More Home Builders are Canceling Contracts Amid Record-High Material Costs

You’ve heard it here frequently: Building materials cost more now than they have ever before.

It’s hitting home builders on all price points, from entry-level markets to higher-end custom homes. But what happens when the cost for materials blows the sales price on the contract out of the water? How much (or little) should a builder do about it?

In a special investigative report, CBS 11 connected with one homeowner who says they were building their dream home in Weatherford with builder Kim Paschal, but once the home was almost completed, the builder said that there was a hefty sum due.

“I thought we signed a builder’s agreement to help me build the house of my dreams for that price on the contract,” Tim Dickens said. “I never expected costs to come in at the last minute and go $200,000 above what that price tag was – never.”

According to Phil Crone of the Dallas Builders Association, lumber prices have increased by more than 180 percent since last spring, increasing the price of an average new single-family home by more than $24,000.

”This house I sold for $525,000 is now going to cost me $750,000 to build. What am I going to do? The only thing you can do is go to the customer and say, ‘we got a problem,’” Paschal said to CBS 11.

According to the report, Paschal offered to sell the home to Dickens at cost, but the price was still $200,000 more than the original price.

To terminate the contract, Paschal executed a “no cause” clause that was in the contract, which allowed Paschal to walk away. The execution of such clauses is becoming more and more common, according to real estate attorney Rachel Khirallah.

These clauses in builder contracts are not new. Builders are just exercising them more now than ever before.

Khirallah said the clauses protect builders from the fluctuating price of materials as well as allows them to cash in on a hot housing market.

“They are using these clauses because they’re realizing that they can get a better deal out there,” Khirallah said.

Khirallah recommends new home buyers to have a lawyer look over a contract but adds, especially with the currently housing demand, most builders will not enter a contract without a cancellation clause.