This is called an escalation policy in your contract.
It might be state-by-state laws for this policy.
Proceed or walk away from new house build
- Thread starter merlin3942
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This is called an escalation policy in your contract.
It might be state-by-state laws for this policy.
Consult a lawyer. If the contract stated a certain price, the contractor may be held to it. But if that us the case, be prepared for the contractor to cut costs/take shortcuts you do not want.
Bottom line - is this a home/location you plan to live in a long time? 10 years from now, will this amount seem like a lot?
Bottom line - is this a home/location you plan to live in a long time? 10 years from now, will this amount seem like a lot?
Music Lover
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
+1
Many people underestimate the effect of supply and demand. Busy contractors will charge a premium or just ignore small jobs as they're not as profitable. Last summer a friend got bids to have his house painted. One of the bids was $6500...a little above normal for the scope of work involved but not unreasonable. The painter was busy and the wait time was 3-4 months but told my friend was told that for $8500 he could have it done next week.
tryan
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Couple things ...
This is not about the future of real estate ... you WON that bet when you bought the lot.
This is about future building costs which WILL continue to increase. Way too much liquidity out there. Soooo .... Pay the 12% and try to get the builder to buy everthing NOW and commit to no more increases. Assuming this is not the builders first rodeo ... having an entire housing projects in stock should not be an issue.
Simply put, you are "pot commited" so play the rest of this hand "all in".
And if cash flow becomes an issue down the road, rent the vacation home for a couple years. I have one on a small lake in ski country ... it grossed over 80k one year in the middle of this pandemic.
This is not about the future of real estate ... you WON that bet when you bought the lot.
This is about future building costs which WILL continue to increase. Way too much liquidity out there. Soooo .... Pay the 12% and try to get the builder to buy everthing NOW and commit to no more increases. Assuming this is not the builders first rodeo ... having an entire housing projects in stock should not be an issue.
Simply put, you are "pot commited" so play the rest of this hand "all in".
And if cash flow becomes an issue down the road, rent the vacation home for a couple years. I have one on a small lake in ski country ... it grossed over 80k one year in the middle of this pandemic.
OP, I am personally in the same boat as you are - well ours is not a canal lot, so there is no actual boat involved (sorry for that awful joke).
We bought ourselves an acre of land in a different state than where we live (a bit hilly like I want after having lived in flat land all my life) back in October of last year; found a local builder, started drawing up plans for our "dream home" (within a reasonable budget). This will be a second home until it becomes our primary home in about a 2-3 year period (my company has a second HQ in Atlanta now). Dream home to us means every part of the home is built to OUR specifications and needs/wants rather than someone else's. We did begin from a set plan from the builder and then heavily modified it (made it bigger mostly, lol). My wife is in love with this concept - so I am in, even tho building a home (GA) far from where we live (PNW) is quite an adventure (ordeal?). But I am learning a lot.
We locked the rate at 4.875% (and can buy down rates of 0.5% drop for every 1 point paid) and contract is drawn. It is a fixed price contract. Before we signed the contract the builder had said they were considering an "inflation clause" (around Mar 2022) but we pushed back since we had been working with them exclusively for the past few months. They agreed to not include it, but we are likely the very last clients before the contract terms change. We are now working to close the loan and begin pre-construction discussions and ground breaking. There is some custom stuff in the home (window sizes, doors, etc.) but most everything is just dependent on lumber and concrete. They believe the home will be ready (if we begin in June) by Dec/Jan.
So how do I feel about this since we began in Oct last year? The market has corrected and entered bear market territory, inflation is at a 40yr high, rates are high. After some calculations, we decided to stick with our plans and here is our rationale:
1. We are looking to move from PNW to Atlanta for a more moderate all-round weather. We grew up in the tropics so the 80-90F weather during most of the year is actually fine by us. Have to deal with the pest tho... None of this is impacted by the market conditions - PNW is still dreary and grey and I find myself holed inside more as I get older.
1b. I like to be in a quiet neighborhood and PNW has turned into a bit more bustling with the migration of folks from other states into PNW in the last decade; its a bit too crowded for my taste. Purely personal preference. We also have some relatives/friends in the GA/NC/FL belt that we have been rekindling our relationships with.
