Buying new construction is incredibly exciting. If you get in before all the options have been chosen, you can customize your cabinets, flooring, appliances and lighting. You can pick the exterior features like the paint colors, roof line and brick or stone features. You have the joy of knowing that no one else has ever lived in your new home and that it is all yours to make memories in! It can even save you money in some ways over a resale because the developer may be offering significant savings if you use their lender and title company. So what else is there to do but sign on the dotted line? Here are 10 things to focus on before you sign all that paperwork.

Buying New Construction Means a Complex Binding Contract

Please remember that this is a binding contract and it involves large sums of money.  If you breach this contract once you have signed it, you will be at risk of losing all of your earnest money deposit and possibly even more for penalties.  Be sure you understand what you are signing and that it encompasses everything you were expecting. If you notice any discrepancies between the writing and any oral agreements you had with the builder, they should be addressed before you sign anything!

Have the contract reviewed by your attorney.  The contract is written frequently by the builder’s attorney to favor the builder.  Sometimes the builder’s contract contains language such as there is no penalty for delays on the part of the builder… or the home is finished when the builder says it is finished (even if you don’t think it is.)  Other times the builder’s contract allows for changes to the home that might impact features you really wanted.  For instance, one person who called me paid extra for a particular type of bathtub and the builder declared it didn’t fit (although it had not been an issue when the person paid for the tub) and the builder put something else in.

The builder is likely to offer you financial incentives to use the builder’s title company and lender.  Those financial incentives are probably pretty enticing, but have the contract reviewed by your representative before you sign your life away. Make sure that the contract includes provisions which protect your interests.

When Buying New Construction, Tie Down Time Lines

Make sure you understand all the time frames in the contract – including the start and finish dates, delivery dates for materials, for making changes or selections, etc etc.  Late or incomplete work is one of the biggest issues with construction projects.

Negotiate some type of penalty if the builder does not complete the home within a reasonable time from the date promised.  Of course there may be delays beyond the control of your builder, such as permitting delays or bad weather.  As you can imagine the builder will push back on a strict timeline and penalties so be prepared for a timeline that is longer than you want but shorter than what the builder wants.  What you really want is the timely completion of the project so the threat of penalties may keep the builder on schedule.

If this all sounds daunting, then just call the Lise Howe Group at 240-401-5577.  As a realtor and associate broker and a recovering lawyer, I love to represent my clients in negotiations for new home construction.   Give us a call or email us at lise@lisehowe.com to start us working on your behalf. 

 

Pricing Is Important to Understand

buying new constructionBe clear on pricing when buying new construction.  Understand what if any additional fees or expenses may arise. Find out what the cost will be if you make a last minute change, such as adding a closet or extra wiring.  Just understanding the hidden costs will probably be the best way to hold the line on any change orders.  By understanding those change fees, you will probably go carefully over the final designs and choices so that you don’t have to go back later with a change order.

Understand What Materials and Finishes Are Included

Understand exactly what materials you are buying new construction. This is more than a “home.” It is all the windows and doors, cabinets and appliances, lighting and flooring that go into that home.   Be careful however to remember that you are not buying the model home (unless you are!)  There are details, features, finishes and trims in a model home which are not standard.  They are added to make you fall in love with the builder and the community.  If you want your home to look like the model home, then you will have to buy all those details – and the builder probably will be happy to sell them to you.  Walk through the model home with the site agent and ask about ALL the details and add-ons.  Ask lots of questions.  Then, make sure you understand the quality and grade of materials included in your contract.  Are they what you want or expect.  Once the builder has started ordering materials, it will be too late to argue over the quality.  Put it ALL in writing.

If you are interested in new construction in Montgomery County MD and want to find that perfect home, just click here.

When are Payments Due When Buying New Construction

Specify the payment schedule.  Define what amounts will be paid on what dates.  Will the payments be lump sums or installment payments.  Are the payments due at a set time or based on certain completion dates?  Are checks or credit cards acceptable? You don’t want to be surprised by a demand for payment by the builder.

Be Prepared for a Hefty Earnest Money Deposit When Buying New Construction

Be clear up front on the earnest money deposit required. The builder is likely to ask for a much larger earnest money than you would pay for a resale.  Part of the joy of a new home is choosing all the structural upgrades and finishes.  The builder is going to protect himself in case your contract falls through.  That next buyer may not want the solarium you chose or the Juliet balcony so they usually require earnest money upon signing the contract and then additional earnest money as a percentage of the finishes that are selected along the way.   Each builder has a different percentage, so be sure to understand what it is.

Before you agree to hand over a large sum of money to your builder, you should request that the money be placed in an escrow  account and that you be provided with copies of paid receipts to make sure the money is going where it is supposed to.  Ask if your earnest money deposit will earn interest while it is in the escrow account.

Another way to protect yourself is to buy an owner’s title insurance policy protecting with protection against mechanic’s liens.

Is There a Financing Contingency In Your Contract When Buying New Construction?

Be sure to understand what happens if you do not qualify for your loan. In a resale contract, you get your earnest money deposit back if you don’t qualify for a loan.   With a new construction contract written by the builder, you want to pay close attention to this scenario.  If your loan falls through late in the building process the builder may keep the earnest money.  Read the fine print!

Make sure that there is a real financing contingency in the contract.  This can be particularly challenging if you are using the builder’s lender.

Is There an Appraisal in Your Contract?

The Builder contracts frequently are not contingent upon an appraisal. In other words, if the house does not appraise for your loan amount,  the builder is not obligated to drop the price to match the appraisal. In short, the builder’s failure to build a house that appraises for the value you need for your loan is not his problem – it is yours.  The lender can still lend on it but because it appraised low you will have to bring more cash to the table to keep the lender happy.  You can’t back out if the appraisal is low, unlike a resale, without losing your earnest money.

Make sure that there is a valid appraisal contingency in the contract when you are buying new construction.

 

Inspections on New Construction – Don’t Skip Them!

Make sure that your contract allows for several inspections at your expense. Ideally, there will be one when the foundation is finished, another when the framing is done before the drywall closes everything in and then a final one.  Do not assume that the municipal or county inspectors will protect your interests adequately.  The permitting inspectors will not be looking at the quality of construction.  They are looking for whether the construction meets the housing code.

How does your contract handle defects in construction?  When you inspect your home on a resale you can back out of the contract – either immediately or after negotiations – if there are issues.  Those same procedures and protections are not available to you in new construction contracts.  The solution is that the builder who created those problems and issues now gets to “fix” them.  In most instances this will be ok, but not in all instances.  Typical builder contracts do not protect the buyer from incomplete work or sloppy workmanship after the final payment has been made. Smart purchasers should negotiate withIn the builder that funds be set aside in escrow to cover incomplete work or bad workmanship even if the seller is able to obtain a certificate of occupancy. If the builder receives all the money before your punch list is complete, you have no leverage against getting the work corrected or completed.

How are Disputes Resolved in Your Contract for Buying New Construction?

When buying new construction, you have to be prepared for issues to arise.  Understand the dispute resolution process. Is there a mandatory arbitration clause?  If not, consider adding a provision for attorneys’ fees and court costs in case it is necessary to litigate.

It’s exciting to consider buying new construction but you want to get it right because you are paying money before the home is built.  Please call the Lise Howe Group at 240-401-5577 if you would like help navigating and negotiating this process.  As a realtor and associate broker and a recovering lawyer, I love to represent my clients in negotiations for new home construction.   Give us a call or email us at lise@lisehowe.com to start us working on your behalf. 

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