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Terminating building contract - valuation issues

Discussion in 'Legal Issues' started by Jodie, 23rd Jun, 2016.

  1. Jodie

    Jodie Member

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    I have a loan currently for my block of land I purchased, however I have entered a contract with a builder for construction and have gone all the way through up till completing the pre start, everything was going well and we were just waiting on finance to be approved from our lender. The total construction costs for our single story house is just shy of 320k which included around 35k of upgrades (which we have now learnt is quite dear for a single story house in WA) however our lender has said that the valuation for the construction is only being valued at 265k and if we want to go through with it we need to provide a 70k deposit which we dont have. She has stipulated that there is no issue with our land cost and it is 100% to do with the construction costs and she has also got a second valuation done by another valuator. I am wanting to know if building contracts are subject to finance? How can the valuation come back so much less, does this mean we are being ripped of by the builder? We realise we will forfeit our deposit but can they charge us additional costs for terminating the contract even though we can not get finance?
     
  2. thatbum

    thatbum Well-Known Member

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    Have you had a close read of the contract? A lot of those questions are answered on there.

    As you said yourself, depending on what you're building, it sounds like $320k is quite a lot for a typically sized and specced single story home - so hence why the valuation might come in lower.

    Were you going through a broker for your lending?
     
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  3. Jodie

    Jodie Member

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    What specifically should I be looking for in the contract?

    I have gone through the ANZ bank for finance (I already have my land loan with them)
     
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Look for something which says something along the lines of 'subject to financing being approved for.....'
     
  5. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Hi Jodie

    If your build contract is subject to finance you wont have to complete .............

    doesnt help I know since you have a block of dirt and a mortgage

    Jess who post here is just up the road from you .............might be able to find a lender with a more favourable val

    Seed Financial - Specialist Mortgage Broking for Investors

    ta
    rolf
     
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  6. EN710

    EN710 Well-Known Member

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    Low valuation on building contract is quite common apparently - not limited to WA. Just got one $37K below. I talked to several other home builders who got their val between 30-60K below cost.

    This should be specified in the contract. Mine says that they can charge up to 30% of total if the contract is cancelled - in my case, it is not subject to finance.
     
  7. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    You signed a contract without checking on that issue ?
    No legal advice ?
     
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  8. Scott No Mates

    Scott No Mates Well-Known Member

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    It's a contract......What could possibly go wrong? :eek:
     
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  9. Jodie

    Jodie Member

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    Yeah had another read over it yesterday, from what I can gather I think we can terminate the contract but we will have to pay them for any costs occurred and their time so far which I can understand, it just really depends on how much time they are going to try to charge me for I guess.

    They do have a reputation for building good quality homes but yeah 320k for a single story home is quite extensive.

    Going through ANZ (only because we get discounts and less fees etc through the company I work for if I went through them) and the lender got a second valuation when the first one came back low and the outcome was the same. The builder now wants to get another valuation done through a different bank, not sure if it will change the outcome.
     
  10. Jodie

    Jodie Member

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    From what I can gather (all the clauses and lingo get quite confusing) I think we can terminate the contract but we will have to pay them for any costs occurred and their time so far which I can understand, it just really depends on how much time they are going to try to charge me for I guess.
     
  11. Jodie

    Jodie Member

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    It doesnt say subject to finance anywhere but from what I can gather I think we can terminate the contract but we will have to pay them for any costs occurred and their time so far which I can understand, it just really depends on how much time they are going to try to charge me for I guess.

    Would having a seperate land loan and seperate home loan be bad?
     
  12. Jodie

    Jodie Member

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    I have been hearing its quite a common occurrence. What are you going to do now that its come back $37k below?

    From what I can gather I think we can terminate the contract but we will have to pay them for any costs occurred and their time so far which I can understand, it just really depends on how much time they are going to try to charge me for I guess and whether I am understanding the contract correctly!
     
  13. Jodie

    Jodie Member

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    I had someone have a look over it and there would be no issues if it didn't come back with a low valuation. But your 100% right I should have got legal advice before signing it as it might have helped me understand it more, big mistake I realise now, first time buying and the builder told me it was the standard contract that it set in place for all clients. I will know better next time.
     
  14. Joynz

    Joynz Well-Known Member

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    It sounds like you didn't compare construction costs with other builders?

    It is really common for prices, on new builds to increase beyond expectations by the time site costs and extras are added.

    If you are comparing with a volume builder's prices with the price in your current contract, just check you are comparing apples with apples.

    An advertised price of $200,000 can easily come in at much more $ after the addition of landscaping, site costs, and a few 'tweaks'.
     
  15. Jodie

    Jodie Member

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    I did a lot of research on builders and asked a lot around a lot, however I was working in WA and living in QLD and was trying to do as much as I could in the small amount of time that I would actually be in Perth, but I guess I should have done a lot more comparing.

    Yeah I realise that it all eventually adds up, weve talked to a lot of people and from the sounds of it the building prices (advertised prices) was in fact cheaper than what our builders is, however it could be the fact that the quality is not as good, who knows. Just not sure what to make of it all I guess.
     
  16. Big Daddy

    Big Daddy Well-Known Member

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    Is the builder dale alcock?
     
  17. Joynz

    Joynz Well-Known Member

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    Homeone Forum is quite useful for info on new builds.
     
  18. Jodie

    Jodie Member

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    Forum is quite useful for info on new builds.

    Cheers, is that a thread on property chat or a different website? (only new on this site)
     
  19. Jodie

    Jodie Member

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    Is the builder dale alcock?

    No not Dale Alcock, did my research enough to know not to go with that company, saw and have heard some scary stuff happening with them!
     
  20. Big Daddy

    Big Daddy Well-Known Member

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    Yes. Completely different quality now.
     
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