Sunday, April 02, 2006

What Could Possibly Go Wrong If You Are Buying a New Construction Home?

So what could possibly go wrong if your going to buy a brand new home, built by one of over 200 Arizona Builders, registered as General Contractors and Licensed with the Department of Real Estate? Read on my friend… read on!

Lori & I have been given exclusive permission, by the Buyers, to tell these inconceivable accounts of New Construction Terror. You have the opportunity to communicate with them, if you wish, to validate any portion of these mind-blowing stories.
An Emotional Safety Net or What do you mean… I have to simply live with it?
Story Number One:

Our clients asked us to represent them in the purchase of a new home, being built in the west valley. We accompanied the buyer to the builder’s site. During a tour of the site where the subdivision would be built, our buyers fell in love with a particular lot. The site sales person took us back to his office so we could examine the plot plan and projected placement of street lights, street sewers, and utility boxes for phone, cable and electricity.

Our buyer had a need for an RV gate on the property so it was “materially important” to them that the property was free of any utility boxes on the property and particularly no impediments to the ingress / egress of the RV gate. We spent about a hour with the site sales person, examining the site plans, checking with the city and with the builder’s construction team that there were truly no utility boxes that were going to show up on this property.

About 3 months into the permit process, the buyers and we were notified by the builder that the FINAL Commissioner’s Public Report approval had been delayed. We were given no reason for the delay, only that the fire access ingress and egress routs had been redrawn.

About 4 months later, and without any word from the builder that changes to the site plan had been collaborated between the city and the builder, we and the buyer learned that three utility boxes had been plumbed right smack-dab in line with the RV gate. Obviously our buyer was extremely angry, not only because of the existence of the utility boxes, but more importantly because they had not been advised of the site plan alteration.

The builder and the site sales person were well aware that the unimpeded access to the RV gate was the main reason our buyer had selected this particular lot. The builder’s contract stipulated that no changes to any part of the construction site or plans would take place without written notice and mutual agreement between the buyer and the builder. That notification never took place.

When the buyer approached the builder’s site sales person to express the buyer’s wish to be granted a lot site change, at the same price the original contract was written for, the site sales person retorted with, “The utility boxes are not that bad… you might have to make a few adjustments as you maneuver to and through the gate, but you should be able to do it…”

Then the builder’s site sales person said to Mrs. Buyer, “…if you don’t like the look of the utility boxes, I’ll buy you a bush to plant in front of them… and besides… do you even own an RV?..”

You can imagine the explosive anger that brewed within Mr. Buyer when his wife relayed the builder’s site sales person’s comments and demeanor to Mrs. Buyer. Mr. Buyer then spoke with the builder’s site person about the problem with the construction site. The builder’s site sales person, insisted to the buyers that there was nothing that could be done and that they were simply going to have to live with the unexpected appendages, protruding from their lot that interfered with ingress/egress to their RV gate.

The buyers thought that they had just been handed a blow that they could not recover from.

When the buyers came to us and relayed their stories, we went to work to help them recover from the emotional damage and to resolve their differences with the builder.

At the onset the builder’s site sales person was less than cooperative. We quickly departed from having any additional dialogue with the builder’s site person and began communicating exclusively with the appropriate people within the builders management group.

Lori & I attached the builder through his own contract, used every ounce of legal knowledge at our disposal and eventually got the builder to agree to allow the buyers to move to a different lot, in a different community at the same price they had gone to contract for, keeping the nearly $50,000 of appreciated value of the property. The builder also agreed to credit the buyers back a $6,000 lot premium as compensation for the contractual breach of “Non Disclosure of A Material Fact”.

The builder promised that the buyers would be able to select their new lot within a week or two. We waited nearly 6 weeks, giving the builder plenty of time to make good on his promises. During the 6 week span, the builder’s lender sent a notice to the buyer, advising the buyer that the buyer had opted to cancel the buyer’s loan application with the builder. That was totally untrue and incorrect. Then… right on the heals of that notification was another notice from the builder that the buyer’s earnest money had been returned due to the buyer’s wish to cancel the contract. This too was incorrect and in fact… never occurred.

Once again… the buyer’s were furious. The buyers contacted Lori & me with the news and… once again… we went to work, diving into the interstices of the builder’s incompetent management fabric. We were successful… once again to knit the damaged quilt of buyer and builder fabric of interaction back together.

