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The Builder Contract - Things You Ought To Know! 

Tricky Home Builder Contracts
EXPLAINED

When you're ready to buy a new home, don't be surprised by 'a feeling' that nags at you just about the time you're ready sign on the dotted line.  It's no wonder you are anxious. You're just discovering the new home builder contract is one of the more one-sided agreements you'll ever encounter, in most real estate transactions.

As the new home sales rep (quickly) explains all of their forms and documents, that queasy feeling continues to nag, as you try to digest what you just heard. The euphoric high of being drawn-in by the new home builders' models and the perfect lot on a cul-de-sac with views, is quickly fading.

Unfortunately for some new home buyers, they just continue to sign away despite these warning signs and feelings.  Now, if you've found yourself in this situation before, you know exactly how this goes.  Many new home buyers don't really understand in clear terms what they've just agreed to, or what their options are.

Below, are some of the more common legal provisions found in many new home builder contracts. The list is certainly not all-inclusive, and there are many differences among builders and locale, but it'll show you quite a few of the binding provisions that are often 'vaguely' explained by the new home builder's salesperson:

The Real Meaning Of
Many Common Builder Contract Provisions

1.  Your deposit money is non-refundable, unless the contract or financing specifically says (or requires) otherwise. This applies to extras, options, and upgrades paid in advance. Additional deposit monies may be required if the new home builder agrees to any "customization."

2.  Your deposit money may be non-refundable even if you have a contingency for the sale of your current home. This often becomes an issue after the drywall stage, usually at the discretion of the builder.

3.  Your deposit will not be protected in a 3rd party escrow account, unless the contract specifically says so. If the builder goes bankrupt, you'll lose the money. Some builders may agree to place your deposit in escrow with a title company, but many others will not.

4.  Absent a written contract executed by builder management, you have no contract. Never rely on any verbal agreements or promises made by the new home builder's salespeople.

5.  Don't assume that the mortgage interest rate the builder is currently offering, will be available when your home is completed.  This is true even if the builder "says" their financing offer is good through the estimated completion date of the home.  If they don't complete the home by the target date, then all bets are off unless your contract specifically says the rate is locked through closing.  Don't rely on the builders verbal promises.

6.  You may be charged reprocessing fees for any "changes" you make after you sign the contract. Exceptions may apply when you finance the new home with a government loan.

7.  The builder is allowed to substitute most materials or make changes to the construction, as long as the modifications do not impair the quality of the new home construction, as determined by the builder.

8.  You may pay more for certain builder options that can be installed less expensively after closing. Many options are high-profit, and should be carefully ‘shopped'.  NOTE: Do yourself a favor and save some money by passing on the non-structural and non-complex options that can be more reasonably installed, after the sale.

9.  You will assume all risks for environmental issues such as radon or mold, and you'll generally not be allowed to perform much in the way of investigative testing until after the sale has closed.

10.  The builder generally does not guarantee the nature or stability of the soils, groundwater, or concrete placed on or around the property. The buyer assumes all risks associated therewith, especially during and after the installation of your landscaping.

11. The builder may terminate your agreement in favor of another buyer, if your contract is contingent upon the sale of another home.

12.  You may be charged an appraisal and/or termination fee in spite of any contingency for the sale of your current home, if your current residence does not sell.

13.  The builder may require that you adjust your home's "listing price" if you have a contingency, so the price coincides with their independent appraisal of your home. If you refuse, you may forfeit your deposit money.

14.  If color of designer options are unavailable during the course of construction, the builder will require you to select available alternatives within 5 days of notice.  The builder also reserves the right to change your colors or options, if your home sale contingency is not timely removed.

15.  You may not perform independent inspections on the new home without the consent and accompaniment of the builder's representative. Some builders may severely restrict your 3rd party inspectors with onerous requirements, even to the point where these inspections may not reasonably occur.

16.  You may be held in default of the contract if you cannot agree with the builder over any punch-list or walkthrough items.

17.  You may not delay the closing if the builder has not completed every punch-list item. The builder will require your cooperation until the items are completed.

18.  The builder will not generally provide a true survey or survey map.  Instead, you will most likely receive an ILC (improvement location certificate), as a substitute.  This may satisfy most needs, but not recommended for certain types of property, particularly acreage.

19.  The builder will generally allow themselves up to 2 years to complete the construction of your new home, irrespective of any verbal promises or estimates they give you.

20.  You must be prepared to close escrow as soon as the builder completes the new home.  Delaying the closing date is very unlikely, without you incurring penalties and fees from the new home builder. Even in circumstances where exterior improvements (e.g. landscaping) cannot be installed due to inclement weather, you'll still be required to close.

21.  Your moving expenses will not be paid by the builder even if you've already had to move multiple times. You'll still be expected to close escrow as soon as the new home is completed.

22.  You may not alter the new home prior to closing without the builder's written permission, or you could be sued for damages, and restoration. This also applies to anyone performing alterations on your behalf.

23.  Many builders provide 3rd-party warranties for their homes after closing, but the builder will assume no liability over disputes involving the new home warranty, or if that warranty company should ever stop doing business.

24.  You agree to mediate any disputes with the builder, prior to pursuing any legal remedies. In the event mediation fails, you'll also agree to binding arbitration over any continuing disputes. These provisions will run with the property and may be your sole legal remedy.

25.  A whole lot more depending on the builder, the type of improvements being constructed, the land, lot or acreage, the homeowners association, prior litigation experience, calculated risks, their attorneys, and so on.

Helping You With Your Own Builder Contract

New home builders have been sued for just about everything imaginable. So, as one-sided as the new home builder contract provisions may appear, it only reflects a need to protect themselves. The reality is that buyers should get professional representation from a real estate agent who's well-versed in new construction, before beginning to shop for new homes.

In many situations, the new home builder contract can be modified to better protect you. At the very least, you'll have another set of eyes and a whole lot of experience working on your behalf, without any added cost to you. A little advance thought and planning can go a long way to making that next new home purchase both enjoyable, and wise. So, call today, and let's talk about your plans to purchase a brand new home. (303) 514-4000.

Wishing you a truly magical new home buying experience!

It Costs You Nothing To Get Expert Help
When Buying A New Home

"Your choice of a home builder should provide you with
a high level of craftsmanship and an excellent product"

Call Mike (303) 514-4000

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Copyright© 2011-2012, Michael Dagner, *The Builder Contract - What You Ought To Know!*
Originally Posted at: What The New Home Builder's Contract Really Says

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