Key Takeaways

  • A contract of purchase and sale outlines the terms between a buyer and builder in a new construction home transaction.
  • These agreements often differ from resale agreements and include unique provisions like construction timelines and design deadlines.
  • Buyers should review contingencies, builder warranties, timelines, financing clauses, and termination conditions carefully.
  • Legal and professional guidance, including real estate attorneys and buyer agents, is strongly advised for protection.
  • Financing and home inspection considerations remain critical even in new construction.

A new construction purchase and sale agreement or sales contract is similar to a resale contract but applies to a newly built home. It contains information such as the project's estimated closing date, the terms of the contract, who will be responsible for which expenses, and other obligations for the builder and buyer.

What to Look for in a Purchase and Sale Agreement

New construction purchase and sale agreements protect the builder by making sure that individual will be paid for his or her work, while also protecting the buyer against the home being sold to someone else. In addition, there are several things in the contract you should look for:

  • The date by which you need to finalize your design requests.
  • The date by which you need to have financing approved.
  • The price you will pay.
  • The location where the property will be built.
  • The deposit amount, also known as earnest money.

Under a new build contract, you might have 30 to 45 days to back out of the agreement as a buyer if you have problems securing a loan. However, the builder will often attach penalties to this, such as withholding a portion of your deposit. If your loan falls through later in the building process, the builder will generally keep your earnest money.

Key Clauses to Review in a New Construction Contract

New construction contracts of purchase and sale often feature builder-friendly terms, so buyers should be especially diligent in reviewing the following provisions:

  • Construction Timeline: Specifies when the project will be completed and delivered. Delays may occur, and contracts often include leeway for the builder.
  • Contingencies: Look for contingencies that allow buyers to exit the agreement if certain conditions aren't met, such as financing or appraisal issues.
  • Inclusions and Specifications: The contract should clearly define materials, finishes, and any included appliances or fixtures.
  • Builder Warranties: These outline the coverage and duration for defects or structural issues post-closing.
  • Change Orders: Clarify how modifications to the original plans are handled, including any fees or required approvals.
  • Escrow Terms: Understand how the deposit or earnest money will be held and under what conditions it may be forfeited or refunded.
  • Walkthrough Rights: Determine when and how many walkthroughs are permitted prior to closing.

Securing Good Buyers' Terms

To make sure you get the best deal, hire an agent to represent you when you start looking for a new home. If you don't get an agent at the outset, the builder could refuse to cover the agent's fee if you try to hire one at a later date. In addition, if you visit the building site without an agent, the builder might force you to work with their agent.

Remember that whatever the builder's sales agent says, that individual is paid to represent the builder's interests and not yours. He or she might attempt to pressure you into signing a contract that doesn't give you a fair deal.

As well as representing you, your agent will cover the positives and negatives of the proposed purchase from your standpoint. Builders' agents are not required to explain the drawbacks of a deal to you.

Negotiating Builder Incentives and Financing Clauses

Builders often offer incentives, such as upgrades or closing cost assistance, particularly when buyers agree to use a preferred lender. While these offers may be attractive, it’s important to:

  • Compare Offers: Don’t automatically accept builder financing. You may get better loan terms elsewhere, even without the incentives.
  • Check for Loan Locks: Confirm whether your interest rate is protected if the build is delayed.
  • Assess Incentive Strings: Ensure that any perks do not come with unfavorable contract terms or inflated base prices.

Having your agent or attorney review these elements ensures you're not giving up critical protections for short-term gains.

Finding a Lender

When looking for a lender to fund your purchase, don't choose the builder's lender immediately. First, find out if there are any incentives available to you if you choose the builder's lender.

If there are none, you might get a better deal by inquiring at your bank or credit union. Alternatively, your agent might be able to suggest other options.

Your bank might be able to offer you good terms if you have a strong banking and credit history. Before you finalize your loan, speak to your lender and find a mortgage broker or banker you can trust.

Legal Representation

You might also find it helpful to talk to a real estate lawyer before signing a purchase and sale agreement. From your point of view as a buyer, it is crucial that specifications, floor plans, and amenities are written into the agreement.

Although your builder might use a standard purchase agreement, these contracts do not automatically contain terms favorable to you. Things a lawyer could help you with include:

  • Your cancellation rights.
  • Your liability and obligations.
  • Whether any materials used in the project pose a health risk.

Another critical provision you want to have included is one that protects you if you lose your interest rate due to a delay in construction.

Differences Between a Purchase Agreement and a Contract of Sale

While the terms are sometimes used interchangeably, a purchase agreement typically refers to the broader negotiation document that outlines the buyer and seller’s intentions. In contrast, a contract of sale (also called a contract of purchase and sale) is the binding legal agreement that finalizes those terms.

Key distinctions include:

  • Timing: A purchase agreement may be a preliminary document, whereas a contract of sale is often finalized closer to closing.
  • Legal Effect: The contract of sale legally obligates both parties to perform—transfer of title in exchange for consideration.
  • Structure: In new construction, the contract of sale is generally more complex and detailed due to phased construction and builder-specific obligations.

Understanding these differences helps clarify your legal standing at each phase of the transaction.

Home Inspections

To check on the project's progress, consider hiring a home inspector. As long as you make sure you or your agent have permission to access the site during construction, your inspector can make sure everything is going to plan.

When you hire an inspector, be sure to get one who is fully qualified for the job. If possible, attend the inspection yourself so you can ask questions about any possible issues. In the event your inspector tells you that a further inspection is needed, ask him or her whether they have identified a serious problem or are qualified to make a judgment.

Common Pitfalls in New Construction Contracts

Even with professional help, buyers should be mindful of several common issues:

  1. Missing Deadlines: Buyers may inadvertently forfeit rights or deposits by missing deadlines related to financing, design selections, or inspections.
  2. Overly Broad Builder Discretion: Some contracts allow builders to make material changes without buyer approval, which can lead to disputes.
  3. Limited Remedies: If the builder fails to deliver as promised, buyers may find their ability to seek damages or cancel the contract is restricted.
  4. Unclear Closing Dates: Flexible or "estimated" closing dates can complicate loan lock-ins or move-in planning.

Reading the fine print and negotiating more balanced terms is essential—especially with regard to delays, warranties, and defaults.

Frequently Asked Questions

  1. What is the purpose of a contract of purchase and sale in new construction?
    It outlines the terms, obligations, timelines, and contingencies in the purchase of a newly built home, serving as a legally binding agreement between the buyer and builder.
  2. Can I cancel a new construction contract after signing?
    Yes, but only under specific contingencies or with financial penalties. Review the contract’s termination and financing clauses carefully.
  3. Do I need a lawyer for a new construction contract?
    It’s strongly recommended. Builders use contracts that favor them, and a lawyer can help ensure buyer protections are included.
  4. What happens if the builder delays construction?
    The contract may allow for extensions, and buyers might lose rate locks or incur moving costs. Legal remedies vary based on contract language.
  5. Is a contract of sale the same as a purchase agreement?
    They are closely related. The purchase agreement initiates the transaction, while the contract of sale finalizes the legal terms of the property transfer.

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