About two or three weeks later we received a call from Mr. Buyer. He told us that he was finished with the builder and wanted to be done with the builder, wanted out of the contract and wanted his $5,000 earnest money returned to him.

I drafted a letter of contract termination for the buyer to deliver to the builder. The builder’s attorney’s worked the letter over and over and over but knew that they were going to have their heads handed to them if they tried to take this transaction to court.

About 5 days after the contact termination letter was delivered to the builder, we received a Notice of Cancellation, signed by the builder, in advance of any signatures by the buyer.

We had won the battle for our clients! They were free of the builder’s hold on them and their earnest money.

Story Number Two:
How to win the battle and the war in 4 minutes

Predatory Lending / What do you mean I have an 11% APR on my mortgage?
Ok… so the buyer in Story Number One simply did not have enough fun with builder number one… he had to take another run at this New Construction stuff one more time.

This time he had wandered into the builder’s model complex without his Realtor® by his side. That was the beginning of his nightmare.

Fortunately, through some extremely competent negotiations we were successful in getting the builder to allow Mr. Buyers wife represent the purchase. You see… Mrs. Buyer is a Realtor with Coldwell Banker and one of Lori & G-IIs protégés. After we successfully gain that bit of capitulation from the builder, Mrs. Buyer asked Lori if she and I would represent them in the transaction. Mrs. Buyer knew we had a proven track record when it came to protecting their interests. Mr. & Mrs. Buyer gave up the commission that would have been paid to Mrs. Buyer as a licensed real estate agent because she knew, that even though she was a licensed agent, she was not ready to take on any problems that might come up with the builder or any one on the builder’s team.

Lori & I agreed to represent the buyers but insisted that we credit some of the commission back to Mr. & Mrs. Buyer because of their loyalty to us and because they had that much trust in our ability to watch their backs in this next transaction.

On March 14th 2006 we met with the buyers at the builder’s office for the drafting of the contract. The site person was visibly annoyed that the buyers had successfully gain competent buyer representation. The buyers had settled on the purchase of a builder spec (inventory home). The builder was offering an $80,000 discount from the finished home price of $380,000. Plus the builder was offering 3% of the purchase price ($11,400) toward buyer closing costs if the buyer would use the builder’s lender. The house was set to be completed by March 29th 2006, only 15 days from the date of the contract.

The buyers agreed to use the builder’s lender so they could take advantage of the 3% toward their closing costs. The $80,000 discount was not tied to the use of the builder’s lender.

During the contract writing, the builder’s site sales person wanted to introduce into the document set a specific document that prohibited the buyer form using alternate financing if the closing date was within 30 days from the contract date. Lori insisted that this addendum would not be part of the document set. The builder’s site sales person was adamant that the document be included. Lori threatened that the buyers would leave the building and purchase in another community if the builder’s site sales person was going to insist that this document be part of the doc set. The Site person folded and the financing document was eliminated from the document set.

To set the stage it is necessary to let you know that the buyers have FICO scores that are near perfect. Nearly the best one can achieve in the credit world.

The contact documents were completed, Lori reviewed all of the necessary documents to confirm that all was contractually in order. Lori also reviewed the Commissioner’s Report, a document that must be presented to EVERY buyer before he/she signs a commitment to purchase a new home from a builder. All was in order.

On March 27th 2006 the buyers called us to let us know that they had received their loan documents for review over the weekend. They were alarmed to see that the terms of their financing had been railroaded. The loan documents, for the buyer’s 80% / 20% loan, delivered by the builder’s lender disclosed a first mortgage interest rate of 7.5% and a second mortgage rate of 11%. The buyers were very confused.

Once again, Lori & I were called to the rescue. We examined the documents and were completely exasperated with the obvious “Credit Rape” of two very well qualified buyers. There was absolutely no way that buyers of this caliber should be set up with loan fees that were so outrageous.

Before making a call to the loan officer’s office, I had Mrs. Buyer call Coldwell Banker Mortgage and USAA Mortgage to obtain competitive loan quotes. USAA delivered a loan quote of 6.875% for a 100% loan product. Coldwell Banker Mortgage delivered a loan quote of 6.375% for a 100% loan product. Both loan quotes were clearly better than the disaster that the builder’s lender was trying to sell.

I placed a call to the loan officer in an attempt to uncover what could have possessed her to write such an incredibly off the wall loan platform. The loan officer was very annoyed that Lori and I were involved with this part of the process. She challenged our intervention and refused to have any further conversation with me on the phone.

