Buying New Construction

Buying a new construction home is a dream for most homeowners, but can also leave a lot of room for contractual error. Here’s what to know before buying or building a new home.

Buying a new construction home or condo can have its advantages, but it also comes with a different set of considerations than a pre-owned property—especially from a legal standpoint. Unlike the standard form contracts used for the purchase of a pre-owned house, there is no standard form contract used for the purchase of new construction property. Every new construction contract is different, so it’s important to review each provision with a qualified real estate attorney. But here are a handful of key terms to know:

Warranties. Most, if not all, new construction contracts come with a limited warranty from the builder, but not all warranties are created equal. The standard limited warranty usually limits the warranty to claims related to faulty workmanship and/or materials on the part of the seller and is customarily effective for a period of one year. Items such as plumbing leaks and toilet adjustments are usually warranted for a shorter period of time, and appliances will likely be excluded as they are covered by the manufacturer’s warranty. Carefully review the warranty offered by the builder with your attorney before signing the final contract for your purchase.

Representations. A key difference between resale contracts and new construction contracts is the buyer’s ability to conduct an inspection of the property at the beginning of the contract negotiation process. Because the buyer is unable to conduct an inspection of the property at the time of the contract’s inception, it is essential that the purchase agreement include “Seller’s Representations.” These representations should, at the very least, include that the property will be constructed in a good workmanlike manner, free and clear of any and all liens and encumbrances, and in accordance with the floor plan. If the builder agrees to install certain fixtures and/or appliances, any representations as to these items should also be included in the contract.

Substantial Completion. Unlike residential resale contracts, the closing date on a new construction property is not always predetermined. Instead, there is an estimated closing date with a certain event occurring in the construction timeline that is used to trigger the actual date to close. In most cases, substantial completion is used to establish a closing date. However, many new construction contracts do not provide a definition of “substantial completion;” making it extra important to determine a comprehensive and thorough definition of this term with your attorney, so that you won’t be required to close on an incomplete property. It is equally as important to spell out what will happen if the property is not complete by a certain date.

Final Inspection. Most new construction contracts contain a provision to allow the purchaser to conduct a final walk through of the property, for the purpose of creating a definitive list of items that must be repaired and/or replaced by the seller, referred to the as “The Punch List.” The contract should allow for the purchaser to bring an inspector to the final walk through for assistance in the creation of the punch list.

Having an experienced real estate attorney assist in the review and negotiation of a new construction contract can significantly reduce the stress of the process. If you are considering purchasing a new construction property, contact Anselmo Lindberg & Associates to walk you through the process.

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