sales contract
After a long and thorough search, you’re down to the sales contract. You may be assuming that this is just a pro forma document because with the model there, you know what you are getting. But you would be wrong.
The production builder’s sales contract reflects his emphasis on volume and speed. It is written so that the builder can build your house as quickly and efficiently as possible. If a decision has to be made on the spot, the builder wants to do it and move on without debate.
For example, if he must shorten up your garage by two feet so that your House B will fit within the required setbacks on your Lot 35, so be it. The contract will say that the house will be “substantially similar” to the model, but it will not define this precisely. Of course, the builder should tell you if he has to lop off two feet from the garage, but the contract is written so that he is not legally obliged to do so. If the garage dimension is especially important because lopping off two feet means your car won’t fit, you need to explicitly state this in an addendum to your contract.
If a product that the builder would normally use is not available or no longer manufactured, he will want to replace it with something similar; if, for example, your chosen floor tile is unavailable, he will substitute what he thinks looks similar. This, of course, is a subjective judgment, and you may not like the substitute. The builder should tell you that he is switching tiles, but his contract will say he’s not obliged to tell you anything. If you really care about the tile and want to be consulted about a substitution, you must explicitly state this in an addendum.
To clarify the meaning of “substantially similar,” “the builder reserves the right to make substitutions of comparable quality,” and many other phrases in the sales contract detailing exactly what the builder will and will not do, you need to engage a real-estate attorney who is experienced with production-builder sales contracts in your area. An attorney can also raise issues that are not in the contract, such as how to address the possibility that your house will be finished when it’s too cold to pour the concrete for the driveway or install the landscaping.
You may resist the idea of an attorney review because you think it will be too expensive, and you’d rather put that money toward upgrading the carpet. However, a contract review for a production builder contract may cost less than you think. The attorney would charge for his time to review the contract, explain it to you, and compose appropriate addenda. When you contact an attorney who routinely reviews production-builder contracts, tell him who your builder is and ask what he usually charges for reviewing this builder’s contracts. The attorney may already have worked with other clients of this same builder and be very familiar with the contracts, so his or her review may not take as long. On average, an attorney’s review for a production-builder contract should be less than five hundred dollars, and some attorneys will reduce their fees for first-time buyers.
Much of the attorney’s review will simply be explaining the terms of the contract, which can be confusing to the uninitiated. The willingness of the builder to make any changes generally depends on the state of the housing market, and the attorney will know this. When the housing market is hot, the builder won’t be amenable to much. But even if you won’t get many changes, demystifying the contract for yourself is critical, and your contract review will send a signal to the builder that you are a careful and conscientious buyer.
When the market is cold, everything is negotiable, but even then only up to a point. “There are limits on how much a builder will modify a contract,” says attorney Robert McNees of Carol Stream, Illinois. “A lawyer cannot impose terms that a builder won’t accept. The goal is to preserve the transaction so that everyone gets what they want. The builder must have wiggle room or he won’t enter into the contract.”
Specific details of production-builder sales contracts may vary from state to state and jurisdiction to jurisdiction within a state, but as you go from one region of the country to another, the contracts are remarkably similar in certain respects. The listed seller may be a company you never heard of, the house you purchase will be only “substantially similar” to the model you studied so carefully, and no materials are specified.
whoistheseller?
Many buyers are surprised to find that the name of the builder noted on their sales contract is not ABC Homes, whose name is prominently written on all marketing material and posted around the model house, but Little Pine Tree, a legally separate corporate entity.
The significance to a purchaser is that when the project is completed, the builder may fold his tent and disband the separate corporate entity, which can often be a limited-liability company, or LLC. Since your contract is with a firm that no longer exists, you may have a problem if you have a warranty issue. If you have a really big problem after the warranty has expired, effectively, you can’t sue for damages. With a disbanded company, there are no assets and no one to collect from.
If ABC Homes is a reputable builder, the firm will stand behind its houses and address problems that affect appearance and resale potential or structural integrity, even though it is not legally obliged to do so. But “if ABC is on the contract, you are in much better shape to get it fixed. You should ask why they are not on the contract,” advises Orange County, California, attorney Judith Deming.
