Kirkway Estates Exemplifies Dangers In Buying New Homes - Ghost Towns

Author:  Rob K. Blake        Published: August 14, 2008

Kirkway Estates is a classic example of new home builder overreaching and the pitfalls the home buyer can encounter. Falling prices, inability to sell, and living in virtual ghost towns are just some of the dangers when dealing with financially strapped home builders.

Kirkway Estates Virtually Empty

When home builders run out of money, they cannot complete development projects leaving only a handful of homes completed. This is exactly what happen in the Kirway Estates development outside of Detroit…a modern day ghost town.

MSNBC reports on a buyer in Kirkway Estates, who paid $500,000 for his new home in 2006, Scott MacDonald who stated,

“There were six months where we were holding our breath. The original builder was clearly in a desperate situation. The talk of the neighborhood was how concerned we were about preserving our investment.”

The Kirkway Estate buyers quickly forgot about the incomplete sidewalks, overgrown common areas, and no neighborhood kids for their own children to play with…and started looking at the financial ramifications.

Home builders are feeling the credit crunch too having their construction lenders walk away giving them no opportunity to finish projects underway. This leaves unfinished homes to go into foreclosure further driving down neighborhood prices trapping the existing home owners since it’s virtually impossible to sell a home in today’s market in an unfinished development.

Another New Home Builder Danger

Everyone should remember when buying a new home from a builder, there are significant contractual differences from buying an existing home directly from the home owner.

One of the biggest differences concerns the deposit and how it’s handled. With an existing home sale, the money is placed in escrow and returned in most cases if the transaction is cancelled. Not so with home builders.

New home builders are legally allowed in most states to use the deposit money, which can be in 10’s or 100’s of thousands of dollars, for operating expenses. This means the money is gone to prop up a financial strapped home builder. Should your home be ones of those half-finished homes and you put down $100,000, you are out the money! You won’t get it back to use to buy another home.

The home builder will file for bankruptcy sooner or later, and the unfinished home will go to foreclosure becoming the property of the construction lending bank at auction.

With all these dangers, I cannot recommend buying a new construction home in today’s market. Believe me you don’t want to be like Mr. MacDonald, stuck in Kirkway Estates with no neighbors, no sidewalks, and losing thousands in home value every month until the housing crisis turns around.

That could take years…

Good Luck!

Author: Rob K. Blake