As folks who have recently tried to purchase a home know, the housing inventory has been extremely low in and around York County. This has led to a lot of new construction, which is great for homeowners who want to have input into their home’s design and fixtures. However, there are some things that buyers should be aware of when considering signing a contract to purchase a to-be-built home.
To-be-built purchase contracts are usually quite different from standard residential real estate contracts. They typically are written by the company that is building the home, and as such, are very protective of that company’s interests. This is especially true when it comes to cancelling or terminating the contract, and what happens with the deposit money. Read these provisions carefully so that you understand what happens should the contract be terminated by either the buyer or seller. Also, the seller will likely want to keep the specifications for the home as minimal as possible to allow for leeway in construction. Be sure you are satisfied with how detailed (or undetailed) the specifications are before signing, and how the specifications can be modified after the contract is signed. If realtors are involved, the contract must contain language in bold print that the builder is allowed to modify the specifications without the buyer’s formal approval – if realtors are not involved, this language may be less conspicuously added to the contract.
Often, to-be-built contracts have “estimated settlement dates” and “actual settlement dates.” Sometimes, contracts can be extended by the seller for a number of years, with no way out for the buyer other than forfeiting the deposit money, or worse, being pursued for actual costs of terminating the contract. Be sure you understand when settlement must occur so that you know how long the contract can be extended, and which party has the ability to extend the contract.
Mortgages for to-be-built homes can sometimes work differently than for existing homes. For example, the period of time that can be examined at for credit approval may be longer, meaning more documentation will be needed by the lender, possibly over a longer period of time. Discuss the approval period and approval process thoroughly with lenders that you are considering, and ask about how their approval process differs for to-be-built homes as compared to existing homes.
Typically, standard residential purchase contracts have provisions that require mediation of any disputes arising out of the contract. This may not always be the case in to-be-built contracts; however, it’s still common. This means that if there is a legal dispute, the buyers and sellers will need to mediate the dispute with a mediator first before the dispute can be brought into court. Sometimes mediation is better for buyers because it costs less than bringing an action in court; but may just be an additional expense if the mediation doesn’t result in a settlement of the dispute as the buyer ends up having to bring their claim in court anyway.
In summary, while a newly-built house can be a buyer’s dream home, don’t let the contract turn your dream into a nightmare. It’s best to have an attorney review any purchase contracts before signing to ensure that all the terms are clear. Attorneys in Stock and Leader’s Real Estate Group often represent home buyers and sellers in real estate transactions and litigation arising out of contract disputes. Please contact us if we can provide this assistance to you.