Proceed or walk away from new house build

[ivinsfan]

After reading post 23 I say just hold your nose and do it.



It's not an impulse and something you have wanted for a long time..life is short.

 

[Franklin]

Hmm, canal lot. I would love to have that...is it boatable out to open water and can you moor at your lot to the seawall?

I would pay 12% increase for that especially with a 3% loan.

agree with Fermion. Life is too short so if this is your dream home bite the bullet and be thankful. You made it up with that great mortgage rate.

 

[merlin3942]

Hmm, canal lot. I would love to have that...is it boatable out to open water and can you moor at your lot to the seawall?

I would pay 12% increase for that especially with a 3% loan.

Yes, it is a Gulf access lot, and the current plans include a dock with boat lift (although the dock is one of the things we are considering removing for now).

If we decide to walk away and sell the lot, I'll let you know!

As others have pointed out, there's no guarantee that there won't be more than a 12% increase in the future. Our builder says it was really more of a 22% increase from his various suppliers and sub-contractors, and he's "eating" the difference. Of course, I have no way to verify that, but don't have any reason to doubt it, either. He's a custom builder, has been in business for 20+ years in that area, and has been averaging about 20 new homes a year.

 

[Paulz]

We contracted with a builder for our "Florida dream home" last year in August. We've purchased a lot, designed the home, and went through the "color selection" process (flooring, countertops, lighting, etc, etc) and received a grand total price. Secured a mortgage (construction loan that will automatically convert to a 30-year fixed once the home is completed) at just under 3%.
Thoughts?

We have done something similar except we purchased our lot in March 2022 and construction began in May, scheduled to be completed in October. For us, once the contract was signed all increase in costs are no longer our problem.

There is absolutely no reason for construction to be paused for 11 months. Even in an environment where we didn't have the inflation we have now, costs would go up for that span of time. Something isn't right with your builder....

 

[ivinsfan]

Yes, it is a Gulf access lot, and the current plans include a dock with boat lift (although the dock is one of the things we are considering removing for now).

If we decide to walk away and sell the lot, I'll let you know!

As others have pointed out, there's no guarantee that there won't be more than a 12% increase in the future. Our builder says it was really more of a 22% increase from his various suppliers and sub-contractors, and he's "eating" the difference. Of course, I have no way to verify that, but don't have any reason to doubt it, either. He's a custom builder, has been in business for 20+ years in that area, and has been averaging about 20 new homes a year.

The 22% might be true and the builder is playing arbitrage since he doesn't know what the material will actually cost come delivery date. If it continues to rise you might need to pony up. But it's in the builders best interest to keep his business open and his employees on the payroll so he might be willing to take a little less profit to make that happen.

 

[ivinsfan]

We have done something similar except we purchased our lot in March 2022 and construction began in May, scheduled to be completed in October. For us, once the contract was signed all increase in costs are no longer our problem.

There is absolutely no reason for construction to be paused for 11 months. Even in an environment where we didn't have the inflation we have now, costs would go up for that span of time. Something isn't right with your builder....

That's not true did you read about the construction and permitting for the necessary seawall? Water property is different and it's not nice to slam the builder with real information.



Get back to us in October and let us know what you actually paid for the exact build you ordered.

 

[merlin3942]

Also for those who asked, our builder says the cost increase is from concrete/cement, steel, drywall, and glass. Not much lumber is used in Florida coastal construction. They actually are having to "ration" a lot of those materials among the builders at this point because of "supply chain issues". And of course, on top of that, there is the labor shortage and increased costs for that.

 

[aja8888]

My best friend is trying to replace the windows in his 40 year old home here in Texas. He signed a contract about a year ago and no windows yet. Best NEW date is June.

 

[lawman]

My best friend is trying to replace the windows in his 40 year old home here in Texas. He signed a contract about a year ago and no windows yet. Best NEW date is June.

My neighbor is in the middle of a build and cannot get windows..He has been waiting months. Construction has stopped...

 

[OldShooter]

@merlin3942, SGOTI is a great source if ideas and opinions on something like this, but you have a serious problem involving serious money and SGOTI knows little or nothing about your state and local laws, many of which govern your relationship with your contractor. Find an experienced real estate lawyer to review your situation, get some competent legal advice, and then make your decision.

We are also building a house and from our experience and from the fact that you seem to have a fairly open and honest builder this SGOTI would be inclined to recommend continuing. Your lawyer, however, may be able to help you negotiate some kind of fireproofing against future cost and schedule problems. You also need a holdback provision to protect you from hidden defects after occupancy. It the contract doesn't include this, your lawyer can try to get it added. In situations like this, the builder's offer is not take-it-or-leave it. There is always room for some negotiation.

