Investment propertyHousing Counsel: Buying a New Home, Caveat Emptor
Question: My wife and I are considering purchasing a new home in a new development. We would like to include several protective contingencies in the contract but are not sure of the wording. Can you assist?
Answer: Your letter contained a list of issues, which will be addressed below.
The first thing you should do is to carefully read the proposed sales contract. Unfortunately, it is my experience that most new home contracts are heavily weighed in the builder"s favor. Other than language required by local state law, there are very few consumer protections contained in the contracts which developers want you to sign. Caveat emptor -- "let the buyer beware" is still the hallmark for these transactions.
Let"s look at the issues you have raised:
Offer shopping: You state that a couple of years ago, you were victims of a new home builder who used your offer in an "offer shopping" scheme. You withdrew your offer and stopped payment on your deposit check after 15 business days since the contract had not yet been ratified by the builder.
You question whether you can add language to the contract that "if the offer is not ratified (signed) by the seller within 48 hours, the offer is withdrawn and the deposit refunded to the buyer?
Yes, you certainly can try to get this language into your sales contract. Some builders will agree while others will not. However, there is another solution: insert language in your contract that the deposit will not be given to the builder until three business days after the contract is ratified. Contract law is very clear: an offer can be withdrawn at any time before it is accepted. You make the seller an offer. If it is not accepted within a reasonable time, you have the absolute right to withdraw that offer, by sending the builder a letter (and an email) advising that the offer is no longer on the table.
Under this approach, you control both the contract as well as your deposit.
Mechanics liens: You state that you have a friend who purchased a new home and was faced with numerous mechanic lien claims from subcontractors. A mechanic lien is a statutory right which protects subcontractors (and building supply companies) in the event the builder does not pay them. The subcontractor can place a lien on your property so as to collect what is owed.
The law of mechanics liens differs from state to state. However, it can be a nightmare for new homebuyers. You should try to have the following language included in your sales contract:
The seller will provide at settlement a verified statement that all bills and claims for labor performed or materials supplied to or for the benefit of the Property have been paid in full and there are no perfected or unperfected mechanics", materialmen or artisans" liens on or affecting the Property.
Additionally, if you buy the new home, and go to settlement, ask the settlement attorney if mechanics liens are covered under your title insurance policy.
Building inspector: you ask if you can engage your own building inspector – at your expense – to monitor the construction. In my opinion, this is an excellent suggestion. It can be a win-win situation for both you as well as the builder. Your inspector may find problems which have been overlooked by the builder, and by correcting them during construction it will save the builder from having to come back later to correct the situation. However, many builders do not want someone looking over their shoulder.
You certainly should consider including this language in your sales contract:
The buyer will employ, at buyer"s expense, an independent building inspector who will have access to the property during construction. The inspector will report back to the builder and the buyer on a periodic basis. Final acceptance of the property by the buyer will not take place until all unsatisfactory items have been corrected by the builder.
If the builder agrees to this concept, he may want to include a provision dealing with resolving disputes between the inspector and the builder -- for example arbitration or getting a second opinion from another independent inspector. But the concept makes a lot of sense, and reliable builders should not object to including this language in their sales contract.
However, the real estate market -- especially new home construction -- is still quite active. Many builders will take the position that if you do not want to sign their form contract, someone else will come along and will not be as concerned about these consumer protections.
You have raised some legitimate issues. Before you sign your sales contract, talk with the builder about your concerns, and see if he will cooperate. You should also carefully read the contract before it is signed, and have it reviewed by your legal and financial advisors.