I gathered up Mrs. Buyer in to my car and off we drove, right down to the builder’s lender; walked into her office and asked to speak with her, in person. She kept us waiting for nearly an hour. I’m certain she expected that we would get tired of waiting for her and would leave the building. Nothing like that even crossed my mind. This loan officer was on a mission to commit an incredibly moral impropriety and I was hell-bent on keeping that from taking place. Finally, the loan officer got tired of trying to out wait us and she came into the lobby. She agreed to meet with us in a small conference room.

I presented the two quotes from the two competing lenders; each had been prepared on an industry standard Good Faith Estimate HUD form. The loan officer was visibly unnerved by having to deal with me and even more frustrated that I had forced the showdown.

She postured herself with a condescending tone to her voice and resistant body language. I told the loan officer that she would have to let me know within the next hour or two, (it was now about 2:00pm) if she was going to either meet or beat either of the two competing loan quotes. This is the conversation that followed:

Loan Officer: “Well… I don’t know if I can get you a response by then…. I have to call Denver”.

Me: “Who in Denver do you have to call… let’s get them on the phone now to resolve your quote”

Loan Officer: “I don’t know who I’m calling”

Me: “You mean you don’t know who you need to talk to about your quote for these rates”

Loan Officer: “I mean that I have to call my loan processor”

Me: “Let’s get him or her on the phone”

Loan Officer: “I don’t know her name”

Me: “Ok… there must be someone there in authority, give me a name. I have people in Denver who can be at your corporate office in less than 30 minutes”

Loan Officer: “I’m not going to make that call”

Me: “My buyer and I have to know within the next hour to hour and a half that you are or are not going to match or beat one or both of these competing loan products”

Loan Officer: “Since you didn’t come in with an appointment I don’t think I will be able to help you within that time line”

Me: “Ok… how about the builder’s general sales manager? Let’s talk to him”

Loan Officer: “I don’t know who that is and I don’t think he will see you”

Me: “Ok, so you don’t know who the builder’s general sales manager is, but your pretty sure that he will not see me? Ok… I guess I’ll have to work with that”

With the conclusion of that short and utterly useless conversation, I thanked the loan officer for her time and took the buyer with me back out to the lobby. I asked the receptionist to locate either the builder’s general sales manager, designated real estate broker or the loan officer’s supervisor.

Within a minute or so, a gentleman greeted us. He was the loan officer’s boss. The head cheese. The Big KaHuna. The Top Dog. He greeted me and the buyer and invited us into his office. He had the buyer’s file on his desk.

KaHuna: “What seems to be the problem?”

Me: “I don’t think we have a problem. I think there has been a misunderstanding”

KaHuna: “How can I help?”

Me: “My client has received two completive loan quotes that blow the builder’s lender current loan quote out the door. I think you can do much better than your quote and prepays even match or beat the two competing quotes that are in front of you”

As he begins to look over the buyer’s file, KaHuna: “Why do you have a loan like this. This makes no sense!”

Four (4) minutes later, our buyer had an 80% / 20% loan, with an Interest Only Front half with a 3 year rate lock at 3.88% and a Back Half loan of 8.5% fully amortized for 30 years with a 20 year balloon and a monthly payment that was $1,000 a month LESS then the loan originally quoted by the builder’s loan officer.

KaHuna promised that he would have the loan documents redrafted and that our buyers would close no later than March 31st 2006.

Today at 3:00pm, March 31st 2006 our buyers picked up the keys to their new home. They couldn’t be happier and they are even more convinced that there is no instance that any one, shopping for a New Construction Home, should ever try to enter that arena on their own.

Are either of these builders, the builders you wanted to engage on your own and without FREE Buyer Representation, paid for by the builder?

For obvious ethical reasons, we cannot disclose the names of these two builders, but… we are pretty sure, if you ask them, the Mueller’s will be happy to share that information with you. They are not tied to the same Realtor constraints that Lori and I are.

Our buyers are Joshua and April Mueller. You can reach April at and Josh at to verify these stories or ask further question about the value of Buyer Representation in New Construction.

Have a GREAT day and happy house hunting... but... we hope you decide to take advantage of your Arizona Statutory Rights to Buyer Representation... It's a Jungle Out There... and... don't forget... here in the Wild, Wild West, we still carry guns

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