“Unfortunately,” adds Gaithersburg, Maryland, attorney Jim Savitz, “most builders who do this will not let you put their name back on. So besides asking why ABC’s name is not on the contract, you need to check the local warranty laws and check for written evidence that the builder will still be responsible for problems. For example, in some jurisdictions, whoever pulls the building permit is responsible for the warranty work. If Little Pine Tree is not a licensed builder and ABC pulls the permit, then it will still have warranty responsibility. If the sales agent says, ‘You can trust us to build a good house,’ your position should be ‘trust but verify.’ ”
This practice of listing a separate corporate entity as the seller varies from market to market. In some places all builders, large and small, do this. In others the large, national firms will put their name on the sales contract as the seller, but the small, local ones will not. And in a very few markets, almost no builders list a separate corporation as the seller.
whathouseareyoubuying?
Most sales contracts have words to the effect that the house that you are purchasing will be “substantially similar to the builder’s model,” but “construction of the house may have changes from the precise dimensions of the interior and the exterior.” “Substantially similar,” however, is not defined. All the lawyers said that you won’t get the builder to qualify or quantify what precisely is meant by “substantially similar” or to modify the clause to say something like “the house should be 3,200 square feet within 1 to 2 percent as measured from outside to outside.” But if a particular dimension is very important, for example your garage must be at least twenty-three feet long to accommodate your Chevy Suburban or the clearance when the garage door is open must be at least seven feet to accommodate your Ford Expedition, insist on adding this in a contract addendum, Savitz says. Likewise, if you have an unusual piece of furniture and require that the family room be at least fifteen feet wide as shown in the model, also note this in an addendum, he adds.
This part of the contract may also have a number of disclosure statements. Scott Jackson, an Orange County, California, attorney who prepares sales contracts for builders, advises buyers to read these carefully because “the disclosures describe what is and is not included in your home purchase. The basic home the builder is selling, typically, will not include all of the options and upgrades shown in the model homes. The model is not what the builder is selling. It is the ‘potential’ a buyer can realize if the buyer is willing to spend the extra money to purchase the upgrades shown in the model.”
whatmaterials?
What materials is the builder using for your new house? At best, the sales contract will state that the materials, like the house, will be “substantially similar” to the model. The sales brochure will usually include a partial list that describes things only generically, for example, “vinyl siding.” But as a buyer you need a very specific description—“Wolverine American Legend Double 4 Clapboard Siding, ALD4.” The builder will have a detailed specification list that identifies the siding as well as every other material used in the house, and you should ask for this.
Depending on the market, the builder may or may not give you the detailed list. In Southern California, where buyers have been known to line up, “The sales agent in the model will not have this kind of information and, with a line outside, would be reluctant to give it, as would the builder. The best you can do is to look carefully,” advises Newport Beach attorney James M. Parker.
But, McNees contends, “it’s a good idea contractually to attach the specs. You want to make sure that everybody agrees what is to be done. The more specific, it’s a better contract situation.”
Moreover, most sales contracts for new houses are exclusionary—they exclude everything except the contract and what’s attached to the contract—points out Alexandria, Virginia, attorney Beau Brincefield. He advises his clients to attach the detailed specification list, the elevations, and floor plans shown in the sales brochures, and any marketing materials to the sales contract and reference these in an addendum.
“If the builder says no, you can’t put on a detailed spec list or plans, ask why not,’ ” Savitz urges. If the builder will not let you attach the spec list, floor plans, and other pertinent material, Savitz suggests creating a paper trail by sending the builder a certified letter with all these materials and a letter stating “ ‘I bought the house from you relying on this material.’ This puts the onus on the builder to reply if it’s not true.”
In Bloomingdale, Illinois, where attorney Terry Eland practices, builders routinely have a detailed plan and specifications on file that buyers can examine. He always requests that two copies of the plans and specifications be signed and initialed, with a copy given to the buyer to avoid any later confusion. Most builders will not agree to give the buyer the signed copy of the construction documents, and will only incorporate the documents by reference. Even if a builder does give buyers a signed set, Eland still advises buyers to go to the builder’s office and study the plans and specs carefully, to make sure that they are getting what they think they are.
