What Is New Construction Purchase and Sale Agreement?
A new construction purchase and sale agreement or sales contract is similar to a resale contract but applies to a newly built home.3 min read
2. Securing Good Buyers' Terms
3. Finding a Lender
4. Legal Representation
5. Home Inspections
Updated November 3, 2020:
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.
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.
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.
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.
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.
If you need help with a new construction purchase and sale agreement, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.