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New-home contracts

You cannot find a home on the market to fit your needs, so you decide to have one built. This is a great idea for many people, but there are many things you need to be aware of.

A new-home contract is a very important part of this transaction since it essentially lays down the rules of how your home will be built.

Many inexperienced buyers do not realize the importance of this document, and will get swindled for various fees and charges they do not really have to pay.

Knowing what to look for on your sales contract is just important as reviewing your mortgage documents.

The article, “Tips for avoiding land mines in new home contracts,” by Steve McLinden for The Wall Street Journal’s MarketWatch, gives some valuable advice on this very important document.

There are various important points to look out for since many of these contracts have various problems in them.

“ Builder contracts can be loaded with hidden land mines. Like most contracts prepared by teams of lawyers for large companies, they're meticulously sculpted to give "the house" every edge possible. What makes the job of those lawyers easier is buyers who purchase directly from a builder who are not represented by an agent or lawyer and will thus sign on the dotted line without really knowing what they're getting into. Sometimes there are only inconsequential issues at play. But often, there are significant ones.”

One of the most important things to look for in a sales contract is the language. While you may not think the wording is a big deal, it actually matters a lot, and could make major differences in the meaning of the contract.

“Language that allows the builder to ‘modify’ your floor plan to conform to the nuances of your lot, making it ‘similar’ to the plans you agreed upon. Look for other elusive phrases like ‘vary only slightly’ or ‘dimensions may vary’ and verbiage that allows the builder to make ‘minor changes’ in the dimension of rooms, walls, windows and doors to conform to your land. Sometimes "minor changes" turn into major ones for you. They can even include flips in floor plans. You'll want leverage to make the calls on all such decisions.”

Closing fees are an essential part of all home buying transactions, but make sure you pay attention to them on the sales contract.

“Mentions of additional fees due at closing, like special assessments that oblige you to chip in for infrastructural elements in your new neighborhood like sewer and utilities and (or) amenities like jogging paths and swimming pools. Make sure that amount, if applicable in your deal, has been agreed upon in advance and is specified in the contract to avoid any surprises. Closing fees of 1 percent to 2 percent of the purchase price. Find out what expenses these fees cover.”

Finally, the author suggests that you employ a lawyer or attorney to review the final documents to ensure that you are not getting swindled.

“So yes, if you're contracting with any home builder to construct a home, no matter how reputable, I strongly recommend using an attorney. In fact, you should request a copy of your sales contract from the builder for the attorney's review well before you sign. If he won't oblige, then tell him you will have to reconsider the deal.”

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