When I work with buyers, I try to see that they are preapproved or prequalified before we even begin looking because I don’t want to waste anyone’s time. In addition, I want to be sure we know the proper price range so we don’t look at homes that are $25,000 more than they can afford (they’ll be disappointed if they drop down when the see what they lose).
So we have done our homework and the search begins. We walk into a beautiful home in which the builder and listing agent advertise that they’ll give buyers $5000 toward closing costs, plus a 52 inch plasma television, plus all appliances! My very excited buyers are absolutely twinkling with anticipation.
They find a floor plan they love. We are ready to sign. Then the wrecking ball smashes their dreams when we hear, "Oh. You only get the $5,000 in closing costs if you use our preferred lender." O.o I once asked our state association if this practice was legal - because it effectively steers people into and out of homes - but I never got an answer. Then I received an email today from a local lender that originated with the Associated Press:
D.R. Horton Inc., one of the nation’s largest home builders, is being sued by a one-time customer who says he was forced to use the company’s affiliated mortgage service to buy his home, according to a regulatory filing.
The lawsuit charges the home builder with violating the Real Estate Settlement Procedures Act, according to a filing with the Securities and Exchange Commission. The complaint, filed in U.S. District Court, Southern District of Georgia, says the home builder required that home buyers use Horton’s affiliated mortgage company to get discounts and incentives.
Fort Worth, Texas-based D.R. Horton said the suit was baseless. The 32-page lawsuit was filed in June by John Yeatman against D.R. Horton and its mortgage company, DHI Mortgage Co. Yeatman is seeking class-action status.
"We believe the claims alleged in this action are without merit and will defend them vigorously" the company wrote in the filing. However, the company also said that "due to the early stages of this matter, we are unable to express an opinion as to the likelihood of an unfavorable outcome or the amount of damages, if any."
Television station KLTV printed this story about the issue on its web page, and Business Week of Dallas provides this article. If the builder loses this case, it could well change the complexion of builder incentives in the industry.
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I recently had a client ask an attorney if he could sue his builder for a conflict of interest and price gouging. His attorney told him he wouldn't get anywhere with his action. This client's builder also pushed a preferred lender on their customers in exchange for discounts. My client feels since the appraisers work for that lender who in essence work for the builder, who was looking out for him? Did he really get a fair appraisal? (personally I always thought the development was overpriced but I wasn't representing them at the time) Now in the course of a year, the builder has lowered his base price by over $100,000! He now has his one year old home listed for $120,000 less than he bought it for and he is still struggling to find a buyer who will choose a year old home over brand new construction for less.
Posted by: Kathy Helbig | August 13th, 2007 7:35 pm |
I went to a listing appointment about a year ago with a new agent. The would-be seller was in upside-down on his home bought two years earlier and had to sell. The market would've priced the home at about $130,000 (on a good day). He owed $157,000 - bought directly from the builder/agent, financed by the company pushed by the builder, and appraised by someone in the builder's back pocket. Several months later when the home was foreclosed, it finally sold for about $120,000. Crazy! I think you were right about the builder in your area, Kathy H.! That's why people need representation outside of agents at new construction listings!
Posted by: Kathy T. | August 13th, 2007 9:03 pm |