2. Interest rate is high but with inflation even higher and likely to stay that way for some time, the leveraged loan (75% of cost) is a hedge against inflation. Someone else stated this above - I am in fact surprised this wasnt stated more in this thread. I am seriously considering buying down the rate to 4.375% with 1pt.
2b. I did start DCA selling some equity to raise down payment cash starting in Dec last year - which incidentally was the ATH market so I did cash out at the "right time". I did have to keep selling (hence DCA) thru March but the avg price I sold is still about 25% higher than where the market is right now. In a sense, most of the down payment is coming from the market profits from the pandemic period (no depletion below what my equities were worth pre-pandemic around feb 2020 - of course not accounting for the broad market downturn in the last month).
3. Atlanta is expected to grow as a tech capital in the next decade - so my calculation (hope lol) is that RE will not drop as much as national avg, and even if it did, it would bounce back soon.
4. Our other home in PNW is at a 2.125%/15yr loan rate so in effect, our "average mortgage interest rate" is somewhere in the 3% range. We plan to keep the PNW home as a rental once we move (we'll see) and there is sufficient equity in that home to entirely payoff the new build in the worst case.
5. There is definitely risk in the next couple of years as the home is being built and we are in effect paying two mortgages (interest only during construction and then two full P&I mortgages before the move is complete). We will scale back our savings starting in late 2022/early 2023 to keep cash flow high to allow for this. (yes, there is an opportunity cost/loss in terms of scaling back savings when the market is down but hey you cant win everything - my hope is mortgage interest deduction will reduce my taxes some).
6. Lastly, this is likely our hail mary RE move (from primary home perspective). So decided to stay the course.
We bought ourselves an acre of land in a different state than where we live (a bit hilly like I want after having lived in flat land all my life) back in October of last year; found a local builder, started drawing up plans for our "dream home" (within a reasonable budget). This will be a second home until it becomes our primary home in about a 2-3 year period (my company has a second HQ in Atlanta now). Dream home to us means every part of the home is built to OUR specifications and needs/wants rather than someone else's. We did begin from a set plan from the builder and then heavily modified it (made it bigger mostly, lol). My wife is in love with this concept - so I am in, even tho building a home (GA) far from where we live (PNW) is quite an adventure (ordeal?). But I am learning a lot.
We locked the rate at 4.875% (and can buy down rates of 0.5% drop for every 1 point paid) and contract is drawn. It is a fixed price contract. Before we signed the contract the builder had said they were considering an "inflation clause" (around Mar 2022) but we pushed back since we had been working with them exclusively for the past few months. They agreed to not include it, but we are likely the very last clients before the contract terms change. We are now working to close the loan and begin pre-construction discussions and ground breaking. There is some custom stuff in the home (window sizes, doors, etc.) but most everything is just dependent on lumber and concrete. They believe the home will be ready (if we begin in June) by Dec/Jan.
So how do I feel about this since we began in Oct last year? The market has corrected and entered bear market territory, inflation is at a 40yr high, rates are high. After some calculations, we decided to stick with our plans and here is our rationale:
1. We are looking to move from PNW to Atlanta for a more moderate all-round weather. We grew up in the tropics so the 80-90F weather during most of the year is actually fine by us. Have to deal with the pest tho... None of this is impacted by the market conditions - PNW is still dreary and grey and I find myself holed inside more as I get older.
1b. I like to be in a quiet neighborhood and PNW has turned into a bit more bustling with the migration of folks from other states into PNW in the last decade; its a bit too crowded for my taste. Purely personal preference. We also have some relatives/friends in the GA/NC/FL belt that we have been rekindling our relationships with.
2. Interest rate is high but with inflation even higher and likely to stay that way for some time, the leveraged loan (75% of cost) is a hedge against inflation. Someone else stated this above - I am in fact surprised this wasnt stated more in this thread. I am seriously considering buying down the rate to 4.375% with 1pt.