 

[bigcmagor]

If you proceed, you'll love the Cape. We've owned a home there for 14 years. House and lot values have gone bonkers, so I wouldn't be surprised if you found a nice equity bump right out of the gate.

 

[SnowballCamper]

Proceed, but make the builder open his books on the cost increases, and count on at least a couple more increases. I'm sure the contract is cost plus, as this protects the builder best. We dealt with a lumber increase when our house was built back in 2015 or so. I know the frustration is worse nowadays with bigger and more cost increases. If you really have the APR locked in, you'll regret missing out on that if you try to build later. Inflation isn't going away anytime soon... IMHO. Good Luck!

 

[Letj]

Also for those who asked, our builder says the cost increase is from concrete/cement, steel, drywall, and glass. Not much lumber is used in Florida coastal construction. They actually are having to "ration" a lot of those materials among the builders at this point because of "supply chain issues". And of course, on top of that, there is the labor shortage and increased costs for that.

I can assure you, as someone who renovates, sells and regularly upgrades rentals, that this increase isn’t unreasonable. I am paying almost 50% more from what I paid two years ago to get anything done. The pricing on HVAC installation is most shocking to me but one of the problems I am running into is how slammed these contractors are with work and their pricing reflects it. If I want to get my installations done quickly, then I have to pay much more vs waiting for months to get on their schedule.

 

[Time2]

Don't have your answer, for us we would probably walk away, but we don't want for any more than we have.
I recently helped one of my kids buy a home. The made an offer on a HUD repo home in January 21, it dragged on and on through no problem of theirs, just so many hoops to jump through*, I ended up making a margin loan on the mutual funds I have at Interactive Brokers and bought the house and gave them a mortgage on July 30th. 2021. The IBKR interest rate was 1.25%. It has probably went up, but still very reasonable.

They ended up needing at second appraisal and it came in $40,000 higher than the first one. So, if your want to avoid a taxable sale, you might move some money to IBKR and do a margin loan to get the extra 12%. and pay it back when you get the 3% loan. The kid and hubby have refinanced the loan, got a 3.25% 15 year loan, they closed this week and I'm just waiting for the check to hit my mailbox. The home was a fixer upper and as incentive to get the home fixed up, I gave them a two year mortgage 4% first year and 6% the second year, they got it done and remortgaged in less than one year,

BTW, their property is just off the Manatee river and a short trip to the Gulf Of Mexico, they are avid boaters and fishermen.



* I saw trouble on the horizon and moved my taxable money into IBKR, just in case I needed to do the margin loan. And I did! Thanks to Pete at MMM for the idea. Checks in the Mail... so I think it all worked out.

 

[Bamaman]

It's been 7 months and nothing's been done? Why hasn't the contractor cleared the hurdles sooner? Where was his plan of action last Fall?
You don't mention the projected original cost and the deposit paid to the builder. I've built large projects without any deposit--and paid in stages of completion--as stipulated in an attorney prepared contract.
And with interest rates up 2% approx., can the mortgage company still offer an under 3% mortgage for permanent financing that may not happen for another 6 months or longer?

You were awfully brave to go into a building project with the wood prices going up--and components like windows and appliances being unavailable for 6 months+. If you can bail out of the project, no one would blame you.

(I bought a large like new house 2 years ago for 1/2 what it would cost to build it today.)

 

[pjigar]

Two words for you: Dream home and interest rate.


Interest rate is obvious. Is it really your dream home? You have to really think hard and list all the reasons you think this is the "real" dream home. Lot of people (especially those who move state line) end up realizing that the move was not the dream they were looking for.


If both are true, then I wouldn't mind paying 30% extra. My reasons:
* RE prices do go up and down but as long as you don't sell, paper price is irrelevant.
* You do derive utility from your home so it is like buying any other nice consumable item. It is a personal choice and only you can justify how much you like "your" home to warrant the purchase price.
* Inflation in general is sticky and reserve banks around the world try very hard to avoid deflation. So the nominal prices of everything keeps going up for everything including RE.
* Between 3% mortgage rate and 8% inflation, you are "making" 5% on the loan amount today! So someone is paying for you to live in your dream home.


PS: By the way, I have a blanket statement when someone ask me "Is it the right time/price to buy a *personal* home?": It is ALWAYS the right time/price to buy a personal home simply because the percent price difference amortized over several years of home ownership is minuscule in the grand schema of things. YMMV.

