Protect Yourself From Canceled Contracts When Buying a New Construction Home

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When it comes to real estate, it’s a seller’s market. The media is full of stories about houses going under contract for tens of thousands of dollars over the listing price. But once you have a contract with the seller, you are all set, right? Not necessarily.

The price of homes – and construction costs – has risen rapidly. Meanwhile, supply chain issues and labor shortages are causing new building projects to run months longer than expected. This has caused some home builders to cancel contracts or demand higher prices. Unfortunately, in most cases, there’s nothing buyers can do about it. While this might be unethical; it’s perfectly legal.

If you are buying a new construction home, be sure you understand your risks and responsibilities. Here are BBB’s tips to make sure your experience goes smoothly.

Tips for navigating new construction contracts

Research your builder beforehand. Check online reviews to make sure previous home buyers were satisfied with their experience. Also, look up your builder on BBB.org and review any complaints.
Understand your contract before signing: Builder contracts are often written to protect the builder and provide many ways for them to terminate the agreement. Don’t ever sign a contract on the spot. Instead, take the contract home with you and have a lawyer review it. Make sure you understand what’s 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 unanticipated costs, such an increase in lumber prices. If this is included in your contract, your lawyer can help you negotiate more favorable terms.
Review start and end dates. Make sure you know when your build is scheduled to start and finish. Be sure your contract details your rights and those of your builder if your home isn’t finished by the date stipulated in the contract.
Ask for changes or stipulations before you sign. Once your contract is in place, it’s too late to ask for edits. If you want anything changed, do it before you sign.
Monitor your home building project closely. After your contract is signed, be sure to keep a close eye on your home’s construction. “I would advise them to be able to track, track, track. Organize, archive, screenshot, and keep everything in one central location,” one construction expert advised buyers. Be sure you are getting exactly what you paid for in your home. For example, builders may claim “supply chain issues” in order to substitute lower quality materials.
Consider buying an existing home… or wait to build. Supply chain problems and labor shortages are causing delays in new home construction. The longer your new home takes to build, the more time for something to go wrong, such as price increases or issues with the builder’s business.

For more information

See BBB’s Home HQ for information on buying, selling, building and where to find help for improving the inside and outside of your home. Read more about choosing a real estate agent and a mortgage lender.

If you’ve experienced an issue with a home builder, file a complaint with BBB.