Buying a new house? Protect yourself from canceled contracts
by: Better Business Bureau
When it comes to real estate, it’s a seller’s market. The media is full of stories of homes being contracted for tens of thousands of dollars more than the listing price. But once you have a contract with the seller, you’re set, right? Not necessarily.
Home prices – and construction costs – have risen rapidly. Meanwhile, supply chain issues and labor shortages are causing new construction projects to take months longer than expected. This has caused some homebuilders to cancel contracts or demand higher prices. Unfortunately, in most cases there is nothing buyers can do about it. Although this may be unethical; it is perfectly legal.
If you’re buying a new home, make sure you understand your risks and responsibilities. Here are BBB’s tips to make your experience go well.
Tips for Navigating New Construction Contracts
- Check with your builder first. Check online reviews to make sure previous buyers were happy with their experience. Also search for your builder on BBB.org and investigate any complaints.
- Understand your contract before signing: Builder contracts are often written to protect the builder and provide them with many ways to terminate the contract. Never sign a contract on the spot. Instead, take the contract home and have it reviewed by a lawyer. Make sure you understand what is covered (and not). Your lawyer can suggest changes to the contract that protect you.
- Find out if your contract includes a cost escalation clause. This clause allows the builder to charge you for unforeseen costs, such as an increase in the price of wood. If this is included in your contract, your lawyer can help you negotiate more favorable terms.
- Check the start and end dates. Make sure you know when your build should start and end. Make sure your contract details your rights and those of your builder if your house is not finished by the date stipulated in the contract.
- Ask for changes or stipulations before signing. Once your contract is in place, it’s too late to ask for changes. If you want something changed, do it before you sign.
- Follow your home construction project closely. After signing your contract, be sure to closely monitor the construction of your home. “I would advise them to be able to follow, follow, follow. Organize, archive, screenshot, and keep everything in one central location,” one construction expert advised buyers. Make sure you get exactly what you paid for in your home. For example, builders may invoke “supply chain issues” to replace lower quality materials.
- Consider buying an existing home…or wait to build. Supply chain issues and labor shortages are causing delays in building new homes. The longer your new home takes to build, the more time there is for something to go wrong, like price increases or problems with the builder’s business.
For more information
Check out BBB’s Home HQ for more information on buying, selling, building, and where to find help improving your home’s interior and exterior. Learn more about choosing a realtor and mortgage lender.
If you’ve had a problem with a home builder, file a complaint with BBB. To report a scam, go to the BBB Scam Tracker. To find reputable companies, go to https://www.bbb.org.
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