough, we locked it in and like a month later rates were over 7%,” Toles said.
“Which is unreasonable,” Orme added. “We couldn’t afford a house if rates — when we wanted to lock it in — were at seven. I think we just got really lucky at a very specific time in the market.”
They’re grateful they were able to close on their new home about a month ago.
“We were standing on this bridge like a year ago, like… will we be able to achieve moving back here? And coming up here today feels like, ‘Wow, I can’t believe that this was possible,'” Orme said.
Tips for contracts with home builders
Spyglass said construction company contracts typically protect the builder and not the buyer. They suggest buyers carefully read their contracts to make sure they’re fair and set clear expectations.
The company also recommends getting help from an educated agent who can help advocate for a fair deal and also compare prices of similar homes with what the builder is asking.
Spyglass said they can also help you decide which builder might be best for you.
They said if you’ve already entered into a contract with a builder, read over it to see if there’s an “out” for unfair practices.
“This is why we hope everyone reads their construction contracts before they sign. But if they didn’t, now’s the time to read it to see if there are any clauses that would let them exit the contract,” the company said.
Spyglass said if you can’t find a way out of your contract with your builder, talk to an agent or attorney.