New Construction Purchase Contract

New residential construction contracts are documents which typically have been prepared by the builder for the builder’s benefit.  The provisions identified in the Purchase Contract must be in included in this contract with the following additional paragraphs:

New residential construction contracts should address the following

  • A re-proration of taxes through the date of closing based on the actual tax bill when issued.
  • A statement that the builder will build the home in accordance with specific plans, blueprints and specifications which are attached to the contract.
  • A warranty regarding the correction of defects in materials and workmanship
  • A warranty that the completed structure will be in accord with building and zoning laws and ordinances.
  • A closing date which is clearly identified and not subject to a contingency within the control of the builder.
  • A penalty clause for failing to meet the closing date, or an alternate date to allow the builder a window for completion.
  • An escrow for incomplete items.
  • If the builder is holding the earnest money, a personal guarantee from the principal of the corporation assuming that the earnest money will be returned if the contract is terminated.
  • A requirement that the builder provide the title company with lien waivers and pay for the lien waiver examination.
  • A warranty that the builder is the owner of the property.
  • A preliminary title commitment should be provided at the contract signing to determine ownership of the property.
  • A remedy available to the buyer in the even the builder defaults or otherwise fails to perform (not just a return of earnest money).

Earnest Money
Money given to a builder as earnest money is at risk.  In the event the builder files bankruptcy, disappears, or just closes shop, the money given to the builder is probably gone.  Therefore, it is recommended that the money given to the builder is kept to a minimum.  It is best to deposit the money with a third party escrowee.

There are several DO NOTS when contracting for new construction.

  • DO NOT agree to price escalators due to failure of the builder to start or complete the structure within a time frame.
  • DO NOT agree to pay a penalty for failing to close the builder states you must.
  • DO NOT agree to release the builder from liability for his negligence.
  • DO NOT sign a contract which does not have mutual remedies in the event of a party’s default.

Investigate
Investigate your contractor.  Talk to different people for whom a home has been constructed.   Most builders are honest, reputable and conscientious businessmen.  However, some are not as reputable and your investigation prior to contracting will prove invaluable.

Attorney
A new construction purchase agreement should never be signed without first consulting an experience real estate attorney.  We are experienced, capable and qualified to advise you in the important and complex matter.  Safeguard your future, call us now.