Many, if not most, of the details shown in the model are upgrades and will not be included in the standard house. Besides the more obvious ones such as crown moldings and chair rails in the dining room, the pocket doors and all the mirrors in the master bathroom may also be upgrades. This is one aspect of the sale where a buyer’s agent can be particularly helpful, Eland says.
substitutions
A production builder’s sales contract will state words to the effect that the builder “reserves the right to substitute materials or equipment of comparable quality (in builder’s sole discretion).” Since the clock on the builder’s construction loan is running while he’s building your house, time is definitely money. The builder wants to adhere to a fast-paced schedule, so in theory the substitution clause is not unreasonable.
The builder, however, is the final arbiter of what constitutes “comparable quality,” especially if he won’t give you a detailed specification list to use as a basis of comparison. As a general rule, a reputable builder will inform his buyers when a major substitution is made (for example, vinyl siding is substituted for aluminum siding), but not when a minor one is, such as a different bathroom light fixture.
Ann Arbor, Michigan, attorney Sherry Chin says she always suggests that buyers add a clause stating that the buyers must be notified of any substitution, but in most cases the builder doesn’t want to be bothered and won’t agree. You may, however, get the builder to agree not to substitute a certain specific item, Savitz says. “If there’s a particular item you can’t live without, and without it you don’t want the house, you may get the builder to agree on that one item. But you need to be very specific—for example, you want the exact same chandelier as shown in the model.”
Substitutions can be problematic aesthetically, Eland points out. “If you are building a contemporary-styled house, you don’t want colonial-styled cabinets in the kitchen.” His solution is to modify the substitution clause to say that it will not apply to things with aesthetic value and that any changes in this regard, such as kitchen cabinets, other cabinets, flooring, and trim, must have purchaser’s input and approval.
You also don’t want the wrong color on the cabinets, so attorney McNees adds a substitution clause stating that the substituted item must also be of comparable color.
lotandsiteplan
The sales contract for a production builder will usually state that the location of the dwelling on the lot will be determined by the builder. Since he must conform to local setback requirements as well as existing lot contours, this is reasonable. But the builder may end up placing the house on the lot in a way that you won’t like.
To prevent any unpleasant surprises on this score, however, you should state in a contract addendum that the contract will not be finalized until you have reviewed and approved the builder’s proposed site plan. This is especially important if you want to build House C with a sunroom and deck on a lot where the builder intended to put House B, which has a radically different footprint. To get House C to fit may require only a simple reversal of the plan (putting the garage on the left instead of the right), but the plan reversal may produce unwanted results. You may lose that dramatic circular driveway you really wanted, or end up with an “unusual orientation,” or even worse, lose the view from the family room that you paid a lot premium to get.
Even if you want to purchase House B on a lot where the builder intended to put a House B, the fine print of the contract can state that the builder reserves the right to reverse the plan. You should insist on an addendum stating that you have final site plan approval, no matter which plan or lot you want to buy.
Since the lots may vary in size or shape, the setback requirements may also affect the overall dimensions of the house or particular rooms, such as the garage. If a particular dimension, such as the length of garage, is especially important, you need to check this detail on the builder’s proposed site plan.
Some firms require buyers to sign off on a proposed site plan before the firm will begin construction, but you should firm up the site plan before you sign the contract. If House C won’t fit and that’s what you want, you may have to pick a different lot or move on.
trees
The sales contract will likely state that the builder shall remove any trees on the lot that may interfere with construction, and that the builder is not responsible for any damage or destruction to any remaining trees. If trees are important, get the builder to walk the lot with you and mark the ones that will have to go, so that you will have an idea of what the lot will look like after the house is finished. When a lot is small, this is especially important because the builder has to have room for the construction equipment to maneuver, and will remove trees from a larger area than the house itself will occupy.
If you are choosing a particular lot because of its mature trees, bring in an arborist to help you assess the situation (for more on this, see Chapter 10). If you are paying a premium for trees that will be lost to construction, you may want to choose another lot or get the builder to reduce the price of this one.
