Increased Price in Newly Constructed Home
Ask the Real Estate Lawyer: Real Estate Law Q&A
REM #LAW 704
By Ilyce R. Glink and Samuel J. Tamkin
Summary: A reader is helping out her sister
who had a home purchase fall through. The newly built home's price went up significantly
after the home was completed. Ilyce and Sam explain that the contract should
have helped the buyers understand their obligations.
Q: My sister and her husband purchased land from a contractor. The contractor
informed them how much the land plus the house would cost and they secured the
(article continues below useful links)
After working side-by-side with the contractor for months and using their own
tools and materials, they finally moved in last weekend. The following day,
the contractor informed them the house will cost them $35,000 more than they
initially agreed on. Unable to afford this increase, they're moving out of the
Is this something they could have prevented in the contract? Does this situation
happen frequently for buyers of newly built houses? And finally, is there any
legal action that can be taken against the contractor, or is this just a very
sad lesson learned?
A: This sounds like a very sad situation for your sister and brother-in-law.
Most new construction home buyers purchase homes from developers at a fixed
price. Much like buying a new car, the developer constructs the home and any
additions to the new home price by virtue of add-ons and upgrades increase the
new home’s price.
If a new home buyer makes no additions or upgrades, the price set forth in
the contract is the price given to the buyer. In some rare circumstances, some
of the risk of price increases is passed on to the buyer. The contract spells
out what those specific issues are. In some cases, bad soil conditions can add
to the price and the larger builders will give the home buyer some reasonable
amount that could be expected due to the change.
But in most cases, the contract price as adjusted by the upgrades and other
selections will be the price paid.
Your sister should have had a written contract with the builder. If the contract
specified that they were to pay the builder’s costs to build the home
plus a mark-up to the builder, your sister is responsible for the increased
Her deal with the builder would not be too different from a situation where
she hired a painter to paint the house and the painter charged her for hours
worked. The painter might give her an estimate of five thousand dollars but
in the end, if it took longer than expected, it could cost seven thousand dollars.
Whether your sister can take any action against the builder depends on what
her contract says. She needs to talk to an attorney who can walk her through
the details of her transaction from the start. If the builder promised to deliver
the home at a certain price, he may not be entitled to the amount he claims
he is owed.
The real question you should be asking is why is your sister is moving of the
home. You indicated that she purchased the land from the builder and moved into
the home. Why did she move out? She still owns the land. Is the builder planning
to buy the land from her? If the builder is buying the land from her, is he
going to pay the market rate for the land or the price your sister originally
paid for the land?
Your sister really needs to sit down and talk to an attorney as soon as possible
with all the documents in hand about her case. In some cases there are some
consumer protection statutes that may apply to your sister’s case. While
you did not claim that the builder acted improperly or that he tried to take
advantage of your sister, in certain circumstances where contractors do take
advantage of consumers, there are laws that may be able to protect them.
Samuel J. Tamkin is a Chicago-based real estate attorney. Ilyce
R. Glink’s latest book is 50 Simple Steps You Can Take To Sell Your
Home Faster and For More Money In Any Market. If you have questions for
them, write: Real Estate Matters Syndicate, PO Box 366, Glencoe, IL 60022
or contact them through Ilyce’s website www.thinkglink.com