Escrow Deposits

As the housing bubble built over past few years, many buyers found themselves caught up in the excitement of buying new construction with the wish of seeing thier net worth grow over night. My own experience of working with buyers here in the Portland real estate market has been facinating as I saw people who obviously profited well as they speculated with real estate.

I’ve shown condo’s in Portland’s Pearl District where the building had been complete for at least a year, yet the condo I was showing the client had never been lived in. When pulling up the tax record for the unit, I would discover that the owner actually live in Arizona or California. Further researching the history I would discover the seller paid anywhere from $80k to $150k less than the current asking price for the unit they were selling. I had a client about 2 years ago who had purchased a condo in Naples Florida while under construction then made a cool $100k on it when it was complete. Given the current state of the Naples market, I’m certain they are happy they don’t own that condo today!

This article: Levitt & Sons’ bankruptcy kills retirement dreams for many Baby Boomers discusses a situation where people have lost deposits where the builder ran into problems and as a result went bankrupt with the buyers deposit. This is a great example where having a competent, third party Realtor represent you in a transaction with a builder is very important. If there has ever been a one sided contract, it can be found when negotiating with a builder for new construction. There are many pitfalls to these contracts that the buyer should be aware of. The buyer will often experience a superficial explaination of these agreements and the result can have significant consequence to the buyer. I won’t go into all of this detail here, other than to say, be careful and get representation! However, the one area the buyer should strive for is to see that all monies provided to the builder, be held in a neutral escrow account. This way if that builder goes bankrupt, your money will be safe. Now, there are times where the money will need to be released to the builder. Typically that is with the addition of non-standard upgrades selected during the construction process. Many builders will require that money to be released to him/her. However NEVER agree to a non-refundable release of escrow monies simply because that is the builders policy! If this requirement cannot be removed, and if there is ANY concern over the builders liquidity, then you need to walk away from this deal and look for another one. Protect yourself and your hard earned money!