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Builder Deposit Question
Posted on 3/8/21 at 7:26 am
Posted on 3/8/21 at 7:26 am
I’m wanting new construction in Houston. Found a type of home I like for around 750k. I’m trying to time this where I can sell mine and move into the new one with no intermediate period.
Builder wants $3k in earnest money, 4% of base price and all upgrades paid upfront - which are all credited back at closing. I don’t want to give them close to $50k down. Agent claimed the 4% figure was bc of their bank.
Is this bs? I talked to my broker and he said he’s done numerous new build loans in this range for 1-2% earnest with upgrades paid upfront.
If they tell me they won’t budge then I’ll move on. Just didn’t know what was standard for these type of deals.
Builder wants $3k in earnest money, 4% of base price and all upgrades paid upfront - which are all credited back at closing. I don’t want to give them close to $50k down. Agent claimed the 4% figure was bc of their bank.
Is this bs? I talked to my broker and he said he’s done numerous new build loans in this range for 1-2% earnest with upgrades paid upfront.
If they tell me they won’t budge then I’ll move on. Just didn’t know what was standard for these type of deals.
5
Posted on 3/8/21 at 7:38 am to Hou_Lawyer
4% seems aribtrary - but $30k on a $750k home is really not crazy. Now, maybe (potentially) builders is using your deposit as HIS equity for the bank loan? How long has he been in business? Good reputation? It comes down to a good contract and some trust.
Builders can build their normal plans / spec homes and be confident they will sell it if you walk away. But, you start adding upgrades that may not be typical for the market, and builder ends up with a home with neon green painted rooms and black toilets and then you walk away - that's an issue for the builder to try to sell it to someone else. Hence, the upgrades upfront is very standard.
Instead of letting him finance it, you could finance it yourself - interest only during construction and then convert to permanent. Obviously, your income level would have to support the new construction loan and your existing home loan.
Builders can build their normal plans / spec homes and be confident they will sell it if you walk away. But, you start adding upgrades that may not be typical for the market, and builder ends up with a home with neon green painted rooms and black toilets and then you walk away - that's an issue for the builder to try to sell it to someone else. Hence, the upgrades upfront is very standard.
Instead of letting him finance it, you could finance it yourself - interest only during construction and then convert to permanent. Obviously, your income level would have to support the new construction loan and your existing home loan.
Posted on 3/8/21 at 9:14 am to Hou_Lawyer
Builder's in Houston pretty much have the ability to do that right now with how few houses that are available. I've got several in that $600k-$700k typically most ave the 1% down and upgrades paid up front at the moment. 4% of base price on top though seems a little high.
Posted on 3/8/21 at 11:03 am to Hou_Lawyer
My parents just started construction last week on a home in Houston at about 350k. All 3 builders we were negotiating with asked for 10% earnest money upfront. We later talked one down to 5%. Of course your home is more than twice the cost so I can understand your predicament.
Posted on 3/8/21 at 11:49 am to Hou_Lawyer
I've built 2 custom homes in the Baton Rouge market. First was sales price of $360k. Custom home builder require $5k deposit. 2nd was sales price of $540k...same builder, but they requested a $25k deposit.
I felt very comfortable with them from prior experience and they've been building homes in the area for 40 years. I didn't hesitate when they asked for the money, but I'm also confident they would have accepted a lower amount, too.
In my opinion, why does it matter? If you're going to buy the house, and at that price point, why would you balk at their request? Seems very reasonable to me. You either pay it now, or you pay it later. They don't want to get stuck with a custom house and random upgrades any more than you want a builder who folds and takes your money.
I felt very comfortable with them from prior experience and they've been building homes in the area for 40 years. I didn't hesitate when they asked for the money, but I'm also confident they would have accepted a lower amount, too.
In my opinion, why does it matter? If you're going to buy the house, and at that price point, why would you balk at their request? Seems very reasonable to me. You either pay it now, or you pay it later. They don't want to get stuck with a custom house and random upgrades any more than you want a builder who folds and takes your money.
Posted on 3/9/21 at 7:19 am to Hou_Lawyer
If you decide to move forward I would go to his office and nail down every detail and allowance. You don’t want him downgrading your fixtures, flooring, etc after you pay and sign. Then he has you over a barrel if you want to upgrade.
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