• That New Contract Means You Can Build Your Dream Home -- Avoid Nightmares with a Buyer-Friendly Builders Contract
  • May 5, 2003 | Author: Robert A. Walper
  • Law Firm: Fox Rothschild LLP
  • You've just signed a new multi-year contract with your team. Even after paying agent's commissions, players association dues and other miscellaneous costs, you can now afford to build your dream home, which will surely be worthy of being featured on MTV's "Cribs". Yes, building a new home can be exciting and rewarding. Unfortunately, however, if problems arise, you may find that the contract was drafted in favor of the builder, at your expense, and may not adequately resolve problems as you might hope. Although most builders require prospective buyers to sign a builder's contract, the builder may make changes to the contract at your or your attorney's request. Outlined below are some provisions not normally included in a standard builder's contract for the construction of a new home, but that you may wish to consider and request before you sign the contract.

    Specify Outside Date for Construction
    Most builder contracts identify a projected date for delivery of the home, without committing to a certain date. By law, the builder has up to two years to deliver a newly-constructed home. To avoid having unreasonable delays, request a provision giving you the right to terminate the contract and get back all deposits and other payments made if the home is not delivered by a certain "drop-dead" date. Although most buyers would not exercise such a termination right in the event of a minor delay past the promised delivery date, this provision gives you leverage and makes the builder prioritize completion of your home.

    Approval of Decoration/Design Changes
    Builder contracts generally allow the builder to substitute materials and make design changes during construction, if necessary. You should request the contract to specifically state that, although the builder may make necessary changes during construction he may substitute materials only of like or better quality and may only make design or decoration changes with your consent. This will prevent him from changing the appearance or quality of your home without your consent.

    Reserve Right to Inspections
    You should reserve the right to inspect the home at various stages of construction, and to be accompanied by a home inspector or contractor during the inspections. The first inspection should be done immediately before installation of drywall, so that the inspector or contractor can check the wiring, insulation, plumbing, ventilation and other systems before the wall s are completed. This enables you to monitor construction and identify problems early, so that they can be resolved before settlement. Although the buyer normally has the opportunity to present a list of unfinished or damaged items at settlement that must be completed or repaired by the builder after settlement, you will have more leverage in getting those items addressed before closing and before paying for the home.

    Limit Builder Remedies
    Attempt to modify the contract to limit the builder's remedies in the event of your default. The most common default is the failure of the buyer to purchase the home after signing the contract. This may result from a change of heart, loss of a job, inability to sell and existing home, a death in the family, or another reason. In this case, the only remedy the builder should have it to keep, as "liquidated damages," whatever deposit monies have been paid. Otherwise, if you default under the contract, the builder may keep all deposit monies paid and sue you for money damages.

    Radon Remediation at Builder's Expense
    You should have the home tested for unsafe levels of radon gas. Because there is normally not enough time to test the home between completion and the time of settlement, radon tests on new homes are usually performed after settlement. If unsafe levels are detected, the builder should be required to pay for or contribute to the cost of installing a radon remediation system in the home. Some builders refuse to do so, instead offering a system as an option, at additional cost.

    Injuries, Damages Caused by the Builder After Settlement
    At settlement on a new home, there are usually miscellaneous items for the builder to complete afterward. For example, most builders do not apply the final topcoat on a driveway or complete seeding or seeding of a lot until after settlement, to prevent damage to the driveway or lawn during your move into the home. This means the builder and contractors will perform work at your home. If the builder's workers injure someone, become injured themselves or cause damage to your or someone else's property, you may become liable for the injuries or damage, as owner. To avoid this, the builder should be required to indemnify and or hold you harmless from any liability for such injuries or damage.

    Warranties for Waterproof Basement, Properly Graded Lot
    Often builders provide no warranty that your home, as constructed, will be completely watertight and lot will be graded properly. You should add a warranty to the contract providing that the basement will be free from penetration of water and the lot free from pooling of water following a rainfall.

    Deposits in Interest Bearing Escrow Accounts
    The contract should provide that all deposits made by you will be held in an interest bearing, federally insured escrow account, with the interest accruing to you at settlement. Do not permit the builder to use deposit monies toward the cost of construction. If he spends the deposit monies on construction costs and then goes bankrupt or becomes insolvent, the likelihood that you will recover your deposit money is very low.

    Specify Location of Driveway and Garage
    Many builder contracts provide that the builder has the discretion over where to locate the garage and driveway. If you have a preference for the right or left, specify in the contract where the garage and driveway is to be located.

    Review Topography Map of the Lot
    When you select a lot, review the builder's topography map to determine if any portion of the lot may be steeply sloped. The topography map will indicate the extent of the slopes and permit you to identify areas on your lot that may not be usable for certain activities. If you are satisfied with the topography map, you may wish to have the map attached to and incorporated into the builder's contract as an exhibit, requiring the builder to grade the lot substantially in accordance with the map.

    Purchasing a new home is often the largest investment many people will ever make. Because most problems that arise during construction of a new home are resolved according to what is agreed upon in the builder's contract, be certain that your concerns are provided for in it. Because each builder uses a different form of contract, it is important to review the contract with an attorney experienced in real estate law, who can identify issues you should address with your builder.