I went under contract last fall for a new build that will be done later this year. In the contract the seller/builder included a clause that gave them the ability to change the price without cause anytime before the house is complete. This past week they invoked that clause to increase the price by like 7%, supposedly due to material costs. I can either agree to the increase or they return my deposit. My question: is that type of clause even legal? (Cont)

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Became legal once you signed on the dotted line. Did you not have an Attorney read through the contract? This has been happening fairly often with new build companies

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I mean you just nailed the custom home building business model over the last 2 years. They know prospective homeowners will sign these contracts even with the language of that clause or else they can just find someone else that will sign. Either pay up the 7% or pay for an attorney to discuss your options

It’s legal and fairly common in new builds

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Not true in our case. He’s an individual builder with a great reputation. We have multiple friends who have used him. He didn’t have to do these clauses pre-pandemic. He’s near retirement and just makes 10% on the house. He provides us all his material costs upfront. We already own the land and he’s doing a $1.275m build.

I have seen/heard some other builders are doing that in my area too. Like Taylor Morrison😭

From my basic contract law knowledge, it would seem like consideration can’t be met when one party can change their consideration whenever they want. If that were valid, that party could simply increase the price to something so outrageous that the other party would never agree to, and thus be able to exit the contract whenever they want without technically breaching it. That would go against basic common sense and the intent of entering into a contract in the first place.

Likely terms of the contacts say by how much they can raise it and what triggers a raise. As OP said, they can accept or get deposit back. Consideration at outset for prescribed increase.

Just entered into a new build contract last month. I combed through the entire contract to specifically check for this exact type of language. I don’t think it’s illegal, however I personally do think that it is quite shady. Based on everything going on with the supply chain, they very well know it’ll get more expensive for them to finish the build. Might as well list the build price as a blank to be filled in later with this type of clause.

Not sure exactly what the rules are for private builds but in commercial RE these are called change orders, and we get them ALL the time. They can usually only do it when the pricing of materials actually does increase, and the only way to lock in your price is to lock in a rate with suppliers. Good luck!

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