Realtor® Attorney Joint Committee

New Construction Contracts: What to Look for as a Buyer or Realtor®

By: Mallory Moretti, Esq., Berlin Patten Ebling

The Florida housing market is at an all-time low for inventory, yet has the highest demand. With such little inventory of resale homes, new construction homes are selling just as fast, with some builders halting new construction all together because supply cannot be matched with the current demand.

NEW CONSTRUCTION AGREEMENTS

When a buyer wants to purchase a new construction home, the builder typically has their own standard contract for the buyer to sign. New construction agreements can be extremely complicated and very lengthy compared to the AS-IS or Standard Contract that most Realtors® and buyers are familiar with. It is important that the buyer thoroughly understands the builder contract prior to executing. The new construction agreements are typically one sided and offer very little protection to the buyer in the event that an issue arises.

SOME QUESTIONS TO THINK ABOUT BEFORE ENTERING INTO A CONTRACT FOR NEW CONSTRUCTION ARE AS FOLLOWS:

1 | Change Orders: Is the process for making changes to the project clear? Does the builder have the ability to make changes to materials, fixtures, or equipment without the buyer’s consent? What is the written process (and price) for any requested changes? 2 | Timelines: Does the contract provide a definitive timeline for the start and completion of work? Are there penalties if the builder misses the start date or completion date? 3 | Plans: Are the plans of the project adequately described in the contract, and does the buyer have any recourse if the developer fails to construct the project in accordance with the plans detailed in the contract? 4 | Deposits: How much does the contract require to be paid upfront to the builder? When are the deposits due? Are the deposits refundable? 5 | Draw Schedule: Is the draw schedule clear? Does it provide for payments that are proportional to the work being done? 6 | Inspections: Does the contract permit inspections of the work as a condition to each draw, and more importantly, as a condition to final payment? 7 | Punch List: Does the contract address what items would be considered minor items to be included on the punch list, and provide a timeframe for completion of the punch list? Is there any option for an escrow holdback of a portion of the final payment until all punch list items have been completed? 8 | Lien Waivers: Does the contract require lien waivers as a condition to each draw, and more importantly, as a condition to final payment? 9 | Financing Contingency: Does the contract provide a loan approval period or any financial contingencies for the buyer? 10 | Closing Date: How many days’ notice does the contract provide for notice to the buyer prior to setting the closing date?

Because of the risks involved with purchasing a new construction home, it is strongly encouraged that any person considering a new construction home fully research the contractor and obtain legal representation to review and negotiate the contract. A qualified real estate attorney can work with a buyer to ensure that the contract protects the buyer’s best interests. •