‘There was not much we could do’: Some new home buyers see unexpected price hike

CARY, NC (WTVD) — Jay Ward and his family thought they had found their dream home, but the process of closing the deal turned into a nightmare.

The Cary family had rented a house for years and were finally ready to buy a house last January.

“We’re getting to this point, that we really want to move to this area. We’ve been here for a few years. We love living in this area. So it was just that we felt like it was the right time to start looking,” Ward said.

Their search led them to a new development a few miles away. The family was able to sign a contract and design a new construction home.

“We saw this as our forever home,” Ward said. “With that, it’s a few miles down the street. You’re like, ‘Man, we can’t wait to go there every week and watch it grow.'”

Except for months, it didn’t grow. Ward said while other homes began to be built in the neighborhood, progress stalled on their home. Then in April 2021, the family received a request from the builder for $30,000.

“We’re ready to watch this, start this whole process, and then the brakes are slammed, you know, before we’ve even gotten out the door,” Ward said.

He said the request came as a surprise since they had signed a fixed price contract. In a fixed price contract, the builder and buyer agree on a cost before construction begins. This differs from a cost-plus contract where the buyer gets an estimate of what the project might cost, but gives the builder more leeway to not bear the cost when the price of supply or labor -work increases during construction.

Ward said he worked with an attorney and their builder eventually dropped the claim, but construction still hasn’t progressed.

“As frustrating as it was, there was not much we could do,” Ward said. “But on the other side too, because we knew we entered at the right time. We are also watching the market explode. So even if it takes longer than expected. We felt comfortable, even from the investment point of view.

About six months later, the builder terminated the entire contract.

“It was so out of the blue. It was so unexpected,” Ward recalled. “It’s completely turned our world upside down because now we’ve been waiting almost a year for our house to be built. Watching the market prices go up and that’s the thing you know, here we lost the house and, man now We have to start the whole process all over again.”

Unfortunately, situations like the Wards are happening more and more as the Triangle’s real estate market remains hot.

Jerimiah Jackson is a real estate attorney at Jackson Law. He has worked in the Triangle for almost 20 years and said he has heard of some builders asking buyers to pay up to six figures more.

A major factor behind this situation is the low supply of housing in the Triangle and the rising cost of supplies.

A recent Zillow report found that Raleigh had about 70% fewer homes on the market than at the start of 2020, ranking it as the top area in the nation for inventory loss.

Additionally, the price of building materials has risen 30% over the past two years, according to the National Homebuilders Association.

“Just an absolutely perfect storm of labor costs, overruns and increases, but also the land itself has gone up,” Jackson said.

He explained that builders look at the increased value that some of their homes have accrued since construction began and compare it to the price at which the home is under contract.

“They’re looking at the contract. Why should we build this house at this price? Where we can break it off, break it and go build it for someone else at a different price, a better price,” Jackson explained.

He said that while it’s not fair to raise the price of the fixed contract or break it altogether, it’s not necessarily illegal and a growing number of builders are getting away with it.

“It’s an absolute breach of contract. But the buyers left with a shortage of lawyers to even listen to them,” Jackson said.

He said lawyers who listen often decide the cost of the fight isn’t worth it.

“The builder controls the market right now, your seller and the builders hold all the cards right now,” Jackson said.

Ward discussed his options with a lawyer who told him it would be a “tough battle” and an expensive fight.

“I was like, you know, it’s not worth it,” Ward said. “To be honest with you, at that point, the joy of building a new house, it’s kind of killed at that point.”

Ward said he has seen and heard of many buyers choosing to pay only the extra money.

“They just don’t have an alternative. Who else can build their house next year?” said Jackson.

He said buyers should have a lawyer review their contract before signing and understand if builders might change their contract in the process.

Jackson also explained that while these situations occur, they are not the norm. He said there are still plenty of good builders in the market who are not terminating contracts.

If buyers are considering new construction, Jackson advised them to find a good real estate agent, have a lawyer review the contract beforehand, and ask for builder recommendations before building.

Although sellers have a lot of power in the market, Jackson said buyers can take action if they feel aggrieved.

Jackson advises people to file a complaint with the Better Business Bureau and the North Carolina Attorney General’s Office.

He also said the North Carolina Bar Association also offers consultation for buyers who may be considering legal help.

More than a year after his first attempt at buying a home, Ward is using the lessons he’s learned to find his forever home. His family recently signed another new construction contract.

This time, Ward said he encourages other buyers to find a good realtor and research builders thoroughly beforehand.

Unfortunately, prices rose in the Cary area beyond their budget, so the family opted to build in Pittsboro instead.

Ward said his family is moving forward with “hesitant excitement”.

“It will be a nice happy ending to what has been a difficult chapter,” he said.

Copyright © 2022 WTVD-TV. All rights reserved.