New home contracts raising concerns

By Don Kirkland

Reports of forfeited deposits and escalation clauses buried in the small print of contracts for developer-built homes are causing an increasing number of prospective buyers to turn to local Realtors for help.

But be advised: Taking a real estate expert along to make sure you’re protected may not sit well with the subdivision’s sales staff.

The growing use of real estate agents to negotiate with homebuilder representatives on behalf of their clients seems to be producing hostility in an environment that once was considered more collaborative than competitive.

“I never had such a negative experience,” said Wally Stuebner, an agent with Keller Williams East Valley Realty, who represented a client checking out home prices in one Valley subdivision recently.

“It was the cold shoulder, the lack of attention, the less-than-enthusiastic reception and the reluctance to answer questions about the contract that made it clear they weren’t anxious to have a licensed Realtor involved in the transaction,” Stuebner said.

Had the buyer signed a contract, he said, the final price of the home could have been thousands of dollars more than the amount originally quoted.

For buyers who deal directly with a homebuilder’s sales rep, the relationship may go cordially enough and problems may not arise.

But, Stuebner says, even when direct-sales agents make an effort to be completely up front, it’s not easy to determine if the contract may contain language that can put the buyer at risk.

Another area Realtor agrees.

“Even if the (homebuilder’s) agents are nice and talk to you in a friendly way, it’s still important to remember that they represent the seller, not the buyer,” said Tim Evans, an agent in the Keller Williams offices of Carol Royse.

Although real estate salespeople are required to disclose whom they represent in any negotiation, Evans says more and more developer agents are neglecting to do so.

“They’ll lead the buyers right into the contract, even though the buyers think the direct-home salesperson is doing everything in their favor,” Evans said.

Escalation clauses, which obligate the buyer for such things as materials costs that increase while the home is being built, can be hidden in the legalese of multi-page, small-print documents, said Evans.

So can penalties for late closing of escrow, which can amount to $150 a day or more, even when the buyer has no control of the length of time involved to finalize the documents.

A licensed Arizona Realtor also can help the prospective buyer remember to ask about future development of the area—for example, whether the small general aviation airport nearby is scheduled for expansion.

Evans likewise warns about often sizeable rebates or incentives offered by the developer if the buyer uses one of the developer’s preferred lenders.

“What can happen when you tie in with that lender is that the origination fee and points may be three or four times higher than what you’ve been told,” Evans said. “A lot of times, whatever savings may have been promised end up being backcharged to the client.”

Evans is quick to point out that not all subdivision developers permit sales tactics that could jeopardize the buyer making a good deal.

However, he says, while some prospective buyers may like the idea of dealing directly with a subdivision agent, either for convenience or to save money, the potential for problems can be enough to consider involving an experienced, licensed intermediary in the transaction.