Home Buying in Plano>Question Details

Faizul, Other/Just Looking in 75034

How can we get our earnest money back from the builder after we have cancelled the contract?

Asked by Faizul, 75034 Wed Aug 15, 2007

We had to cancel a contract on a new home as we will have to move out of the country temporarily for several months. The builder is not returning the earnet money to us as it is not in their list reasons for returning the earnest money. Also we found the backyard of the house to be much smaller than what is spec'd. Can we use this reason to get our money back?

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You have received many good responses to your question. I believe that you will be able to determine the best course for you and your family from them. The highlights I would suggest are:
1. Always consult a professional on a purchase of this size, they can advise you of potential issues such as this.
2. If you did use a Realtor, please contact them immediately to review your contract terms with you.
3. By signing the builders contract, you have entered into a legally binding agreement with them. Read over your contract to see what your options are, as they will be clearly stated.
4. If you did not use a Realtor, then I suggest contacting the builder's on-site salesperson.
5. If you are unable to get your earnest money back you really only have 2 choices. Take a loss on the money by cancelling the contract OR move forward with the home and continue building.

If you continue building, you could re-sell the home, lease the home, or if your move out of the country is through your job you may qualify for relocation assistance. If you think you qualify for relocation assistance, contact your Human Resources manager at work.

Good luck out there!
Please contact me at 214-418-0180 if I can be of further assistance.
Melissa Hailey
Coldwell Banker, Jane Henry Realtors
1 vote Thank Flag Link Wed Aug 15, 2007
New construction contracts typically protect the builder in every single way, and leave the buyer in a very 'buyer beware' situation, which is why those contracts should be read with a magnifying glass.

I agree with Kevin: Talk to you real estate attorney. You may or may not be out luck, depending on the builder's specific contract.
3 votes Thank Flag Link Wed Aug 15, 2007
If you raise enough cane with the higher up's in the company...you will most likely get your money back. I worked for builders for 9 years and I never ever won that battle, the clients always ended up getting their money back, all they had to do is start climbing the ladder.
2 votes Thank Flag Link Wed Dec 19, 2007
The back yard would have to be quite a bit different than represented in order for that to a reason. From your \description, I gather that was more of a reach, and the real motive for terminating the contract is the move out of the country.

Builder contracts are very tight and strongly favor the builder. Unless the deposit is very large, it would be hard to hire an attorney. You might be able to pay an attorney a nominal fee to simply review the contract to adivse you of the likelihood of success.

From your description, I would lean toward the probablility that the deposit is forfeited.

Perhaps your stint out of the country will bring greater things than that deposit could ever represent. :)
2 votes Thank Flag Link Fri Aug 17, 2007
Deborah Madey, Real Estate Pro in Brick, NJ
I have 5 years experience as a sales manager with big builders in D/FW. They are not obligated to return your earnest deposit as it is considered liquidated damages for you not closing on the home. To sell the home again, they will likely have to discount the home from your original sales price.

Depending on the builder, you may be able to negotiate the transfer of that earnest deposit to a new home site to start the construction process again. Would this be an option as you are moving out of the county for several months? The backyard was an objection that I think that you could use as leverage to have a builder agree to build you another home with a transfer of earnest deposit.
Web Reference: http://xmls.typepad.com
2 votes Thank Flag Link Fri Aug 17, 2007
You should check with your realtor or attorney. If you signed a contract with earnest money you need to review the contract. Typically it is a non-refundable deposit and is not returnable because you had to leave the country. There are perhaps some other options if you plan to return. One is to negotiate to still purchase a home from the same builder and have them apply your deposit to a new home. They likely don't have to do this, but might do it as a show of good faith. If you plan to return you can also ask them to slow construction. Again they are not obligated to do this, but if resources are tight, they might can focus their crews on other homes, but yours on the back burner and complete it closer to your return. Another option is to purchase the home and either resell it or lease it until you return. Always use a realtor to purchase a new home...there's just too many circumstances like these you mention that are difficult to work out on your own. Call me if I can assist you. We also sell a book on our website about buying a new home.
Web Reference: http://www.teamlynn.com
2 votes Thank Flag Link Wed Aug 15, 2007
Bruce Lynn, Real Estate Pro in Coppell, TX
I will give you great advice. You have signed a legally binding contract. Without know EVERYTHING that is in the contract, I can't answer. The advice I would give my client would be seek out the opinion of an attorney.
2 votes Thank Flag Link Wed Aug 15, 2007
Dear Faizul,
Earnest money refund is a sticky issue. If you had what we call an option period built into the contract then you could cancel at any time within that period (typically 7-10 days) and get a full refund of your earnest money for any reason what-so-ever. If the contract didn't contain that clause then it will be much more difficult.

