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The Building Contract

Contracts vary in form, length, content and print size. Expect standard elements such as the names of the parties, dates, and signatures to show up in every contract. Contracts often contain clauses that address company experiences and regional items. The contract for the purchase of a new home includes a collection of documents. These may include the purchase agreement itself, blueprints, specifications, option and color selection sheets, lighting schedule, site drawing, and limited warranty. Besides drawing this collection together, the purchase agreement includes many common clauses such as those briefly described here.
  • Construction

    The contract lists the plans, specifications, and buyer selections sheet—by name, number of pages, and date—that describe the work to be done. The builder commits to doing this work in a “workmanlike manner” as defined by general practice in the region.

    • Commence and Complete Contruction Understandably, you are anxious for the builder to start your home. However, several preliminary tasks usually need to be completed before the builder begins construction. Many builders wait for the buyer’s loan to be approved before beginning to build the home. Obtaining a permit can take from a few days to a few months. Skilled labor shortages, weather, and change orders can extend the construction schedule. Contracts often specify when the building department issues a certificate of occupancy. The builder should keep you updated about the target delivery date. Seldom does either party intentionally delay the process; the buyers generally want their home and the builder wants to be paid. However, most contracts describe the liability for extra expenses due to avoidable delays caused by either the builder or the buyers.
    • Change Orders Many builders allow buyers to request changes during construction. Wise buyers and builders make all changes in writing, including detailed descriptions of materials and labor whether added or deleted, schedule extension, and costs.
    • Conformance with Plans and Specifications This clause allows the builder to make changes required by code revisions, site conditions, or other events outside his or her control. If a supplier goes out of business or a manufacturer updates models, the builder has no choice but to alter the intended home accordingly. “The builder has the right to substitute materials or equipment of equal or better value” appears in nearly every new home contract.
      Similarly, since a home is handcrafted by human beings, exact reproduction is unlikely. Measurements will vary slightly from any model or plans. The exact placement of switches and outlets, and vents change a bit. Review each detail of your home’s specifications carefully.
    • Plan Ownership Production and semicustom builders own the plans from which they build, even if they allow some custom changes. A few builders will sell a copy and grant permission to use them with limitations. The cost is usually significant since house pans are intellectual property.
    • Site Visits Your builder may restrict site visits due to increased safety regulations and insurance liability. Recognizing buyers’ understandable interest, some builders schedule tours of the home at specified states of construction.
    • Noninterference The builder’s routine inspections identify items that need attention. Your input should be given to the builder, not the people working on site. They have no authority to change anything, and confusion can easily result.
    • Inspection & Acceptance Shortly before closing, you will review your home to confirm that it includes all the items you ordered and that your builder met the promised standards. Most builders combine this tour with an educational demonstration of your new home and discussion of maintenance and limited warranty coverage.
    • Site Clean-Up Keeping the construction site clean and safe it the builder’s and trade contractors’ responsibility.
  • Price and Price and Allowances

    The total cost of your home is stated in the contract. This cost is subject to change based on your change orders and selections. You may be ready to get the building process moving but still need more time to finalize choices for items like carpet, cabinets, tile, appliances and light fixtures. To address these items, you and your builder can agree to an allowance in the contract. An allowance is the estimated cost of each listed item. This amount is included in the contract total and therefore your mortgage. If the actual cost of the item exceeds the allowance, you can pay the difference in cash or ask your lender to approve a higher mortgage.