3 Things To Watch Out for When Signing a New Build Contract

Time to buy a new house? Are you thinking of, or have you already decided on, a home built from scratch? Maybe you found a new construction home that has already been built that you like. Some home builders use what we in the "biz" like to call the 1-4. This is the standard RESALE contract for a home sale in Texas. If your builder is using one of these, still make sure you are in the know, but also know, that this contract can be negotiated a bit more and your realtor likely has more experience with this contract since this is what they preach in real estate school.

HOWEVER, if your home builder is using a builder contract, this is very different then the aforementioned. Builders can put whatever language they want and if you sign, you are tied to this deal. Keep in mind, the following are not the same in every new build contract, but they are prevalent enough that you should be informed!

1. Option Period - In a normal resale real estate contract, there is what we call an option period. During this option period, the prospective buyer can pull out of the purchase for any reason, without cause, and only lose their option fee. This gives the buyer time to do their inspections and renegotiate, if necessary, repairs and/or concessions! Often times option periods are either 7 or 10 days and are either a flat fee (like $250) or a percentage of the Earnest Money (usually 1%). In a lot of new build contracts, there are NO option periods. Once you sign that dotted line, you are tied to the deal. 

2. Title Fees - Let me lead with the fact that everything in a normal resale real estate contract is negotiable. Whether it is commissions or who pays for what part of closing, that is the point of the offer/contract - to come to an agreement that is fair for everyone. Often times, it is the seller who pays title. This is not a rule or law by any stretch, but it is one of the less contested features of a regular resale contract. In a lot of new build contracts, the BUYER PAYS TITLE, which can be thousands of dollars added to the bottom line, and that could make or break the buyer. If you are just skating by on the down payment, and you are suddenly asked to pay an extra couple of grand, that may break your bank, and you may not be able to back out at this point, as stated before!

3. Closing and Funding - Generally, it takes about 21 days to get traditional funding approved. In a standard resale contract there are provisions that state closing should be on or before a certain date, unless agreed to be changed by all parties. So if you can get funding in 21 days, but do not want to close to 31 days out, you should be okay, based on what you agreed to in the contract. In a new build contract, often times, there is a clause in there stating that you must close within 3 days of your funding being approved. Small print, and if you are okay with that, than you are okay with that, but for some, this may throw a wrench into their master plan!

In Conclusion...

A couple of weeks ago, I had a friend that was looking at a new build. Seeing as how I have known him for over 25 years, I asked to come along and provide my assistance. He obliged and off we went. At the end of the evening, he point blank asked me, "what is it that YOU can do for me?" . Without me, or others like me, he could have, and likely would have, fallen into one of these situations or many others that come with the new build contract. Yes, builders can give you a ton of incentives to buy through them, but remember, all of these wonderful things you think you are getting for free have already been built into the price of the house. There is no such thing as a free lunch! Make sure when you are making the biggest financial decisions of your life, you have someone you can rely on to make sure you are taken care of!