Builder and Developer Ethics in a Down Market for Construction

October 19, 2006 — Leave a comment

By: Michael Thompson

As an active investor I have had numerous people tell me horror stories about how they were “duped” by a builder and/or developer.  As a realtor, I take pride on not being “duped” because when I am so called “duped”, then so is my client, or are they?

I took a client to various builders in Cape Coral, FL.  As it was a busy market, a lot of builders flocked to this area to capitalize on the boom.  This brings the quality of builder reputation down, as more builders who come in are just looking to build as many “specs” as possible and make as much money as they can in a short time frame, happens in the real estate industry as well.  So I thought the builder I took this client to was, well known reputable, state-wide builder based out of N.W. Florida.

My client signs a contract to have a home built. We provided the lender letterhead stating the buyer was in fact in good standing for obtaining a loan.  A year and half later, they call me up and ask for another letter from the lender stating the buyer was still qualified to purchase this home because they have had numerous cancellations, I contacted the client and got the letter and provided that to the builder as requested.  The home is still not built, the market has crashed something awful and my client wants to back out about 2 months later as he was locked in to a contract to purchase a home that isn’t no where near his contracts price in today’s market, he was fine with losing his $1,000 deposit.  He wants to back out, look at other homes and when he stopped by the builders model center to cancel his contract, the builders sales agent says oh ok, no problem in fact we have the same model home you were building currently available and vacant, although in a different area, it’s $50,000 cheaper! So the buyer…that I brought to this builder, cancels his old contract, signs a new one on the spot to purchase the same house $50,000 cheaper and the builder, tells me since I wasn’t there when the new contract was signed, they are not goin to pay me a real estate commission.  We’re talking about $9,000 and a year and half into this file.

Many builders are having financial troubles these days, especially the ones who worked heavily with investors at some point in their company’s existence.  Some builders will offer realtors incentives for bringing buyers to their model centers.  Some builders are in it for the money and could potentially be directing their sales forces to be more aggressive in working with realtors.  Although I was the pro-curing cause of this transaction, by initially introduce these two parties that are directly involved in this transaction, was it legal for them to not compensate me because I wasn’t present at the time the 2nd contract was signed?

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