COLORADO SPRINGS — In our hot housing market, there are some buyers saying they feel like they have been burned by a builder. They tell News 5 of agreeing to one price, and then facing a last-minute $50,000 increase. What the builder did is legal, but the buyers want to make others aware.
They were buying condos under construction in the high-demand Briargate neighborhood.
"I was going to downsize from here [current home]," said former buyer, Sharon Ragier. "We decided to make it our second home where I could live when he's [her husband] deployed half of the year,” said former buyer Jayde Floyd.
Ragier and Floyd had contracts for those condos. They tell News 5 they know real estate is in high demand, so they signed deals quickly.
"Signed it December 30th, 2020. And was told roughly around that time that would be closing around August 2021," said Ragier.
"Received a weekly call where everything has been on track and perfect and all positive things have been said," said Floyd.
They dealt with a few delays pushing completion to the first of the year. Late December, they were getting ready to take over ownership.
"We had already done our drywall walk, and we were about 30 days out and we had already purchased our appliances. Locked our loan,” said Floyd. "We got an e-mail that here is your closing date, here is your walkthrough dates, here's your closing time, this is where you need to go. It was exciting," said Ragier.
The day after Christmas they learned the builder exercised a clause canceling the contract. News 5 has heard from four people with the same story about the same builder.
"Terminating our contract, per the contract, but would give me first right of refusal to resign a contract for my same unit, but for $50-thousand more,” said Ragier.
"We were given 48 hours to make a decision,” said Floyd.
"By the letter of the contract what they've done is legal," said attorney Heather Marx.
Marx confirms what these former buyers overlooked. A short clause on page nine allows this builder to back out for any reason. The only penalty is paying the buyer $500 dollars.
"Basically the cost can change at any moment and the builder can do whatever he or she wants," said Marx.
Marx said clauses to protect builders from unexpected costs have long been in contracts. They're suddenly in the spotlight in the current hot real estate market.
We contacted the builder, Lokal. They would not go on camera to talk about the decision but agreed to send a written response.
They said, "The unprecedented challenges in 2021 across supply chains and in the labor market created significant cost increases and extended build times.
"Typically you'll see a new build contract have a percentage higher and lower for a buyer," said Marx.
We did learn from the Colorado Springs Housing and Building Association that risk mitigation clauses differ depending on the builder. They shared one saying the builder can change the contract if unanticipated costs exceed five percent and the builder will provide a prompt written notice to the customer.
Marx adds there is supposed to be the underlying premise of good faith with a contract.
Lokal's response to this is: "Lokal did not act in bad faith with regards to these terminations."
It can be challenged in court, but that runs into money and time. "The litigation could go on for three years," said Marx.
"Shame on me, but never expected that something like that would happen, nor did my real estate agent," said Ragier. "We should've been talked to about these increases," said Floyd.
These now former buyers opted out. Before moving on they decided this is an issue needing attention.
"Just being aware of the clause isn't enough to me. I want the clause to be changed. I want the builder contract to be looked at. I want more protection for the buyer," said Floyd.
As per the contract Lokal did refund all upfront money and pay the $500.
Marx tells News 5, having a lawyer or real estate expert help you understand even seemingly small parts of a contract, can be an investment that saves money, also frustration in the long run.