Home Builder Contracts: Everything You Need to Know
Outlining the possible risks may make the contract more lengthy but will definitely be worth the extra time to avoid disagreements that can result from gray areas or areas that have not been fully addressed.3 min read
Home builder contracts are construction contracts that will lay out the responsibilities and expectations between the builder and the purchaser. Home builder contracts will define:
- The details of the work that is to be done.
- The price that the builder expects to be paid.
- The terms and conditions of the payment.
- Any foreseeable risks between the two parties.
Outlining the possible risks may make the contract more lengthy but will definitely be worth the extra time to avoid disagreements that can result from gray areas or areas that have not been fully addressed. Signors are responsible for reading and understanding contracts, so failure to read will not prove to be a valid defense.
Once signed, a contract becomes enforceable and will not be able to be changed unless both parties are in agreement. Therefore, it is important to read and thoroughly understand all of the elements of a contract before signing it.
The basic purpose of a home builder contract is for the buyer to get the house he wants and for the contractor to receive payment for services. A contract will serve as a guideline and reflect this understanding to help prevent or mitigate any problems that may arise later.
Most likely a builder will provide you with a contract before beginning the project, and contracts can range from very basic to extremely detailed. Ideally, the contract will fall somewhere in between the two extremes; including all of the necessary details, but not being so complicated it is hard to understand.
Common Sections in Home Builder Contracts
While home builder contracts are a great way to establish a set of standards and responsibilities that are expected of both parties, disputes can arise. There are some areas in construction contracts that are more commonly disputed than others.
The Scope of Work
This section of the contract will lay out a description of all of the work that a contractor is expected to perform. This section can include any number of things but will most often include the following standard items:
- Permits that will need to be obtained.
- What labor, equipment, materials, and services will be supplied by the contractors.
- A drawing of the house plans, drawn to specification.
Disputes over this section are typically over vaguely defined sections or conflicting plans and specifications. A good rule of thumb is to include a statement about professionalism in this section and performance of all duties in accordance with the law. That way if the contractor's performance is an issue you can refer to this provision in the contract.
The Timeframe of Work Completion
In a home builder contract, this section will lay out the timeline in which work is expected to be completed. You will want to be sure to include:
- When the construction will begin.
- The schedule of work that the contractor is expected to follow.
- When the construction will be completed.
- The terms allowed for extensions, such as "acts of God," permit issues, inspection delays, owner payment delays, poor weather, and any other additions both parties agree to. This can also include a stipulation that the contractor may be required to pay a certain amount if the building is delayed for any other provision except those laid out in the contract.
Even if a contractor may disagree, you might want to consider a provision for seeking liquidated damages. This will help protect the owner from unnecessary delays and incentivize the completion of the work. Depending on the state you live in, you may be required to include a per diem fair estimation of actual damages for this section to be enforceable. It is important to note that this provision is meant to protect the owner from the costs of delay, not to punish a contractor for missing deadlines.
Terms of Payment
This section will discuss the responsibilities of both the buyer and the contractor in regards to payment for work. You will want to make sure the contract includes:
- What form of payment is expected.
- When the owner will pay the contractor.
- How much the work will cost.
Since the builder will often rely on funds from the owner to pay for the costs and materials, there will often be a payment schedule to ensure a steady stream of money to fund the construction costs to prevent a delay in construction.
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