Northern Virginia Realtors

Buying New Construction? Better Read Your Contract.

Bob and Terri,
just a note of caution as you are contemplating the purchase of a "yet to be constructed home" from a builder. The new construction contracts in our area are very long often 40-65+ pages, and they are heavily weighted in the favor of the builder...as compared to our resale contract which is around 20 pages with addendums, and is more contractually even handed in dealing with buyer and seller interests.
 
Also...The new home rep ...no matter how nice they are...works for the builder...not you. They have no fiduciary responsibility to you the buyer. It is his job to represent the seller's interests. 
 
 
Can you buy new construction without headaches and an enormous hassle? Yes. Jan and I enjoy helping folks do this all the time but you need to know that the contractual process that you went through when you bought your last re-sale home is quite different than the legal process of buying a home that is yet to be built. Below are some of the issues that are different in the process of re-sale vs. pre-built construction.
 
In order to start construction, you will be required to make a deposit of approx $45,000 as compared to the $7000-$8000 earnest money deposit you would make in this area when contracting on a $650,000 re-sale home. When you pick your options, the builder will want half of that amount in cash. For example...if your option package is $20,000...you need to bring an additional $10,000 to the table at that time.
 
 In your case, you will be selling your current property in order to move to the new place. The builder has told you verbally that the property will be ready in 4 months. He will not contractually give you a specific date for settlement, as would be the case should you purchase a re-sale home,... so that you cannot contractually be sure that you will have a finished place to move into.
If your new place is not ready by the time the builder says, you will need to plan for temporary housing and storage of your goods unless the buyer of your current home permits you to rent back until your newly constructed home is complete.
The builder is not contractually liable for your inconvenience or expense caused by his delay in delivery.
That is the biggest buyer concern when buying a home that is not yet built...it is common that these delays can and do go on for weeks and/or months. I will tell you again...there is zero contractual protection for you as a buyer against this possibility in the typical builder's contract used in our area.
 
 
 
Steve and Jan Bachman RE/MAXThe scariest part of the new construction contract in Northern Virginia is the afore mentioned clause in the agreement that states that the builders have 18-24 months to deliver the house...(I have seen a new home rep point this out only once to our clients... voluntarily). When this contract clause is brought up... by us.... the new home rep will say that the builder will never let that happen... but we have never seen that clause removed.
 
Here is the average wording of the key clause in every new home contract around here:
 
 "The Seller (builder) will not be liable to Buyer for any damage by reason of delays caused by an Event of Force Majeure or Otherwise.  In the event of a delay caused by an Event of Force Majeure, Seller will have the right to: (i) Terminate this Agreement; or (ii) extend the time for Settlement; provided, that if Settlement has not occurred, or cannot occur, (A) within Eighteen (18) months from the Effective Date hereof because of an Event of Force Majeure, or (B) within Twenty-Four (24) months from the Effective Date hereof for any other reason, either Party will have the right to Terminate this Agreement"..
 
Please not that it is the seller (builder) alone who has the right to terminate up to 24 months...you the buyer do not.
This is the biggest bone of contention and the largest cause of buyer distress. As a buyer's agent, I totally understand why builders want this clause... BUT you my buyer friend are not legally protected from builder delays. All you have is the builder's verbal, non contractual promises.
 This should be your biggest concern...everything else is relatively minor..
 
 
 
When I asked about a very fine local builder about this clause, he replied sensibly that the buyer is risking a very small monetary portion of what he the builder has to invest to complete the building process. This makes total sense from his perspective no? Yet...most new home buyers are not made aware of this clause and the potential risk it entails.
 
Be aware that a small builder may have limited financial resources...and you will not know this. He may be working on the construction of just your property and a couple of others. A small financial glitch...and he can go under. Happens every day.Jan and Steve Bachman RE/MAX He can create a new LLC or corporation and be back in business under another name in a month. Do your homework in checking builder backgrounds.
Also, delays can be substantial if the builder and county inspectors cannot agree on some items of the plan...I have frequently seen 3 month delays getting county approval...you are not contractually protected from this time delay and only have the builder's word that he can resolve them.
 
Be aware, also that when you pick your options like counter-tops, cabinets and appliances... the builder generally reserves the right to substitute " like kind" if they cannot get what you asked for. They try to get you something you like but again... you cannot void the contract if they substitute your appliances with something you do not like.
 
 
 
I do not want to deter you away from buying a new build if that is what you want...they are GREAT...but you need to be aware of the possible areas of concern that lie ahead. Most builders are terrific and will do their best to make you happy and get the property delivered on time...that is when they get paid.
But ...I wanted to make it clear that contractually...the builder has all the protections and you have few... other than his word and reputation.  Jan and I have represented many buyers of new construction and we will be with you to the end of the process to assist and advise... and part of our advice is what I just wrote :-)
 
Thanks,
Steve Bachman
RE/MAX
 

 

Why pay more and get less when selling your home? Jan and Steve Bachman of RE/MAX Gateway use professional photographers, create interactive photo floor plans, print full color brochures, and make an individual property website for your listing that goes out to 40+ public real estate search sites including Realtor.com, Trulia, Zillow etc.

 

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Jan and Steve Bachman are full time Realtors® with RE/MAX, specializing in Homes for Sale in Fairfax, Loudoun, Prince William and Arlington Counties.

    

 

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Comment balloon 75 commentsSteve and Jan Bachman • February 11 2016 07:11AM
Buying New Construction? Better Read Your Contract.
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