Reading the Sales Contract
Study the sales contract carefully.
Are you clear on what you are buying? The model is always built with extra care, so you should study houses that are nearing completion for other buyers to gauge the standard you could expect for your house. Just before you sign the sales contract be aware of whats in your best interest.
Read the contract and consult an experienced real estate agent and attorney before you sign it. The contract sometimes includes substantial fees and taxes that may be due at closing. The contract gives the builder much more discretion than you may realize. Once signed, you're obligated, so you should understand the terms.
The builder's sales contract is written to favor the writer, and it may be very much one-sided. "The builder's lawyers wrote the contract to get everything the law allows him to." You need your own agent and lawyer to explain the legal nuances and suggest modifications. Know what you are getting into before you sign.
Work through your real estate agent and get a copy of the sales contract and study it before meeting with the builder's on-site sales agent or your lawyer. The builder should be willing to provide you with a contract to review. If not, ask why. Don't let the small print discourage you. Enlarge it so you can see it and read all of it until you understand it or have your agent or lawer explain it.
Know and understand the builder's priorities before you read the contract. The builder begins paying for his loan as soon as he breaks ground, so time is critical. Anything that delays the construction process will cost the builder. The builder do not want any delays and any decision that need to be made will be per the contract.
For example, The builder may provide himself wiggle room in the contract by stating that the house will be "substantially similar to the model and to the plans." You want to know how similar. If the contract says, "the exact dimensions of the house and components thereof may vary only slightly from the actual dimensions of the model," your house should be very close to the model. But it could change quite a bit if the contract says "changes in the dimensions of the rooms and locations of windows, doors, walls and partitions, the general layout of the residence and the position of the residence on the lot may be made by the seller."
The builder will insist on this latitude, but you can insist in an addendum that the contract will not be finalized until you have carefully reviewed the plan modifications, should any be required. In some cases, the builder has to reverse the house (the garage is on the left, not the right). You would also want to know about this because flipping the floor plan could mean that the view for which you paid a hefty lot premium will only be seen from the laundry.
The contract will also include a substitution clause. To avoid stopping the job, the builder reserves the right to make a substitution if something that he normally uses becomes unavailable. The contract will say that the substituted item will be of "similar or better quality," but the builder will be the judge of this, not you. In some instances, the contract may also state that the builder reserves the right to make a substitution "if there is a substantial increase in the cost," and the substituted item "will not be of lesser quality than the quality required by the applicable building code." Since building codes are performance and safety oriented and say nothing about quality of materials, this is a large loophole for the builder. Example, he could substitute "nonporous" builder-grade sheet vinyl for the costlier ceramic floor tiles in the bathrooms where he normally specifies in the base price house. Some buyers will miss this subtlety. Your experienced real estate agent or attorney would point this out and suggest a modificatio.
additional fees can be substantial, and may be due at closing. Example, the contract may oblige the buyer to reimburse the seller for "any utility deposits, hook-up fees or public service fees, which have been advanced by the seller for the lot together with the house." If no houses have been built, the builder may not know the exact charge, but should have a good idea. If a number of houses have been sold and occupied, the builder should know exactly what they are.
The cost to build the roads, install the utility lines and sewers, and add all those other amenities, such as a swimming pool, jogging and biking paths and tennis courts, are all passed on to the buyers folded into the price of the house. In many new home developments it may be tacked onto the price as an additional "special assessment." The amount, which may not be specified in the contract, can range from only a few thousand dollars to many thousand. The entire amount may be due at closing or, you may have to pay it off in annual installments, over a period as many years. The special assessment obligation is usually transferable to subsequent owners, but in some instances, it must be paid off when you sell the house.
Individual contracts can differ in the details when it comes to tax or other charges. Example, tract builders may charge a "builder's fee" or "closing fee" of 1.5 to 2 percent of the total purchase price. What the fee actually covers depends on who wrote the contract. Many contracts state that the fee will cover the cost of the owner's title insurance policy, a documentary stamp tax and the charge to record the deed. The total cost of these charges, which is the same throughout the state, however, maybe considerably less than what the builder charges. In many cases, however, the title insurance is heavily discounted, so the builder may be overcharging. You should question such stipulations and ask for a credit when the builder overcharges.
Work with a realtor. Call me at 919-201-8892 for a free consultation if you are not already working with a realtor. This could be the most important call you make.
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