New home buyers are saying they were duped into fraudulent investment schemes.

Here’s another twist in the saga of whether the new home sales office personnel are working for the buyers, or for the builders. Investors are now suing the builders in various areas, claiming that they were "duped" into buying homes when the market was hot, and now that the market has cooled and the homes are scheduled to close escrow, they want to bail out of their purchase contracts.

Remember this quote from a builder’s salesman in an earlier post: "Well, yes, I’m sure he wanted to be able to make some money on those! (LOL) But, hey, basically my job was just to sell the homes for the company, and move them off of our inventory. In truth, I really kind of screwed him in that respect, but that wasn’t my job to make him money later. My job was to sell those homes for the company."

Make no mistake here: The nice ladies and gentlemen at the builder’s sales office are NOT working for you, they’re working for the builder, and their job is to move homes. If you’re planning on buying new construction for investment purposes, the builder’s sales rep should be your LAST source of information!

As an investor, you’re expected to do your homework before committing to purchase a home, whether it’s a new home or a resale home. If someone helps you with this process, then make sure that you understand what’s being presented to you before signing any purchase contracts.

The Wall Street Journal reports that this trend is most common in California and Florida, where the market was hot in prior months but has cooled more recently. Larry Sorsby, CFO of Hovnanian Enterprises says, "People will go to great lengths to get out of a legally binding transaction. They were willing to ride the real-estate boom on the way up, but some are not willing to ride it on the way down."

In Florida, opportunistic lawyers have even placed ads in the local papers like this one: "Do you want your money back? Your contract for purchase of a new house or condominium may be illegal…To see if you are entitled to a refund, call us for a free consultation."

As Richard Schlesinger, managing director of Ceebraid-Signal (a Florida builder) says, "These are not situations where a woman bought a unit and she’s now a widow and can’t pay. These are people who don’t want to close because they can’t flip and make $100,000."

New homes can be both a great investment and a great way to move up to a nicer home or neighborhood, so I’m not in any way slamming the builders here since an investor has full responsibility for investigating before they purchase. However, since the builder’s sales reps are representing only the builder, be aware that walking into a sales office unrepresented (as in without a Realtor) is like walking into a shark’s wide-open mouth with a bottle of A-1 Steak Sauce to sweeten the meal.

Most builders in the Santa Clarita area do cooperate with Realtors, meaning that they pay us a commission to bring them buyers. There is no cost to the buyers to bring in a Realtor, since the builder will never negotiate down the price just because you’ve walked in alone. In return, we can step in when there are questions or concerns from the buyer’s standpoint and help to resolve them. And we can make sure that you fully understand all of the costs of owning that new home, including homeowner’s dues, Mello Roos and other taxes, and the new "sneaky transer fees" that have started to show up on some contracts.

Remember that the standard developer rule is that you must have your Realtor with you on your VERY FIRST VISIT to any builder’s sales office, so don’t go out on a Sunday tour of new homes unless you’re bringing your Realtor with you. Don’t have a Realtor who you can trust with this process? Then call Linda Slocum at 661.670.0349 next time you’re ready to consider either buying an investment property or moving to a new home.

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