 

[athena53]

PS: By the way, I have a blanket statement when someone ask me "Is it the right time/price to buy a *personal* home?": It is ALWAYS the right time/price to buy a personal home simply because the percent price difference amortized over several years of home ownership is minuscule in the grand schema of things. YMMV.

Mileage definitely does vary. My track record: broke even on a house I bought in 1979 and sold in 1983, made nice profits on home I bought in 1985 and sold in 1997 and one bought in 1997 and sold in 2003 (all 3 in NJ), barely broke even on one in KS bought in 2003 and sold in 2015, the one I bought in 2015 in MO looks to be another winner.

Even if the OP anticipates staying in the house for a long time, interest rates can have a major effect on market values.

 

[jollystomper]

Two words for you: Dream home and interest rate.

Interest rate is obvious. Is it really your dream home? You have to really think hard and list all the reasons you think this is the "real" dream home. Lot of people (especially those who move state line) end up realizing that the move was not the dream they were looking for.

If both are true, then I wouldn't mind paying 30% extra. My reasons:
* RE prices do go up and down but as long as you don't sell, paper price is irrelevant.
* You do derive utility from your home so it is like buying any other nice consumable item. It is a personal choice and only you can justify how much you like "your" home to warrant the purchase price.
* Inflation in general is sticky and reserve banks around the world try very hard to avoid deflation. So the nominal prices of everything keeps going up for everything including RE.
* Between 3% mortgage rate and 8% inflation, you are "making" 5% on the loan amount today! So someone is paying for you to live in your dream home.

+1

It is not just a short term financial decision, but a long term emotional one. If this is truly your dream, from which you never intend to move and will live out the rest of your lives there, I would just deal with the increase as best I can. The joy you will (eventually) obtain from living in it will (or should) far exceed this bump. Though I would add that, given the current inflation and supply chain situation with no end in sight, be prepared as best as possible for future increases, as the cycle of shortages (today is it items A, B, C, in 3 months it will be items D, E, F) and associated inflation will continue for who knows how long.

 

[COcheesehead]

We built during Covid and encountered cost increases and the need to change selections based on supply chain issues. I am glad we went forward. The house today is worth almost 25% more than we paid 18 months ago.

 

[Aerides]

Financially I'd walk away, but the OP notes special circumstances given age and time.

OP if you agree to this increase, and then another 6 months from now, there's another increase and THAT's enough - how much additional do you lose vs. stopping now? If it were me and the math made it enough of an even gamble, I would maybe still go ahead, for now. You could still drop out later and sell the land later, albeit having gambled a bit more.

Again since you mention this is your dream, you have reason to be confident in your builder, and it's kind of now or never... (and I for one really hate nevers...)

 

[Fermion]

Build it and when you are not using it I will VRBO it for a month and bring our little sailboat.

We rented a canal house at Cape Canaveral for two weeks and brought our smallest sailboat (a 8 foot pudgy) and cruised up and down the canals and watched a SpaceX launch. One of the best rentals ever and just before COVID hit the country.

Really this thread is bad, it makes me want a Florida canal home

 

[cyber888]

Without the supply chain resolved, expect the worst at 20% - 25%. I thought 12% was fine, but the construction contract allows builders to jack up the price in case of raw material inflation.

It boils down to how much you want to be in a new house.
Do you have a house now - or just renting ?

It boils down to - do you trust this builder expect 20% or more price increase

 

[aja8888]

Build it and when you are not using it I will VRBO it for a month and bring our little sailboat.

We rented a canal house at Cape Canaveral for two weeks and brought our smallest sailboat (a 8 foot pudgy) and cruised up and down the canals and watched a SpaceX launch. One of the best rentals ever and just before COVID hit the country.

Really this thread is bad, it makes me want a Florida canal home

Finish your house in the PNW, sell it and rent, and wait for the next FL hurricane to drop prices there. Then go buy!

 

[rayvt]

I had a friend in a similar situation. But his contract with builder had a frozen price, not cost plus or the like. Right in the contract, $XXX,XXX exactly. When it was completed the builder told him that his prices for material and labor jumped up and it cost him more than the agreed price so he (the builder) would be taking a loss. My friend told him that he would get as lawyer and sue. The builder said, "Go ahead and sue me... But you are not getting the house. At best your lawsuit would take 6+ years to go through the courts."

So my friend agreed to the new, higher, price.

 

[FIREarly]

Secured a mortgage (construction loan that will automatically convert to a 30-year fixed once the home is completed) at just under 3%.

Thoughts?

Did not even read the rest of your post... Congratulations!!

Imagine what other people buying a home now or the near future are going to get for rates.

Congratulations!!