 New-home
contracts loaded with land mines
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 Dear
Real Estate Adviser,
When signing to build a home, what are the most important points
that should be in the sales contract? Should we have a lawyer look
at it?
-- Tom Willtell
 Dear
Tom,
Builder contracts can be loaded with hidden land
mines. Like most contracts prepared by teams of lawyers for large
companies, they're meticulously sculpted to give "the house"
every edge possible. What makes the job of those lawyers easier
is buyers who purchase directly from a builder who are not represented
by an agent or lawyer and will thus sign on the dotted line without
really knowing what they're getting into. Sometimes there are only
inconsequential issues at play. But often, there are significant
ones.
Here are just a few of the many
clauses and codicils to be wary in the fine print of builder contracts:
- Language that allows the builder to "modify"
your floor plan to conform to the nuances of your lot, making
it "similar" to the plans you agreed upon. Look for
other elusive phrases like "vary only slightly" or "dimensions
may vary" and verbiage that allows the builder to make "minor
changes" in the dimension of rooms, walls, windows and doors
to conform to your land. Sometimes "minor changes" turn
into major ones for you. They can even include flips in floor
plans. You'll want leverage to make the calls on all such decisions.
- Substitution clauses that give the builders latitude
to replace certain components of your home with "similar
or better quality" items, should the originals suddenly rise
in price or become unavailable. Again, you'll want language that
gives you -- not the builder -- the latitude to make such calls.
- Mentions of additional fees due at closing, like
special assessments that oblige you to chip in for infrastructural
elements in your new neighborhood like sewer and utilities and
(or) amenities like jogging paths and swimming pools. Make sure
that amount, if applicable in your deal, has been agreed upon
in advance and is specified in the contract to avoid any surprises.
- Closing fees of 1 percent to 2 percent of the purchase
price. Find out what expenses these fees cover.
There are many other potential
considerations. For example, we've heard of instances where builders
don't yet hold title to the property they're marketing when the
building contract is signed. You should address that concern in
the fine print by inserting language such as, "If seller does
not presently hold title, this contract may be rescinded by the
purchaser." Some builders even have anti-speculation clauses
that allow a builder the right to buy back your house at the original
price if you put it back on the market within a year after purchase.
If you plan to flip the place in short order, you'll want to address
that issue in the contract.
So yes, if you're contracting with
any home builder to construct a home, no matter how reputable, I
strongly recommend using an attorney. In fact, you should request
a copy of your sales contract from the builder for the attorney's
review well before you sign. If he won't oblige, then tell him you
will have to reconsider the deal.
Best of luck.
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