NewHomes101 Blog

What is a builder deposit and why are high builder deposits so dangerous? When embarking on the journey of building a new home or purchasing a home mid-construction, known as a spec home, builders in Las Cruces typically request a deposit. These deposits usually range from $500 to $1,000. However, some builders demand deposits exceeding $10,000, a practice that can be outrageous.

The Risks of High Builder Deposits

The primary concern with large deposits lies in their non-refundable nature. If for any reason you decide to back out of the sale, the builder retains the deposit. Yes, they will keep your $10,000, continue with the construction, and likely sell the home to another buyer. This scenario, which I refer to as “double dipping,” places the buyer at a significant financial disadvantage.

 

When to Be Wary of High Deposits

High deposits should raise a red flag, especially for homes not in the luxury market. For homes ranging from $200,000 to $600,000, a deposit exceeding $2,500 is uncommon and should be questioned. Such high demands can be indicative of a builder’s financial instability or a lack of confidence in their ability to sell the property upon completion. Generally builders that aren’t financially solvent enough will try to acquire a large deposits.

 

The Value of a Realtor in Your Corner

Venturing into a model home without a realtor can leave you vulnerable to these financial pitfalls. Realtors are not just guides in the home buying or building process; they are advocates for your financial and contractual interests. A knowledgeable realtor will negotiate on your behalf, striving to secure reasonable deposit amounts and fair contract terms. They understand the local market dynamics and can provide insights into the standard practices of reputable builders in Las Cruces.

 

Protecting Your Investment

Before agreeing to any deposit, consider the following protective measures:

Research the Builder: Look into the builder’s reputation, past projects, and reviews. A reputable builder should have a history of satisfied customers and quality construction. They should also have a large amount of employees. Unfortunately, there are builders in Las Cruces that only have 1 to 5 employees and that is a big red flag. You need a builder with plenty of history and at least 15 years of experience and a good track recored.

Understand the Contract: Ensure you fully comprehend the terms, especially regarding the deposit. Seek clarification on any points that are unclear and consider having a legal professional review the document. Don’t just sign on the spot. Take the agreement home with you and go over it with a fine-tooth comb. It’s very likely that you will notice that the contract is very one sided.

Negotiate Terms: Everything in real estate is negotiable, including deposit amounts. Don’t hesitate to negotiate more favorable terms. Builders that love high deposits will try to persuade you as much as they can to make you give them a high amount. They train their salesmen very well to do this and they generally don’t back down. They would rather watch you walk away from the sale and go elsewhere than accept a reasonable deposit.

Escrow Accounts: Request that your deposit be held in an escrow account. This adds a layer of protection, ensuring that the funds are used appropriately and can be recovered under certain conditions. 90% of the builders will ask you to make the check payable directly to them when it should be held in escrow.

 

Final Thoughts

High builder deposits can pose a significant risk to homebuyers in Las Cruces. While builders may justify these costs as necessary for securing materials or ensuring buyer commitment, excessively high deposits, particularly on mid-range homes, should be approached with caution. Always enlist the expertise of a realtor who can safeguard your interests, negotiate better terms, and guide you through the complexities of the building and buying process. Remember, informed decisions are the foundation of a successful real estate transaction.

 

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