Reviewing a Builder Contract: The Business Terms to Understand

A builder's purchase agreement is written by the builder, for the builder's process. It usually looks nothing like the standard resale agreement used for existing homes, and many of its terms are presented as non-negotiable. That makes it more important, not less, to understand what you are signing. This guide covers the business terms. For legal interpretation, have a Pennsylvania real estate attorney review the agreement before you sign.

Start with the price, itemized

The contract price should match a written breakdown: base price, lot premium, each structural option and each design upgrade, less any price reduction. Ask for the breakdown as an addendum, and compare it with the price sheet you were given. A credit toward closing costs is not a price reduction and usually appears separately.

Incentives and their conditions

Incentives are often tied to conditions: using the builder's affiliated lender or title company, closing by a certain date, or choosing upgrades by a deadline. For each incentive, find:

• what it is worth, in dollars;
• what you must do to keep it;
• what happens if the condition is not met, including if the builder's schedule causes the miss.

Deposits and upgrade payments

Builders commonly take an initial deposit at signing, and sometimes further deposits at milestones or when you choose upgrades. Know when each payment is due, where it is held, and when it becomes non-refundable. Upgrade deposits are often non-refundable because the builder orders materials for your home.

Contingencies

A financing contingency lets you cancel, usually with your deposit returned, if you cannot get a mortgage by a deadline. Some builder contracts limit it or require you to apply with a particular lender to keep it. An appraisal contingency addresses what happens if the home appraises below the contract price. A sale-of-home contingency, if you need to sell first, is less common in builder contracts. See our guide to appraisal and financing contingencies.

Completion date and delays

Most builder contracts give an estimated completion date and reserve the builder's right to change it. Read how much notice you get, whether there is an outside date after which you may cancel, and whether anything compensates you for a long delay. Plan your rate lock, lease and home sale around the possibility. Our guide to delays and carrying costs covers the planning.

Inspections and the walkthrough

Confirm in writing that you may bring an independent inspector, at which stages, and how to schedule access. Some contracts restrict site visits for safety. The final walkthrough produces the punch list; find out how and when the builder completes it, and whether any of it can be completed after settlement.

Warranty and disputes

Ask for the warranty document itself, not a summary, before you sign. Note the coverage periods for workmanship, systems and structure, and the claim process. Many builder contracts also require arbitration rather than court for disputes; your attorney can explain what that means for you.

Use a checklist

Our printable builder contract checklist lists these terms in order. If you would like help with the business side, send us the offer and we will go through it with you.