If a large number of trees must be cut down and you want new trees planted after the construction is complete, include this in the contract addendum and be explicit, stating the number of trees, their species, and their maturity (this is usually stated in terms of their diameter). The builder may regard this as an option and charge you for it, but you may be able to make the case that they’re a replacement for what he’s cutting down, especially if he’s charging extra for a treed lot in the first place.
deliverydate
The builder will give himself as long as possible and then some to get the house completed, in some markets as long as two years. When the market is very hot, you won’t have any luck getting him to change the delivery date or even to add a clause that states that if the house is not finished on the promised date, you will be refunded your deposit money.
Even a builder who promises to deliver the house in 120 days will simply not allow himself to be penalized for not delivering the house on the promised date for delays due to weather, acts of God, or shortages of materials or labor. You can get tied up indefinitely, waiting for your house to be finished. If the interest rates go up while you are waiting, you may not be able to qualify for the mortgage, even though you qualified when you negotiated the sales contract. Should this happen, you will lose your deposit money as well as the house. This is simply a risk that a buyer of a brand-new house incurs, McNees says. The only thing you can do to protect yourself is “to keep your earnest deposit money as low as possible and not put everything on the razor’s edge to buy the house.”
You also need to develop a backup plan that will allow you to stay in your present house as long as possible. For more on this, see Chapter 11.
closing
Some sales contracts stipulate that the builder is required to give only five days notice of the date of settlement, at which time the buyer assumes ownership. You should insist on changing this to have adequate time to arrange for a move. Since the builder will be monitoring construction carefully, he will know the general date well in advance, and he should be willing to give at least fourteen days notice, but thirty days would greatly facilitate your move-in.
Before you sign those final papers and assume ownership, you may want a private home inspector acting in your behalf to do a walk-through and make up a punch list of all incomplete items that the builder must come back and finish. But, attorney Chin points out, typically the contract says the builder will do a final walk-through with the buyer. Some builders will balk at letting a private home inspector hired by the buyer do a separate inspection, so she always recommends that this be included in an addendum. Sometimes the builder wants to approve the inspector because he had a bad prior experience with an especially picky inspector, which is a reasonable condition.
If the weather is good, the punch-list items are usually minor. When the weather is bad, and it’s too cold to pour concrete for driveways and sidewalks or install any landscaping, the unfinished work can be substantial. To ensure that the concrete work, which can affect the value of the house if left unfinished, really will be completed, some lenders require the buyers to escrow as much as ten thousand dollars. That is, the buyers must set aside ten thousand to pay for the concrete work. If the buyers don’t comply, they won’t get the mortgage and the house.
This possibility will not be stated in a sales contract. But attorney Eland said such a nightmare scenario can happen in his area with cold winters. He suggests adding a clause to the contract that the builder will put up escrow funds for weather-delayed items if the lender requires it. When alerted to the possibility that the lender’s escrow demands could scotch the deal—if the purchasers can’t come up with the money, the builder will be stuck with selling the house—most will acquiesce and agree to put up the escrow funds, he says.
Other than weather-related items, however, production builders will invariably refuse to escrow any funds for punch-list items because they know from experience that after the buyers move in, the punch list will lengthen, Savitz says. Most contracts also state that the buyer cannot delay closing over punch-list items.
Where it is customary for the seller to provide a title insurance policy, as it is in Michigan, Chin says the contract should require the seller to provide a title insurance policy in the amount of the final sale price. To get this, you may have to add an addendum. The title insurance will not necessarily protect the purchaser against construction liens (mechanic’s liens) because most title companies exclude such coverage in new construction. In Michigan, the buyer has to look to the reputation of the builder on construction liens. In some states, such as Maryland, however, a production builder, not the buyer, is responsible for all the mechanic’s lien waivers.
Before the buyer is required to close, the contract should also require the builder to produce written verification of approval by all governmental inspectors, and this may be another addendum item, Chin says. In Michigan, a certificate of occupancy is also required.
Many production builders will offer to pay some of the closing costs, but only if you use their preferred lender or title company. A builder’s sales agent may assert that the builder’s lender’s rates are very competitive, but they may not be, and you should check the rates offered by other lenders. You may find that when you factor in the builder’s incentives, he does offer the best deal. But if you could use his incentives with a different lender, you may get an even better deal. In an up market, a builder will insist that his incentives are not portable; in a down market, some builders will let you use their incentives with a different lender. To do this at closing, you must negotiate it at the time you sign the sales contract and include it as an addendum item.
