What Happens If My New Home Is Delayed?
May 9th, 2008 Categories: Buying a Home, New Construction Homes
Builders contracts favor them and do very little to protect the buyer. That’s simply a fact. One often glossed over term in a builder’s contract is the amount of time allowed for delay of construction.
I sell a lot of new construction homes in the Raleigh area, and therefore, get the pleasure of reading sales contracts of all shapes and sizes. Please understand that most builders do not use the standard North Carolina Real Estate contract, which does not favor either buyers or sellers, but does a pretty good job of allowing the transaction to occur without either party harming the other. Most builder’s contracts are very different from our standard contract.
There are some fairly scary terms in these things, but none quite as frightening as the one that deals with what happens if either the buyer or the builder delays closing. Did you know that each of these causes for delay are handled quite differently?
What happens if the buyer delays closing?
This is very simple. According to the vast majority of builder’s contracts I have read, the buyer owes the builder money for each day closing is delayed. The amounts typically range from $50-100 per day. A 30 day delay, caused by the buyer, could cost you $3,000.
Hmmm… so that must mean that if the builder causes a delay in closing the buyer also gets monetary damages, right? Not exactly.
What happens if the builder delays closing?
This is simple too. The builder has two years to complete the home. How would you like to put a new home under contract, schedule it to close in August of 2008, and later discover that the home would not be ready until August 2010?
It’s interesting that whenever I challenge this term with a builder’s representative they usually respond that there’s nothing to worry about and that this has never happened to any of their deals. Well, if it never happens, let’s take it out of the contract.
Sometimes I can get this term excluded as part of the negotiations. It is a little easier to negotiate this now because sales are down and inventory is high. It is also easier to get the exclusion if the home is near completion.
Builder’s contracts are binding. If you sign one, you are bound by its terms and conditions. You either need to be a very good negotiator, or have someone representing you who is, if you plan on getting any modifications.
Two years to finish a house? Wow! Can’t say I would ever let a buyer client sign that.
Good ‘heads up’ post for Raleigh real estate buyers Bob!
@ Charles - It’s kind of like gambling for those who choose to sign such a contract. If nothing goes wrong, of course there is no problem. It something does go wrong, however, it would not be a very pleasant two years.
Great suggestions.
Aloha,
Keahi Pelayo
Bob,
I had first hand experience with this in a small town house development. Everyone bought just as the market was peaking (read: $$$) and then the developer encountered two years worth of lawsuits from an unhappy neighbor. Needless to say, the prices went down with the market and there were a lot of unhappy feelings, but like you said, builders contracts are binding. Thank for a good reminder to all of us.
Michael
@ Michael - That is exactly when terms like this would become a big problem and is exactly why home builders have them in their contracts. The thing that really bugs me is the attitude that it’s all about numbers and money and that people’s lives are somehow secondary to what’s at stake for the builder.