2b. I did start DCA selling some equity to raise down payment cash starting in Dec last year - which incidentally was the ATH market so I did cash out at the "right time". I did have to keep selling (hence DCA) thru March but the avg price I sold is still about 25% higher than where the market is right now. In a sense, most of the down payment is coming from the market profits from the pandemic period (no depletion below what my equities were worth pre-pandemic around feb 2020 - of course not accounting for the broad market downturn in the last month).
3. Atlanta is expected to grow as a tech capital in the next decade - so my calculation (hope lol) is that RE will not drop as much as national avg, and even if it did, it would bounce back soon.
4. Our other home in PNW is at a 2.125%/15yr loan rate so in effect, our "average mortgage interest rate" is somewhere in the 3% range. We plan to keep the PNW home as a rental once we move (we'll see) and there is sufficient equity in that home to entirely payoff the new build in the worst case.
5. There is definitely risk in the next couple of years as the home is being built and we are in effect paying two mortgages (interest only during construction and then two full P&I mortgages before the move is complete). We will scale back our savings starting in late 2022/early 2023 to keep cash flow high to allow for this. (yes, there is an opportunity cost/loss in terms of scaling back savings when the market is down but hey you cant win everything - my hope is mortgage interest deduction will reduce my taxes some).
6. Lastly, this is likely our hail mary RE move (from primary home perspective). So decided to stay the course.
Very interesting. Ours is a fixed price contract as well, with the exact price stated in the contract. And as the builder walked thru the contract, I didnt see/hear any "we may adjust the price" clause in any circumstance. They did increase the base price of the home by about 10% in the 4-5 months we had been in the design process which we were ok with (as the market at large for existing homes was going up by 20+% at the same time), and that new price is reflected in the amount stated in the contract.
If you wouldnt mind, may I ask which part of the contract stated a "price change in case builder incurs loss" clause? I ask because it seems like the builder was very sure they would win here. It cannot be argued as a "fair thing to do" because would they (builder) accept a lower price because "my stocks went down in value"? Or if the housing market crashes? I bet they wouldnt.
GTFan
Thinks s/he gets paid by the post
It's only 80-90F for 6 months of the year (May to October), and it can get as cold as 20-25F in the winter for short spells. The weather here is great overall, some folks complain about humidity but they've obviously not lived anywhere near the Gulf Coast if they think it's bad here (it's not). Not sure what pests you're talking about, they're not an issue to me and I was born and raised here. Just FYI.
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We signed our contract in early December for construction that is just starting now (excavation is scheduled for next week). Our builder ordered all significant materials (windows, siding, doors, fireplace, generator, cabinets, etc.) right after the contract was signed to try to minimize price escalation. Most of the materials have been delivered and we haven't heard anything about price increases. So, my advice is if you decide to proceed insist that materials are ordered now.
I am 74 now and have seen this movie before. (It did not end well). We are lucky enough to own 2 homes now (FL & IN). Bought FL 7 years ago for $225K and similar ones now being sold for $400K. That's insane and unreal. It's due to FOMO based on rising interest rates, real and perceived inflation, and LOTS of retirees selling paid-for homes in the north and coming to Florida with buckets of money and paying cash for new and existing homes. (with 100% down payment no appraisal is necessary, so that helps house inflation.) The national home builders are planning and building LOTS of homes everywhere we travel around the state. Small builders have to compete with these mega-builders for all materials, so that's why maybe your builder is having problems. The Fed WILL continue to raise interest rates until they "over-raise" and I foresee a lot of projects stopped at half-built, and existing home prices falling. Many recent buyers will be underwater. IF you are NOT looking at your FL home as an investment, and plan to never sell, you may be OK.
Just closed on October 6th on schedule. We did pay $180 more than the contract due to us adding a few upgrades, but the cost quoted was the actual cost.
Good news on your new home closure!!
I hope the OP has fared well or at least minimized the pain.
The OP mentioned Gulf access. I hope he was not impacted by Hurricane Ian.
+1 This is FL and financial shenanigans are far too common. Be really careful and check and double-check things, especially if you're not dealing with one of the large builders.
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