00:03:51.000The thing just came apart like that. And the water just coming out.
00:03:55.000I had to turn the main water supply off to fix it.
00:03:57.000Now people regularly buy items that cost around $1,000, like, you know, TVs, computers, and so on, which have much higher quality control than $500,000 homes.
00:04:11.000It defies common sense for the biggest purchase of your life to be so unreliable and have so many issues.
00:04:19.000And that works to the advantage of the builders.
00:04:21.000Most buyers simply can't imagine being defrauded on such a massive purchase.
00:04:26.000And that's especially true for new construction homes.
00:04:30.000But it's often the case that, especially over the last five years or so, new homes are in worse condition than existing homes.
00:05:36.000In about 2021, once the market started to get shut down, we've noticed a huge decrease in just workmanship.
00:05:43.000Cy Porter is a home inspector and tells On Your Side that he finds more red flags in newly built homes than in older homes that are for sale.
00:05:52.000One reason? He says new homes are being built at lightning speed across the valley and attention to small details diminish greatly.
00:06:00.000The builder forgot to finish hooking up the gas water heater vent, which means for about a year, this water heater has been spitting carbon monoxide inside this home.
00:06:09.000One of the problems here is that buyers assume that if the builder does something wrong, they'll have some kind of recourse.
00:06:17.000And by the same token, buyers often assume that sellers, regardless of what kind of home they're selling, are bound by all kinds of warranties that they have to honor.
00:06:26.000So buyers will sign a purchase agreement without reading the fine print.
00:06:32.000That's the first major mistake you can make in the home buying process.
00:06:35.000It's tempting to believe that because you haven't actually closed on the house yet, there isn't much risk in signing a purchase agreement.
00:06:43.000After all, if an inspection uncovers an undisclosed issue before closing, you don't have to follow through on the deal.
00:06:50.000Builders write contracts to give themselves enormous leverage throughout the entire process.
00:06:55.000And usually realtors won't alert buyers to the risk because they just want the sale to go through.
00:07:02.000Let's take a look at what happened to this woman in Tampa Bay who badly misunderstood the purchase agreement that she signed with DR Horton, which is the single largest home builder in the United States.
00:08:19.000Because I mean, they're not going to give you a brand new house with the ceiling missing.
00:08:24.000When Jessica asked her realtor to delay the closing, she says he told her that the DR Horton sales rep said that would result in consequences.
00:08:33.000If she doesn't close today, we're not going to pay her rate lock any further.
00:08:37.000She's going to have to pay us $250 a day until she closes.
00:08:42.000And that's if we don't terminate the contract and then she's out her money that she put down on the house.
00:08:48.000So Perez closed on the $541,000 house and began paying her mortgage and utilities, but never moved in.
00:08:55.000Now, the reason they're able to threaten this woman with daily fines is that in the eyes of the builder, they fulfill their end of the deal.
00:09:03.000Under the law and under the terms of the purchase agreement, they don't actually have to provide a high quality home.
00:09:10.000They merely have to substantially fulfill, quote unquote, their obligations.
00:09:17.000That's a very loose standard to say the least, and the contracts are written to favor the builder.
00:09:22.000The goal of the contract is to limit the potential objections a buyer can raise.
00:09:27.000And if the buyer doesn't insist on changes to the contract, then they're bound by it.
00:09:32.000They have no choice but to close on the home.
00:09:35.000The outlet Hunter Brook Media, which focuses on investigative journalism, has cataloged numerous examples of builders and sellers using tactics like this.
00:09:45.000They reported that one woman named Nesha Gee signed a purchase agreement with a Lenar for a home in Athens, Alabama.
00:09:53.000And when an inspector found defects in the house, she backed out of the deal and Lenar kept her $7,500 deposit.
00:10:01.000And in another case, D.R. Horton told a couple that they would lose their $25,000 down payment if they backed out of the deal, even though they found mold in the floor and the walls.
00:10:11.000And they only received the $25,000 back when they agreed to buy another home built by D.R. Horton.
00:10:17.000Quote, according to multiple Lenar and D.R. Horton contracts, if the buyer delays or backs out of the deal for any reason,
00:10:24.000even for known construction defects like foundation cracks, grading problems or biological contaminants like mold,
00:10:32.000they trigger an automatic default, giving the seller the right to claim the deposit money as liquidated damages and amounts up to 15% of the value of the home.
00:10:42.000Lenar's contract even state that the builder's failure to obtain a certificate of occupancy in time cannot be grounds for delaying closing.
00:10:51.000In many states, the builders require buyers to waive pre-existing legal rights, such as implied warranties, in favor of the company's limited warranty.
00:10:58.000The builder's limited warranties often explicitly lack basic guarantees otherwise available to purchasers under the law, likely the home will be habitable.
00:11:06.000Nor do the builders' warranties usually cover issues related to drainage, grading, erosion in soil or the presence of biological contaminants like mold,
00:11:16.000even though those are common defects caused by workmanship deficiencies that sometimes make homes uninhabitable.