You should talk to an attorney about the backyard issue. It might be something to hang your hat on.

Good luck and I hope you get it back,

Chris Tesch
RE/MAX Bryan-College Station
Web Reference: http://www.ChrisTesch.com
2 votes Thank Flag Link Wed Aug 15, 2007
Hi Faizul,

It does not sound like you have cause for terminating the agreement. You will have undoubtedly signed off on the lot choice, property dimensions, placement of the house on the lot, etc. Further, just because your plans have changed, that doesn't mean you are not breaching the agreement you had in place. With the woes in the mortgage industry and many markets being short on buyers at present, it could be a very difficult task to persuade the builder to release you from obligation with earnest money intact. Another crucial factor to consider with new builds. The earnest money is not in a neutral escrow account. It is being utilized by the builder for construction costs, marketing, etc. Much more difficult to get your funds returned from the other principal in the agreement than a third party. Lastly, did you know that in most cases, the builder will further insulate itself by specifying that you risk losing your earnest funds if the builder is unwilling or unable to complete the build? You get lots of heavy handed terms such as these in builder contracts. I really hope you are working with a good buyer's agent.
1 vote Thank Flag Link Fri Aug 17, 2007
If it is not governed by the contract, why not negotiate something reasonably fair to both parties? At the end, something is better than nothing. Talk to the builder first (in person). Try to resolve it amicably. Consulting with a professional will cost you more money but may be worth it if you have no other options. Make sure the projected cost will outweigh the gain.
1 vote Thank Flag Link Wed Aug 15, 2007
Faizul....I sounds as if you have a binding contract. I would suggest you the contract reviewed by a Real Estate attorney to determing if you have any recourse to get your deposit back. The buiders do a really great job incorporating language that protects themselves. Good luck.
Web Reference: http://pamwinterbauer.com
1 vote Thank Flag Link Wed Aug 15, 2007
Pam Winterba…, Real Estate Pro in Danville, VA
Presuming your contract did not state terms governing earnest money, the builder would not simply have a right to keep it. I understand that contracts help a builder to lock in a start date and if such a "start" is cancelled, the builder could suffer a "loss" as they might be unable to "fill" the placeholder that was "sold" to you. If a contractor had a fear of such a loss however, protection ought to be included in the contract. If the builder in question has a busy schedule filled with work, It is unreasonable for them not to give you a full refund of your earnest money. If, on the other hand, your "start" is one of few he has managed to schedule for the remainder of the year, it could be unfair for you to expect him to fully refund your deposit seeing as you signed a contract for the purchase and the builder has made plans depending on the contract, probably spending resources in planning your work (ie. the contract).

Contracts need to be taken very serious no matter if they are half a page or twelve pages. If you do not agree with a particular contractual term or you feel that adding some of your own language to the contract could be in your best interest, delete/add it. Of course the other party needs to agree by initialling the change but this is perfectly ok to do. If someone were uneasy about making any changes to a contract they themselves issued without discussing the terms, that should raise suspicion. Afterall, changes to the "official" contract are nothing more than simple negotiation.

Regarding your backyard objection, I'm sure you have a property plat and without having the projects concept committed to a plan by a civil engineer, it would not be surprising to find the front or rear yard to be larger/smaller than "discussed" as it is dependent on the home location. Obiously your land's shape/features haven't changed.

In the absence of any contractual protections for either of you in this matter, I encourage you to go back to your builder withreasonable expectations. If you find the builder unreasonable, then there are several things you can do and I'd be prepared to let them know face to face that you mean business . . .

There is a particular power in looking someone in the eye . . .
1 vote Thank Flag Link Wed Aug 15, 2007
Yes, I have never had trouble with this but if you do go to the top.
0 votes Thank Flag Link Wed Sep 8, 2010
Yes, who is the builder? Be persistent calling the sales managers and if that doesn't work, call the President.
0 votes Thank Flag Link Wed Jan 2, 2008
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