Some builder’s sales agents may assert that once you sign on with their lender you can’t switch down the line if you find a better deal somewhere else that does not include the builder’s incentives. If your initial decision to use the builder’s lender is noted in the sales contract (which it often is), you may be contractually obligated to stay with the builder’s lender. To give yourself the opportunity to switch, you need to include a clause in your sales contract along the lines of “The buyer will use the builder’s lender if he can match the competitive mortgage rates the buyer can get elsewhere at the time of closing.” By tacking on the added phrase, “Buyer’s alternative financing will be at no added cost or risk to the builder,” he will be more amenable to this arrangement. This will allow you do to some more mortgage shopping when your house is about 60 days from completion and switch (for more on this, see Chapter 4).
Some builder’s contracts pass on costs to the buyer that are traditionally and sometimes legally the seller’s expenses. An example in Michigan is the transfer tax, which is $8.60 per $1,000 of the purchase price (for a $200,000 house, this would be $1,720), a big, unexpected cost at closing. Typically, the builder’s sales rep does not explain this to the buyer.
Another cost item that can be significant to the uninitiated buyer is special assessments, Chin says. Typically outstanding special assessments (for example, road improvements or sewer hook-up fees) are paid off at closing by the seller, but often the builder’s contract passes these through to the buyers. If there is a five-thousand-dollar outstanding balance on special assessments, effectively the buyer is paying five thousand more for the house without realizing it. Again, the builder’s sales rep often does not bring this to the attention of the buyer, and sometimes does not even know there are outstanding special assessments. If the buyer’s attorney sees such a provision on the contract, the buyer may be able to negotiate it out. At the very least, the attorney can find out what the outstanding balance of special assessments is.
The buyers can be in for an even ruder awakening if the buyer’s lender insists that the special assessments be paid off at closing, Chin adds.
The builder will say that the house will be clean when you take possession, but you want it professionally cleaned, especially if you have small children. You do not want any small pieces of anything on the floor, and you don’t want dusty, dirty windows, bathrooms, or kitchen surfaces.
warranties
The best warranty is succinct and sweet. As attorney Chin puts it, “The best one reads, ‘The builder will warrant against defects in workmanship and materials for three years.’ ” With most production-builder contracts, however, the warranty is quite lengthy and most of the description is disclaimers, stating what the builder will not do. Since a builder can try to disclaim what he is legally required to warrant, this is one place where a legal review is very helpful.
In some states, such as Florida, a builder is not required to warrant the house at all. It’s purely voluntary. In other states, a builder is required to warrant the house for a specified period of time, whether he explicitly says so or not; this is called an implied warranty. The implied warranty in Michigan, which only applies to structural defects, runs for six years. In California, the implied warranty for structural defects is ten years. In Virginia, the warranty is broader. Both structural and workmanship items are covered, but only for one year; the foundation is warranted for five years.
In addition to the implied warranty, a builder may offer an express warranty, which can be whatever the builder says it is. Since this can vary from builder to builder, you should read this part of the contract carefully. For example, in Michigan a builder can offer an express warranty that is nontransferable, Chin says.
If the builder listed on the sales contract is a separate corporate entity or an LLC that was disbanded when the project was built out, you will have no warranty protection even if the state has an implied warranty law and the problem occurs during the time period when a warranty should still be in effect. “If in year nine you have a problem and the builder/developer is an LLC, he’s long gone. The ten-year rule in California will help you if you use a well-known builder whose name is on the contract,” attorney Parker says.
In some production-builder sales contracts, the builder expressly states or requests the buyers to initial a waiver of the builder’s implied warranty. If such a clause appears in your contract, you should ask why. “If the house is well built, why does a builder need a waiver? If you use it as a defense, you must have felt there was a reason,” Deming said. If the builder insists that you agree to the waiver, think twice about buying a house from him. If he’s reputable, he shouldn’t be asking you to sign away your right of redress if he doesn’t deliver.
