Maneuvering Out of a Contract:
Tips on Getting a Better Deal

Question: I am a real-estate agent for Keller Williams and signed a contract with D.R. Horton for a new home in December for a purchase price of $581,811. We should be closing in October. I am scared to death since home prices have fallen and price reductions are being seen everywhere. New homes are sitting empty. Should I ask the builder for a price reduction?

 -- Darci Mahon, Maui, Hawaii

Darci: Nothing bad can happen to you for asking. You certainly won't be the first buyer who's broached the subject in these nerve-wracking times.

But I am surprised that you, a real-estate professional, are wondering if you should ask. Surely you are aware that real-estate deals are renegotiated all the time, right up to the moment that pens are put to paper at the closing table.

Before you contact the builder, read your contract carefully. You don't sound like you want to cancel the deal, despite the declining real-estate market -- you just don't want to overpay. Still, you'll have maximum leverage if you go into negotiations clear about your rights and obligations.

First, determine if you have any grounds to cancel the deal outright without penalty; if so, you'll have plenty of room to renegotiate the price. Granted, it's unlikely that this will be the case, since builders write contracts to protect themselves. But depending on how the contract is worded, you may be able to back out of the deal if you can't get the original loan you applied for because the house no longer appraises for the original purchase price, or if the builder doesn't complete the home on time, or fails to honor some other specified promise.

You are much more likely to find such escape clauses if you hired a lawyer to represent you when you bought the home and didn't merely sign the builder's boilerplate sales agreement. But even if you did sign such a contract, you may be able to walk away from the deal if you are willing to forfeit your earnest money deposit. (And that's only fair -- builders who are stuck with a house they thought was sold have to shoulder the costs of building and carrying it, and they deserve to be compensated for the expense.)

Even if you don't find any contractual loopholes, don't despair. New-home builders often go out of their way to accommodate customers these days, even if it isn't through a price reduction. According to a May survey by the National Association of Home Builders, three-quarters of builders were offering incentives, like free finished basements, but far fewer were offering to lower prices to existing customers. These incentives are meant to lure new customers, of course, but many builders will quietly offer the same deal to buyers who haven't already closed to keep them from backing out of their contracts.

Consider also that D.R. Horton's revenue from home building dropped to $2.55 billion from $3.59 billion in the second quarter from a year earlier, and that the number of homes closed by the company fell 28%. The company had a cancellation rate of 38%, twice its usual rate. Under the circumstances, I expect that it will go out of its way to keep you happy.

More important, however, is to take the long view. Real estate is cyclical. We are two years into a downturn. Despite all the gloomy headlines now, eventually -- and possibly as early as next year -- the market will turn around. If you plan to live in your house for more than a year or two, there is no reason to be "scared to death." Instead, rejoice that you are a buyer right now and not a seller.

-- June Fletcher is a staff reporter at The Wall Street Journal and the author of "House Poor" (Harper Collins, 2005). Her "House Talk" column appears most Mondays on RealEstateJournal.com. Email your questions about the residential real-estate market. Please include your name, city and state. If you don't want your name used in our column, please indicate that. Due to volume of mail received, we regret that we cannot answer every question.

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