Expert: Todd C. Menard - 3/9/2008

Question
QUESTION: I've recently moved into a neighborhood being developed by CENTEX as one of the first 20 residents.  I've been in the house for about 2 months, and CENTEX has reduced the base price of my model by $38,000.  Obviously, I'm pretty unhappy because they're essentially devaluing the property I just bought.  Do I have any recourse I can take, or am I pretty much out of luck?

ANSWER: Hello Ryan - This is happening more frequently as prices adjust. Obviously the builder is not obligated to provide any reductions. In Phoenix, Maracay Homes reduced the price in two of their subdivisions $38000 and $42000 and offered the reduction to homeowners who closed in these subdivisions as well. The question in this matter was whether the builder could give that money to the homeowner or whether they had to pay the money to the lender... but that is considered 1099-M income to the homeowner... so what about the tax obligation on the reduction. Ultimately Maracay, with permission of the lender(s) was able to provide the homeowner with an amount comparable to the tax that would be incurred as a result of the benefit. More important to your scenario, in 2005 builders in the Las Vegas, NV market in an effort to motivate buyers significantly reduced the prices on new homes. The builders did not offer any reduction to homeowners in those subdivisions thereby devaluing the neighborhoods dramatically and negatively positioning previous homebuyers in those same communities. These homebuyers now owed more than their homes were now worth! The outcome was that some builders settled with homeowners similarly to the Maracay scenario previously mentioned. Where does this leave you? I recommend that you contact a real estate attorney as I cannot provide legal advice but I do know this set a precendence in court that was a primary reason Maracay decided to provide their price reduction to the homeowners in their communities. I would also recommend meeting with other homeowners in your subdivision and decide how the homeowners as a group (more affordable defense and greater public trust issue) would like to proceed. Strength in numbers. Also contact the local radio stations consumer hotlines.. sometimes bad publicity can be a motivating factor for the builder(s). Builders are not intentionally targeting homeowners in their own communities... they are only trying to restructure and help the market recover as well as their own bottom line. But this doesn't mean at your expense. The builders pockets may be deeper than the subdivisions homeowners are willing to invest. But there is the potential for some adjustment. Just remember the tax implications. You could type a flyer requesting homeowners to attend the next HOA meeting in your subdivision to see how many homeowners are interested in the attempt. In addition, consider having an attorney attend a homeowners meeting to provide a legal perspective so there are no misconceptions. Good Luck.  - Todd C. Menard, GRI, CNE, MRE

---------- FOLLOW-UP ----------

QUESTION: I did some more research today, and it turns out that the 3 home owners that closed after us were given the new prices.  The catch is that CENTEX contacted all 3 before the prices came into effect, giving them early to avoid reprisal after they closed.  This was only 35 days after I closed in December.  It looks like I'm now looking at being alone against CENTEX.  Any difference in how I should approach the situation?  It seems like this could make it easier to get the same deal...

Answer
Hi Ryan - Am I interpreting correctly that you are the only other homeowner in the sub-division? If this is so, then 'to make the situation right' the builder only has to accommodate you. This is a good position versus the builder having multiple settlements to make. Second, there is the problem that one voice is less loud, true. So, you need to create a situation where your voice is loud enough yet not unrealistic. I would suggest a letter to the President of the new home builder stating the knowledge you have of the other properties and how this discount has damaged your financial position in the home and your home in the community. This has created an unlevel playing field for you. You need to be persistent but not disrespectful. State that there are a number of builders who are rebating the homeowers after closing in communities where the builder has chosen to reduce prices... like Maracay Homes. Continue to follow-up after you send the certified letter with phone calls attemping to talk directly with the president of the company or at least the President of the company representing the state in which you live. A position of 'what is right as it relates to thier own homeowners' versus 'why them and not me' which sounds like a victim mentality and not a business perspective. If the builder is going to pay their objective will is to be certain you are going to have a 'great respect' for the builder and the goodwill they will receive as you repeat to others what a great builder they are and how they did the right thing even though they were not obligated to v. they harmed you and don't really care about the consumer, never mind one of their own clients which in this example usually means that even after they rebate you your attitude will remain negative about the builder. You want a win-win result using a collaborative approach to negotiation. If this approach does not work contact one of the television stations that offer consumer protection.. they have the power of publicity which may position the builder to desire to settle to prevent further negative publicity in a slow market. Remember to give the builder the opportunity to do the right thing first and do not threaten to use publicity. Rather appeal to the builders customer service policy and vision. Let them decide your next move. Good luck and keep in touch. Hope this helps.