Danielle Ostrowski has a warning for others trying to buy a new home in Dallas-Fort Worth’s expensive housing market:
Watch out for the language in your sales contract.
Ostrowski and her husband Dan, who have a 6-year-old son, spent much of the past eight months planning and designing their dream home. The newly built structure is a white-brick, four-bedroom, 2,522-square-foot home with cathedral ceilings and lots of upgrades in the Spring Ranch neighborhood near U.S. 287 and Willow Springs Road in far north Fort Worth.
But those plans were crushed in late May — just weeks before the Ostrowskis were planning to move in — when the home builder evoked a little-known clause in the contract that allows the builder to cancel the sale for any reason.
The clause is known as a “termination for convenience” — and it’s a tool in the contract that allows the builder to walk away from the deal, but offers no such exit ramp for the buyer. Real estate experts said such language is often included in contracts drawn up by home builders, and that buyers should generally try to avoid signing papers with such language.
“Where are we supposed to go?” said Danielle Ostrowski, an attorney who works in Fort Worth, adding that the couple has already sold its previous home and needs to move somewhere by June 16. “We were counting on that contract.”
Rising home prices
After canceling Ostrowski’s contract, the builder then promptly put the home in the 1400 block of Silent Springs Drive back on the market. But this time, the sales price was listed at $526,900, a whopping $110,275 higher than the original price of $416,625 the Ostrowskis had agreed to pay.
The builder, Aledo-based Kenmark Homes, denied canceling Ostrowski’s contract and jacking up the price of the home to take advantage of North Texas’ soaring real estate market.
Home prices are already about 10% higher in Tarrant County than this time last year, and real estate experts forecast that prices will increase another roughly 10% in the coming year.
Kenny Ozee, one of Kenmark Homes’ owners, said the decision to cancel the sale was made after long discussions with several of his employees, who complained that Ostrowski was becoming too difficult and at times even combative in demanding changes and fixes while the home was being constructed. He said the home was still about 45 days from completion when he canceled the contract.
“We had every intention of selling this house to the Ostrowskis. Two weeks ago, we even let them write their name in the concrete driveway,” Ozee said. “Unfortunately, Kenmark had to release them from their contract when it became clear that irreconcilable conflicts and misunderstandings had arisen which could not be resolved in an amicable manner.”
Ozee said a combination of factors led to the price increase, including skyrocketing costs for building materials and refunding the Ostrowskis $19,070 spend on upgrades to the home. He also said he refunded the Ostrowskis $10,900 in earnest money.
The builder also likely will need to make several repairs to the home, possibly including repaving the driveway, he said.
Home contract language
Several people with experience in real estate legal matters said prospective home buyers should watch carefully for language that tilts the contract in favor of the builder.
Rusty Adams, an attorney with the Texas Real Estate Research Center at Texas A&M University, said its “not uncommon” for builders to include a termination for convenience clause in contracts with buyers of newly built homes.
Others said they were surprised to learn about the existence of such a clause, and warned prospective buyers against signing such agreements.
Sriram Villupuram, a finance and real estate professor at UT Arlington, said he has “not come across a scenario where a home builder is kicking out a current buyer and putting the home back on the market for a higher price.”
He added that a fundamental problem can be created when the home builder draws up the contract document, which is common in many instances in which a new neighborhood is being built. The builder can then insert language favoring its position in the agreement, and in many cases prospective buyers don’t read the clauses close enough to realize they are at risk.
But even if a prospective buyer objects to including a termination for convenience clause in their contract, the builder can insist on keeping the language — especially in a housing market that favors sellers over buyers. If the seller refuses to remove the language, the buyer is left with only two choices — either accept the risk and sign the deal, or walk away and find another house.
“Currently, some of the home builders in the Metroplex are having a waiting list of prospective buyers for their home communities,” Villupuram said in an email. “This is usually helpful to the homebuilder if the current buyer falls through for whatever reason (bank loan doesn’t go through or the buyer decided to walk away from their deposit for whatever reason), they have someone else to buy the house.”
Dallas attorney Mazin Sbaiti, who has experience in trials involving home construction lawsuits, also said he hadn’t heard of a situation in which a builder abruptly canceled a contract and relisted a home. He said termination clauses in home sales contracts usually require a more detailed reason for cancellation.
“Normally, in any contract, the option to cancel has to be supported by consideration,” Sbaiti said.
‘People need to know’
Dan and Danielle Ostrowski etched their names into the freshly poured concrete driveway of what they thought would be their dream home.
A few weeks earlier, during one of the family’s many visits to the construction site, the couple’s 6-year-old son had used a marker to write a Bible scripture on the wooden framework of the home, where he had been told his bedroom would be.
But those signatures will now be in the driveway and within the walls of someone else’s home.
The Ostrowski family is now starting over in their quest for a new home, and figuring out what to do with the furniture and other trappings they bought for the home.
“People need to know about this clause in their contracts,” she said, “because what has happened to us is brutal.”