Many builders also include a third-party ten-year limited home warranty in their sales package. Unfortunately, a house can have problems that do not meet the warrantys’ standard, but they make the house impossible to sell and reduce its asset value dramatically (for more on this, see Chapter 11).
gagrules
Some contracts specifically state that if you are unhappy with the builders, you cannot post signs in your windows or picket the sales office. If the builder insists that this innocuous clause remain, ask why. Rather than explicitly stating that you cannot post a sign complaining about the builder, the contract may simply say “no sign” or “no large sign” allowed. This stipulation may be stated in the Home Owner’s Association (HOA) rules that you accept as a condition of the contract, rather than in the contract itself. This is one reason that you should read the HOA documents before signing the sales contract. Of course, the builder doesn’t want to scare away new prospects with signs that malign him. But buyers who are driven to such tactics are generally not nitpickers complaining about paint drips. They are very distressed home owners with real problems.
litigationclause
In many states, attorney fees are not paid to either party as a matter of course; these must be written into the contract. Depending on the laws in the state where you are purchasing the house, the contract can explicitly state that if the buyer sues the builder, the buyer will pay all legal fees of both sides. You should change such a one-sided clause to read that the loser will pay all costs, or that each side will pay its own costs regardless of the outcome. If the builder won’t budge on this, ask why.
Bear in mind, however, that if you end up locking horns with the builder, the cost to litigate will be huge. This is yet another reason to check the reputation and credibility of the builder before you enter into an agreement with him. Though legal fees can vary across the country, the cost for a simple trial without a jury can be as much as twenty to sixty thousand dollars. You will have to shell out all the fees yourself until a judge has ruled on the case, which could be several years. Even if you are clearly in the right, it may be less costly to eat the repairs, especially if you have to pay your own attorney’s fees. If you ultimately are awarded $100 thousand but you have to pay sixty thousand dollars to an attorney, you aren’t that much ahead.
Rather than go to trial, you may be better served by hiring a lawyer to negotiate a settlement. “Normally the issue is not the money, but results. The buyer wants the builder to redo the work and that won’t cost so much,” attorney Haber says.
Some sales contacts stipulate mandatory arbitration of any legal disputes between buyers and the builder. Arbitration used to be favored, but now it’s not necessarily the case. Deming says, “Arbitration has been sold as quicker and cheaper than litigation, but usually a buyer will get a lesser award, so it’s to the benefit of the builder, who worries that if there’s a big jury trial, the buyer will get a big award. An arbitration judge can be a seasoned judge who won’t get inflamed. In addition, if the buyers sign an arbitration clause, the builder may get up to half off his liability insurance rates. But if you arbitrate, it won’t necessarily be less expensive for you because you still need to hire an attorney.”
addendumitems
The addendum contains all items agreed to between you and the builder that are not in the body of the contract. Here are some examples of specific addendum items:
♦ Specific dimensions of specific rooms. For example, the interior dimensions of the garage must be at least twenty-three feet in length to accommodate your car.
♦ Specific items shown in the model. For example, the exact same chandelier as shown in the dining room, including manufacturer’s name and item model number.
♦ Incorporation by attachment—you are attaching to the contract all plans, elevations, and descriptive material and a specification list as provided in the sales brochure, and, if possible, the builder’s own detailed specifications and drawings that he is using to build the house.
♦ Substitution of any items of aesthetic value require your input and approval. For example, the kitchen cabinets, other cabinets, flooring, or any other substituted items must also be of the same color and quality as the originally specified and agreed-upon item. If a specific upgrade that you specify is not available and one of lesser quality is used, you will be notified and credited the difference.
♦ Proposed site plan for your house. The contract will not be finalized until you have reviewed and approved it. If you do not agree to the builder’s site-plan proposal, you have the right to declare the contract null and void and your deposit will be refunded.
♦ Your lot selection will be subject to approval by a licensed landscape architect before the contract is finalized.
♦ If at the time you select a lot the landscape architect advising you determines that the slope of the finish grade may be less than 3 percent, closing shall be contingent on the builder’s correction and the landscape architect’s approval of the final grading of the lot.
