Paying a Deposit on a Spec Home - Having a bit of trouble getting my head around this...

Asked by Sean Breckley, 19087 Tue Feb 10, 2009

My wife and I found a Spec Home which we love. The home is 100% complete. We made a verbal offer on the house, but there are a couple things I don't understand:
- The builder wants us to fill-out a financial sheet along with a Sales Agreement. If we are working with our own Mortgage Company, why would they want this?
- The builder wants a 10% deposit up front, when we sign the Sales Agreement. As this Spec Home is 100% complete, is there some specific reason why they would need this? We would plan on settling within 60-90 days, and there are no 'extras' or 'add-ins' we have asked for. Also, what if we did not want to put 10% down on the house when settling? (seems to be a bit odd)

Thank you for your help in advance - We're meeting with our Accountant and a Mortgage Company later this week, but wanted to see if someone had experience with the above, and could explain a bit...

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Bill Eckler, Agent, Venice, FL
Tue Feb 10, 2009

As previously stated, you should have your own representation. .......

The answer to both of your questions is related to the same issue. They are looking for ways that will make it more difficult for you to back out od buying this home.

If you fill out the financial information they can qualify you through their loan office. This will make it more difficult to back out of the deal based on not being able to get financing.

The $10,000 upfront deposit also will make it more difficult to walk.

We have three recommendations:
1. get an agent to support YOU......

2. decline completing financing paperwork

3. offer them an initial deposit amount, to be followed by a secondary deposit, at a later date.

Your questions are well taken and point to the importance of personal representation.

Good luck
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John Badalam…, Agent, Wayne, PA
Tue Feb 10, 2009
Hi Sean:

Since you do not have buyer representation by an experienced Realtor in new construction, I suggest that at very least you have an attorney review the contract. I would not only be concerned about the 10% downpayment and Buyer Financial Information Form but what recourse you have, or don't have for that matter regarding your deposit, etc.

All The Best!
John (John B.) Badalamenti
Associate Broker
Certified Residential Specialist
Weichert, Realtors
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Josephine, , West Chester, PA
Tue Feb 10, 2009

Just as all the professionals before me concurred, this is par for the course, however, please keep in mind then as manny buyers aren't aware that going to a builder unrepresented by a knowledgable buyers agent is really doing yourself a serious disservice, and I often liken it to swimming with sharks. The agent (if there is one present) meets you at the sales center/spec home to fill out the agreement of sale represents the builder and his best interests, not yours. If any negotiation is going to be had, it going to be in his favor, NOT YOURS. Just like you wouldn't do your own surgery or fix your own broken water main, leave it to the professionals to negotiate a great deal for you and your wife. It doesn't have to be a buyer vs. the builder, it can be a win-win, when handled by an experienced, ethical Realtor. Remember, you're not paying for the buyers agent's services, the seller/builder is paying their commisson, why not take advantage of "free" professional adivce?
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Nick & Trudy…, Agent, Devon, PA
Tue Feb 10, 2009

The builder is trying to cover himself. Most deals recently have been falling apart because of mortgage issues. Our value as realtors is transactional security, holding a deal together and helping buyers reach the settlement table to close on the home they want to buy. The builder is obviously nervous in this market and depending on whose contract you are using will be whether your deposit is at risk if you do not settle. Another job of the realtor representing a buyer is to protect the buyers interests. I think in this market you can negotiate a lower deposit whilst supplying the builder with more information on your finances to remove his fears of the house not settling on time. Also any money you have paid as a deposit will come to the
HUD sheet and be refunded if you are financing more than 90% of the purchase price. If this is the case this may be why the builder is concerned as mortgage companies are wanting to see higher deposits from buyers than the past few years and he may believe you will not be able to finance the deal. If you are using an FHA loan this may not be the case as they have higher loan limits. If you want to discuss this further feel free to contact me.
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Edmund Choi, Agent, Paoli, PA
Tue Feb 10, 2009
Important items of an offer:
- written agreement outlining the terms and dates
- proof of funding: combination of mortgage pre-approval and/or commitment + financial statement will provide a comfort level for Seller to execute contract and move forward. The statement is not intended to be detailed, but a snapshot of your current financial situation. Besides, just as you will be performing your due diligence, the builder is performing his. Time is money.

Deposit is negotiable, but doesn't appear out-of-line for the area. The money will be sitting in escrow to be applied toward closing costs and down payment at time of final settlement. If there is any credit at settlement, it will be disbursed to you that day.

Good hunting!
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Samuel Tombl…, , York County, PA
Tue Feb 10, 2009
If he's going to lose marketing time he wants all the warm and fuzzies you can give him that the deal is going to get to the settlement table. The builder wants buyers to use his lender and title company who he is comfortable with, if not then he's going to make you jump thru some hurdles before he feels comfortable enough to take the home off the market for 3 months.

Advice - a lot of builders use their own contracts and some of the language in them is very pro seller so take your time and read cafefully. Don't take things written in the contract for granted and think you can't negotiate them. If you don't have representation (which in my opinion you should, verbal offer was already a no no) at the very least take the contract home before you sign it so you can take your time with it. With the verbal offer unless you were talking directly to the builder chances are the builder found out more about you than you did about them thru that exchange. Most builders don't even tell their sales representatives what they are and are not willing to do with price. I've seen quite a few builder's reps frown at a deal I wrote up with my buyers just to turn around and be the most surprised when the deal is accepted by the builder. Negotiating with a builder can be tricky but you need to just be prepared to walk away. Is the builder trying to dump the home? How many sales have there been in that development recently?
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Marcello Fin…, Agent, Wayne, PA
Tue Feb 10, 2009
Hi Sean,
the financial sheet or Buyer's Financial Information form is needed,together with the mortgage pre-approval letter from the Lender,in order to verify that the Buyer is able and can afford to purchase the home,taking in consideration all numbers form the estimated monthly payment to closing costs.
Those info are critical for every Seller in general before taking the property off the market.
Regarding the 10% deposit,the Builder again wants to make sure,before taking the property off the market and mark it "under contract",that the Buyer is serious about buying the home and is willing to give a 10% "good faith deposit" as consideration for the contract.The 10% is the sum the builder feels comfortable with in order to do that.
If the home is 100% completed and you are not asking for extras or add'ins,you might be able to negotiate on that,it is up to the Builder though.
Last,if you want to put less than 10% down,up to 6% of your deposit can be applied towards your closing costs at the settlement table,so you can decide on your own.
If you have other questions or if you don't feel comfortable in the transaction process,I would suggest you to work with a Realtor professional that can guide you through all the steps of the home buying process with no stress and give you all the info and protection you need,especially when buying new constructions.
I am an ABR (Accredited Buyer Representative),let me know if you have any other questions for me.

Best regards.
0 votes
Eric Funk, Agent, Morristown, NJ
Tue Feb 10, 2009
Hi Sean,
When an offer is placed on a house, it is normal to have a written contract which is accompanied with earnest money. 10% is great - but sometimes people don't have 10% to put down or they want to earn interest in their own bank account for longer. You should expect to put down a deposit. The reason why the builder wants the deposit plus the financial statement is to make sure that you are good candidates: unfortunately, not everyone who falls in love with a house can really afford it...
good luck,
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