Yes, you always have the option of backing out on a custom home project. While we wouldn’t encourage it, sometimes canceling can be in your best interests. For instance, you may no longer qualify for your mortgage by the time the house is completed. The appraisal may come in lower than the contract price, leaving you to pay the difference. Or, you may just be unable to sell your current home. Whatever the reason, backing out is possible. In fact, cancellation rates average around 30%. That being said, contracts are now being written to anticipate the unpredictable. So if you are considering canceling your custom home, here’s what you need to do.
The contract you sign is the most important document you’ll sign in the house building process. It’s an agreement between you and the builder to establish the scope of the work the builder agrees to perform, the timing of the work to establish when each step of the process should be completed by, and the payment agreement of how much will be paid and when. Overall, the contract is set in place to ensure that the builder gets paid for the job and that you get the house you requested. It makes sure there are no misunderstandings or disagreements before building starts and protects everyone involved in the process. That’s why you should never go into a project without having signed a contract. If anything goes unaccording to plan, such as you wanting to back out, your contract will determine the outcome. The focus in this instance will be your down payment or earnest money.
Most builders will ask for an average of 10% down payment to begin your project. Depending on the price and custom features of the house, your builder may have also required earnest money equal to the down payment to be put down to protect them in the event you back out. If you cancel on the project, the builder is potentially out a lot of money. The earnest money protects them by helping cover the cost of materials and their time. Most contracts will allow you to get your full deposit back if an uncontrollable issue arises, such as a failed inspection. However, if the reason is your fault, the builder typically has every right to keep the down payment in addition to the agreed upon earnest money.
If you haven’t signed your contract yet and are simply doing your research before making such a big commitment, take the time to study the document. Will you have to pay earnest money? What are the contingencies on paying it? Is there a clause that states what will happen in the event either side pulls out of the deal? A lot of money is at stake when buying or building a house, and yet many fail to read the contract and sign their name blindly to words that later come back to hurt them. Ten minutes could potentially save you thousands.
When cancelling a custom home project, a loss of money is the biggest downside. (Besides missing out on your dream home, that is). While we would hate to ever see any of our customers cancel their plans to build their forever home, we understand that it does happen and is often unavoidable. If you have any questions about your contract either before or after you sign, always feel free to contact us at 615.956.6991 about your situation so we can help you feel as comfortable in the building process as possible.