New Construction Sale Contract

The majority of builders use their own contract or one issued by the Home Builders Association. The various contracts have many similarities although some aspects are peculiar to the particular builder. Some items that are included in many builder contracts are discussed below. However, this summary cannot include all terms of every contract.
Because each builder has designed his own sale contract, unless he is a member of the Home Builder's Association and uses the Association's contract, it is of utmost importance to carefully read and fully understand its contents. You are encouraged to engage the services of an attorney who may make suggestions after reviewing the builder's contract. For example, certain builders have a paragraph stating that any payment or portion of payment made to the builder after the builder's acceptance of the contract shall be considered satisfaction and/or a waiver of any contingency. Certain builders consider a buyer's offer irrevocable from the time of the buyer's execution and delivery of the contract. The offer remains open for a specific time period or until the builder accepts, whichever comes first. If the builder does not execute the sale contract within the specified time period, the contract is considered rejected.
The earnest money on new construction is made directly to the builder and most often is not held by a third party. The builder does not segregate these funds and they may be commingled with the builder's general funds. Occasionally, a builder's policy is that the earnest money is deposited in the escrow account of a title company. It is important that the buyer be aware of the disposition of the earnest money.
The majority of builders accept financing contingencies for a limited time period. However, generally, no construction starts until the buyer's loan approval is issued by the lender and received by the builder. Most builders have the buyer waive the financing contingency once the loan is committed. Should the buyer fail to obtain financing, many builders reserve the right to secure said financing. It is wise for the buyer to speak to his own lender to ensure interest rates and points are at current rates. Another issue in securing financing for new construction is the length of time the lender will "lock in" the interest rate. Most lenders will assure that the quoted rate will be in effect for 45-60 days only. For an extra fee the lender may "lock in" until the close of your new home. General economic conditions usually dictate whether or not a long "lock in" is feasible or desirable.
The builder may reserve the right to make changes in the plans or specifications or to substitute materials of similar quality. These changes could be based on improved construction materials or techniques, the unavailability of the original materials, or some other reason.

In the event rock is encountered upon excavating or the cost of the materials, labor or other construction-related expenses increase, the builder may increase the sale price. The buyer is usually granted a specific period of time, which varies with each builder, to accept the increase or terminate the contract.
Most builders reserve the right to control the grading, engineering and contours of the lot and subdivision within one to two years of closing. Most subdivision plats contain a dedication of the streets to the county or city in which the subdivision is located. Until such time as the streets are accepted for maintenance by that particular entity, the homeowner's association is responsible for all repairs and maintenance.
At closing, many builders provide the buyer with a limited warranty program. The builder's obligations and a third party warranty, if offered, are clearly recited in the sale contract.
If at any time before closing there is a disagreement between the buyer and the builder, the builder reserves the right to cancel the contract and return all sums paid by the buyer to the builder. Some builders reserve the right to repurchase the property from the buyer with certain increases over the sale price, should the buyer assert a claim against the builder. The time period may vary from one to five years after transfer of title to the buyer. Some builders have a mandatory arbitration clause in their contract, specifying that in case of dispute, the buyer agree to arbitrate rather than filing suit against the builder.

It is strongly advised that any modification of the sale contract be made in writing. No change is minor; all must be in writing to be enforced.