Maryland New Home Rules Could Change After I-Team Investigation (North Beach: sales, home sales)

[justtitans]

Originally Posted by North Beach Person

You're mixing sellers, builders and buyers up.

I'm a builder and you come to me to build you a house in a development I'm building. You have an approval letter from a bank with a loan commitment.

We sign a contract for me to build you a house to be completed in 9 months (yes, that long). The house is $750K, you give me $50K as a deposit.

I start construction: $30K for site prep, $20K for water and sewer taps, $10K to BGE/Pepco to bury lines. I take out a construction loan secured by your contract to buy.

I build your house, total cost likely @ $650K to $675K, final inspection is done, closing is scheduled next week. Your loan underwriter runs your credit one last time and discovers you dropped $25K for furniture on your Master Card. You no longer qualify for your $750K mortgage.

Meanwhile I, the builder, have been carrying a construction loan secured, if you remember, by your original loan commitment for which you no longer qualify.

I have no buyer, I have at least $650K in sunk cost for a house for which I have no buyer, and I'm making loan payments for a house I built for which there is now no buyer. What I do have is your $50K deposit which didn't even buy one nail for your house.

Another thing that should be considered with these buyers and why they want to sell these properties quickly is because the amount of money they pay out in taxes on these properties too. That's another way they lose money by holding on too long.

[Quick Enough]

Originally Posted by adelphi_sky

But we can all agree that the homebuilder should also understand and take some of that risk as well. And depending on how fast homes are selling, the seller can simply find another buyer whereas the person that lost 20K may take years to recoup that loss. A loss to a homebuilder isn't necessarily bankruptcy. And at least the homebuilder has an asset that they can sell in the future. The buyer leaves less whole than the homebuilder.

"But we can all agree that the homebuilder should also understand and take some of that risk as well."

He ALREADY has taken a GREAT risk.

I have a friend who does subdivision home construction.

It costs OVER $5 MILLION to APPLY for the permit. He hs to have ALL of the engineering, utility layout,
house plans etc. PRE approved.

That is 5 MILLION BEFORE the first shovel goes into the ground.

That is 5 MILLION UP FRONT with NO GUARANTEED he will get approved.

The builder is STILL taking risks. Once you sign a contract for sale that property COMES OFF THE MARKET.

$5 million for permits then the REAL costs come. The infrastructure has to go in. Streets, curbs, electrical, water, sewer, telephone, cable, etc. Again BEFORE he has collected 1 single dime.

Did you ever see ANY developments go bust AFTER the housing Bubble burst?

How many builders do you think went bankrupt?

I see the usual on here. A lot of "expert" knowledge when they haven't a clue as to what it takes run that business.

Take some of the Risk? You haven't a clue.

[Quick Enough]

Originally Posted by adelphi_sky

Yeah but thinking a house is sold is a lot different than knowing a house is sold. Again, what's the rush on the part of the builder? Wouldn't it make more sense to just not build until funding is secured? Don't commercial developers do this? I read all the time that ground is not broken on a commercial project until funding has been secured through some some investment bank.

On the other hand, the buyer should know that ANY project you contract to start without you as the buyer having a way to pay for it is bad news. Seems like both parties are rushing into something that is not concrete. Pun intended.

In a perfect world, 50K would at least pay for the lot if the buyer couldn't pay for construction. But the developer owns the land. So the buyer ends up with nothing to show for their 50k.

"Wouldn't it make more sense to just not build until funding is secured?'

Time is money. The builder has ALREADY put out money. Waiting for ANOTHER buyer could takes weeks or months.

[adelphi_sky]

Originally Posted by Quick Enough

Take some of the Risk? You haven't a clue.

Uhhhh. Read a little further. lol

[Quick Enough]

Originally Posted by dkf747

I think I understand, but I'm having a hard time being sympathetic when comparing you carrying a loan for a few months to someone losing their life savings. Something isn't fair about that. I get that they should have read the contract and all, but something seems wrong with the way this works.

"I'm having a hard time being sympathetic" to the buyer.

No ONE FORCED the buyer to sign the contract.

Why should the builder be on the hook and the buyer just walks away?

"a few months". There NOTHING guaranteeing it will be ONLY a few months.

How do YOU know he can find a buy AT ALL. You do know when you buy a house to be built you have many options to choose from. Some can be quite weird.

It could COST the builder to "fix" what the original buyer wanted to suit a new buyer.

nd you just can't charge more because the new buyer could by a house not yet built and customize it to fit THEIR wants.

In the example by North Beach it cost the builder $675,000 to build the house. How much do you think the payments are INCLUDING interest?

Contrary to popular believe, there is NOT a whole lot of profit on individual houses. You make your money on volume. If a house does NOT sell you are NOT making ANY money. It is CSTING you.

[dkf747]

Originally Posted by Quick Enough

"I'm having a hard time being sympathetic" to the buyer.

No ONE FORCED the buyer to sign the contract.

Why should the builder be on the hook and the buyer just walks away?

"a few months". There NOTHING guaranteeing it will be ONLY a few months.

How do YOU know he can find a buy AT ALL. You do know when you buy a house to be built you have many options to choose from. Some can be quite weird.

It could COST the builder to "fix" what the original buyer wanted to suit a new buyer.

nd you just can't charge more because the new buyer could by a house not yet built and customize it to fit THEIR wants.

In the example by North Beach it cost the builder $675,000 to build the house. How much do you think the payments are INCLUDING interest?

Contrary to popular believe, there is NOT a whole lot of profit on individual houses. You make your money on volume. If a house does NOT sell you are NOT making ANY money. It is CSTING you.

I get all that. I'm just wondering if there isn't a better way to do this than the current process?

[North Beach Person]

Originally Posted by dkf747

I get all that. I'm just wondering if there isn't a better way to do this than the current process?

What would that be?

At base this is a breach of contract case. The person who breached is responsible to make the injured party whole or at least mitigate damages. The deposit forfeiture is mitigation.

[MrRational]

Originally Posted by North Beach Person

What would that be?
At base this is a breach of contract case.

At base, this is "a fool and his money are soon parted" case.

I get the sense that these buyers (however they managed to accumulate the DP cash or qualify
for high five figure mortgages) are beyond unsophisticated and approaching the deliberately obtuse.
It's as though they deliberately avoid the sort of independent professional counsel that would direct them toward simpler and more certain transactions by way of LESS EXPENSIVE and far less risky home purchases.

[North Beach Person]

Originally Posted by MrRational

At base, this is "a fool and his money are soon parted" case.

I get the sense that these buyers (however they managed to accumulate the DP cash or qualify
for high five figure mortgages) are beyond unsophisticated and approaching the deliberately obtuse.
It's as though they deliberately avoid the sort of independent professional counsel that would direct them toward simpler and more certain transactions by way of LESS EXPENSIVE and far less risky home purchases.

The price of the house and amount have down payment really have nothing to do with it. The same thing happens at all price points.

I think back when we bought our house in 1987. No buyer's agent (they hadn't been invented in MD yet) or lawyer. We made our offer, put down a good faith deposit, read all the paperwork and were approved for a mortgage. In some ways it was easier than buying a new car.

We bought at the very beginning of the late 80s run up in prices so got in at the right time. The meltdown of the early 90s didn't really impact us and at no time did we consider a "strategic default" that became so popular a few years ago.

[Quick Enough]

Originally Posted by dkf747

I get all that. I'm just wondering if there isn't a better way to do this than the current process?

"You CAN'T fix stupid"

Sorry but that is about as simple as I can state it.

If you DON'T KNOW what you are signing, DON'T SIGN.

If you need help, GET IT.