The Basics of a Home Builder’s Contract

Purchasing a perfect plot of land and envisioning your future home build is one of the most rewarding benefits of building your own home. Not only do you have complete control over the design details and features of your new home build, but you also have the privilege of seeing your home constructed from the ground up, slowing coming to life right before your eyes.

Many new land owners who experience their first home build utilize builder’s furnished model homes to gauge the builder’s creativity, ingenuity, and craftsmanship. Seeing a gorgeous model home can oftentimes make you realize exactly what you want in your own home, and with all that inspiration, who can wait to get started on their own home?

Before you sign your builder’s contract on the dotted line, there are some items and terms that you should familiarize yourself with so that you can be comfortable signing the contract and, most importantly, asking the right questions before you do so.

A builder’s contract is an outline of the exact work to be completed, the costs associated with the work, and the terms of payment agreed upon by the lender and buyer. Additionally, a typical contract will lay out potential risks and address contingency plans if some part of the process falls through.

First, be aware that the earnest money on your new home build will be much higher than a standard home. As your builder is creating home that is specific to your needs and requests, should something fall through on your end, your builder needs to consider a potential buyer down the line for the house.

Second, your builder is not obligated to change their price or terms after an appraisal. This means that even if your appraisal comes in at a lower than expected rate, your building contractor’s price will not change.

Third, the timeframe to build a custom home is likely to be much longer than a resale timeline. Because of the lender policy to not lock interest rates for too long, you may not be able to lock in your interest rate until midway through the building process.

Fourth, the project should be laid out and described as well as possible, including intricate details that you and the contractor discussed. The numbers of each kind of room, the framing materials, the square footage, and the types other specified rooms should mentioned be in the contract.

Fifth, there will be a list of exclusions that will lay out exactly what your builder is not responsible to provide or cover. The contract will also state who is responsible for things like legal requirements of the build and supplying utility service contracts.

Most contracts will have sections that include method of payment and payment penalties. When you are looking over your contract, be certain that you are getting the full breakdown of costs. Everything from photocopies to additional charges should be included in your estimate to give you a clear understanding of the costs. Check the penalties associated with late payments as well and make sure that they are reasonable and affordable for you.

If you have agreed upon the use of specified materials for your home build, be sure that those materials are listed in your builder’s contract.

Thoroughly read the Resolution or Anticipated Disputes clause in your contract. These clauses are there to prevent a total meltdown in communication between you and your contractor. Most contracts will include an arbitration clause should a dispute arise. These arbitration clauses keep you and your contractor from heading to court to solve contract clashes.

Additionally, you should know whether you are libel for the contractor’s attorney fees should you go into arbitration. Be sure that you are comfortable with the terms set forth.

It is always recommended that you hire an attorney to review your contract and iron out any details that weigh too heavily in favor of your contractor and box you out of the process. Have two copies of the contract for each party to sign as well as two witnesses.

Though combing through every detail of a builder’s contract beforehand will go a long way to helping the building process move along smoothly, it does not ensure that no situations will arise. By maintaining open and clear communication with your builder, you can remain on top of the building process and be certain that you receive the house you asked for when building is completed.

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