♦ The builder agrees to minor modifications of the plan to facilitate buyer’s landscaping plans. For example, adding a door to the breakfast area, relocating an outdoor air-conditioning condenser, widening the front walk to forty-eight inches, adding a second walkway from driveway to the front door.
♦ If you are purchasing a particular lot because of its mature trees, your lot selection will be subject to approval by an experienced arborist. If the builder will be cutting down trees that you want him to replace, explicitly state the number of trees to be replaced, their species, and maturity. If you want the trees to be planted in a certain place, state that you must approve the location of each new tree.
♦ Any verbal agreements made by the builder or his sales agent must be explicitly stated here. For example, the builder will move the doorway to the master bedroom one foot to accommodate your dresser. Or the builder will include as promised, without charge, the one-thousand-dollar upgraded bay window in the family room. If you get a lot of options, and the market is slow, a builder will frequently throw in a couple of extras.
♦ Terms for completion of work delayed by weather. If your house is completed when the weather prevents completion of all outdoor work, for example landscaping and pouring concrete, the builder agrees to complete the work when weather permits. If the lender requires an escrow amount for the concrete work and landscaping work before the mortgage will be approved, the builder agrees to escrow the required amount, which can be as much as ten thousand dollars.
♦ The house shall be professionally cleaned prior to closing.
♦ You will use the builder’s lender if he can match the competitive mortgage rates you can get elsewhere at the time of closing; otherwise you will use a different lender.
♦ The builder agrees to let you use his financial incentives with a different lender.
♦ The builder agrees to let you use his financial incentives toward the purchase because you will not be using his lender. (For example you can use the $3,000 closing cost contribution toward a hardwood floor.)
♦ The builder’s special assessment fees for road improvement, sewer hookup fees, and so forth shall remain the seller’s responsibility and shall be excised from the closing costs due at closing. If you can’t get the special assessment fees completely excised, state the reduced amount here. If you cannot get them even reduced, then explicitly state here what they are.
♦ The seller agrees to pay for a title insurance policy in the amount of the final sale price.
♦ The seller agrees to pay the transfer tax due at the time of closing.
♦ The seller agrees to pay for all special assessments, such as charges for road improvements, before closing. You as the buyer will not be responsible for these special assessments.
♦ At the time of closing, the builder will produce copies of all government inspections including the final certificate of occupancy for you to keep with your records of the purchase.
♦ The litigation clause will be revised so that either the loser will pay all legal fees or each side will pay its own fees.
♦ The contract will make no mention of a private home inspector. If you want one, you must state here that the builder agrees that you can bring your own home inspector onto the job site to inspect the work at specified times and at the end before the final closing. The builder may want approval over your inspector choice if he has had a previous unpleasant experience with an especially picky inspector.
Although it seems elementary, “Everything must be written down,” says Orange County, California, attorney Judith Deming. If all the verbal agreements and promises given by the sales agent are not written down and included in a contract addendum, the builder is not legally obliged to honor those promises. “The builder may honor the agent’s verbal assurances, but buyers risk that he won’t if they don’t insist on getting everything in writing.”
Unfortunately, in Orange County, where Deming practices, “Buyers have been frantic and camping out all night to get a new house. There’s a finite number of houses, and buyers are scared that they will miss out, that the interest rate will go up, so they throw caution to the wind. They drop their defenses and make concessions, and don’t get everything written down.”
Moreover, with so many buyers, agents do not always take the time to explain things carefully, Deming says. “Certainly not every builder and every sales agent misrepresent things, but buyers should be aware that in some sales environments, confusion abounds. What is in the basic house and what is an upgrade? Everything in the model may be an upgrade and only a ‘shell house’ is being sold, but this is not made clear to buyers. You sign for an upgraded tile. You may get lesser quality if the upgrade is not available. This may be known to the sales agent but not always made clear. If the agent deals with the buyers ten hours or one hundred hours, they’re paid the same money, so some of them have no incentive to explain.
“After the basic contract is worked out, the buyers deal with a non–real estate professional who might say anything to finish the deal. They make promises that are not borne out in the paperwork, and buyers rely on this,” Deming says.