00:11:26.000In many states, under the contractual terms they draft in their purchase agreements,
00:11:32.000builders can force you to close on a home that you can't actually inhabit.
00:11:37.000So, if you don't read the fine print and demand that they strike that clause from the contract,
00:11:43.000then you're legally bound to buy a home that may be so dangerous that you cannot even go inside of it.
00:11:48.000Let's put two examples of these contracts on the screen right now.
00:11:52.000Again, these were first reported by Hunterbrook.
00:11:54.000The first waiver is contained in a 2024 purchase agreement drafted by Lenar.
00:12:00.000It reads, quote, except as prohibited by laws of the state in which the home is located,
00:12:05.000all other warranties express or implied but not limited to any implied warranty of habitability are hereby expressly disclaimed and waived.
00:12:16.000The second waiver is from D.R. Horton's standard purchase agreement.
00:23:19.000I also had two miscarriages while I was in the home.
00:23:22.000These kinds of problems are even more endemic when you look at single family homes that are purchased by large institutions, then leased to families that don't want to pay or can't pay a down payment.
00:23:34.000The Federal Trade Commission recently reached a tentative $48 million settlement with a company called Invitation Homes, which you may have heard of.
00:23:42.000They own a lot of the inventory on Zillow.
00:23:45.000The settlement is related to fees that they sneak into lease agreements, as well as quality control issues.
00:23:53.000The complaint alleges that between 2018 and 2023, residents in 33,328 properties submitted at least one work order within the first week after they moved in for issues including plumbing, electrical and heating and air conditioning service requests.
00:24:09.000In some instances, residents reported houses that were unclean and had mold, broken appliances, rodent feces, and exposed wiring.
00:24:16.000Even after renters moved in, the company's supposed 24-7 emergency maintenance was frequently non-existent.
00:24:22.000According to the complaint, numerous residents complained about being forced to endure days and even weeks in unacceptable and sometimes dangerous conditions,
00:24:29.000including no heat in the middle of winter, no air conditioning in the summer, and flooding or sewage backing up in the home.
00:24:36.000Now, if you read the full complaint, there's all kinds of evidence that Invitation Homes was aware of what it was doing.
00:25:03.000The complaint cites a 2019 email from Invitation Homes CEO calling on the senior vice president responsible for overseeing the company's fee program to juice this hog by making the smart home fee mandatory for renters.
00:25:16.000The complaint also points to multiple times the company actively chose not to disclose the fees prior to consumers paying non-refundable application and reservation fees.
00:25:25.000Now, for what it's worth, the Trump administration recently enacted an executive order that's supposed to reduce the number of single family homes that are owned by companies like Invitation Homes.
00:25:36.000It mostly tells federal agencies that they shouldn't be, quote,
00:25:39.000It's a start, but it's not clear exactly how much impact that order will have or can have since the federal government doesn't control the housing market, nor should it control the housing market, by the way.
00:26:01.000So, in order to actually address the problem of shoddy, fraudulent home builders for both rentals and purchases, it's going to take a lot more than one executive order.
00:26:11.000And for one thing, purchasers need to be aware that inspections from your local county official are probably useless.
00:26:17.000You need to get a more thorough inspection for any new home, ideally before the drywall even goes up and then afterwards.
00:26:25.000Additionally, the administration needs to continue enforcing immigration law to ensure that builders are hiring quality employees, which is not happening at the moment.
00:26:34.000Now, to the extent that any major builder is deliberately employing illegal aliens, and as we discussed, there are many indications, including just our common sense, that they are.
00:26:44.000Those corporations need to be investigated. The relevant executives need to be frog marched in front of cameras. If there's evidence they knowingly hired illegal aliens, they need to go to prison.
00:26:55.000When was the last time anyone investigated these home builders exactly?
00:27:02.000We can go after the rental companies, but when did the federal government actually take a close look at D.R. Horton and Lenar and all these other companies?
00:27:11.000We're overdue for some kind of action at this point.
00:27:15.000And that's because while it's obviously good that more homes are being built, we need to ensure that those homes are actually livable for new families, and that hundreds of thousands of people aren't being defrauded every year, which is what's happening right now.
00:27:30.000That's one of the primary responsibilities of any government is to enforce the law.
00:27:35.000And that responsibility is especially important when it's the difference between a young family having a place to live or being stuck in an apartment or on the street while they spend years suing a large institutional landlord.
00:27:49.000Now, in the meantime, if you're buying a home, and especially if it's a new build, keep in mind that at the moment, these large institutional landlords are completely unchecked.
00:28:01.000No matter how eager your salesman or your realtor is, and no matter how talented your lawyer may be, take your time, hire your own inspector, and do your diligence.
00:28:13.000That's the only way to make sure that, unlike many, many other young homebuyers, you don't end up regretting the biggest purchase of your life.
00:28:29.000What do Snow White, Cinderella, and smallpox blankets have in common?