Increased Price in Newly Constructed Home

Q: My sister and her husband purchased land from a contractor. The contractor informed them how much the land plus the house would cost and they secured the loan accordingly.
 

After working side-by-side with the contractor for months and using their own tools and materials, they finally moved in last weekend. The following day, the contractor informed them the house will cost them $35,000 more than they initially agreed on. Unable to afford this increase, they're moving out of the home.

Is this something they could have prevented in the contract? Does this situation happen frequently for buyers of newly built houses? And finally, is there any legal action that can be taken against the contractor, or is this just a very sad lesson learned?

A: This sounds like a very sad situation for your sister and brother-in-law. Most new construction home buyers purchase homes from developers at a fixed price. Much like buying a new car, the developer constructs the home and any additions to the new home price by virtue of add-ons and upgrades increase the new home’s price.

If a new home buyer makes no additions or upgrades, the price set forth in the contract is the price given to the buyer. In some rare circumstances, some of the risk of price increases is passed on to the buyer. The contract spells out what those specific issues are. In some cases, bad soil conditions can add to the price and the larger builders will give the home buyer some reasonable amount that could be expected due to the change.

But in most cases, the contract price as adjusted by the upgrades and other selections will be the price paid.

Your sister should have had a written contract with the builder. If the contract specified that they were to pay the builder’s costs to build the home plus a mark-up to the builder, your sister is responsible for the increased price.

Her deal with the builder would not be too different from a situation where she hired a painter to paint the house and the painter charged her for hours worked. The painter might give her an estimate of five thousand dollars but in the end, if it took longer than expected, it could cost seven thousand dollars.

Whether your sister can take any action against the builder depends on what her contract says. She needs to talk to an attorney who can walk her through the details of her transaction from the start. If the builder promised to deliver the home at a certain price, he may not be entitled to the amount he claims he is owed.

The real question you should be asking is why is your sister is moving of the home. You indicated that she purchased the land from the builder and moved into the home. Why did she move out? She still owns the land. Is the builder planning to buy the land from her? If the builder is buying the land from her, is he going to pay the market rate for the land or the price your sister originally paid for the land?

Your sister really needs to sit down and talk to an attorney as soon as possible with all the documents in hand about her case. In some cases there are some consumer protection statutes that may apply to your sister’s case. While you did not claim that the builder acted improperly or that he tried to take advantage of your sister, in certain circumstances where contractors do take advantage of consumers, there are laws that may be able to protect them.

Samuel J. Tamkin is a Chicago-based real estate attorney. Ilyce R. Glink’s latest book is 50 Simple Steps You Can Take To Sell Your Home Faster and For More Money In Any Market. If you have questions for them, write: Real Estate Matters Syndicate, PO Box 366, Glencoe, IL 60022 or contact them through Ilyce’s website www.thinkglink.com