Crash Course: The Ins and Outs of Home Building Contracts

When you decide to have a new home built, you’ll need to find a builder and sign a contract with them. Since home construction is a complex process, it’s important to make sure you understand your home building contract before signing it. What should you expect to see on one of these contracts? You should make sure your contract includes the following information. If not, you should have the builder revise the contract to include this information before you sign it.

Estimated Timeframe

Your contract should include information on the estimated timeframe for your home building project. It should show when construction is scheduled to start and when it is scheduled to end. You should also see details on when different phases of the project are scheduled to take place. Keep in mind that delays can happen for several reasons, such as adverse weather, labor shortages, material shortages or inspection delays. However, if these conditions do not occur, your builder should make every effort to complete your project within the scheduled timeframe.

Scope of the Project

Your home building contract should provide you with detailed information on the services that are included. This goes beyond the actual building process. Your builder should also state that they are performing any other tasks that are needed for your project, such as obtaining permits and providing materials, equipment and labor. Your contract should also show that the builder agrees to follow the house plans and specifications and will not make any changes or modifications to these without consulting you. This helps ensure that you’ll get the exact house you’re expecting.

Payment Details

Your contract should include details on payment, including when each payment is due, how much is due and how payments should be made, such as by check. You should also make sure your contract from the builder includes detailed information on all the fees and costs for your project. This helps you understand what you’re paying for, so you can ask questions or point out errors if needed. Your final payment might be due when your project is considered substantially completed. Since this interpretation can differ, your contract should provide a clear definition of substantial completion.

Project Scope Changes

If you change your mind about certain features or other components of your new home, such as wanting to adjust a room’s layout, add a window or have a custom feature installed, the contract should address this. Your contract should provide information on how these changes will be handled. For example, your contract might state that you will need to provide written documentation with approval from both you and your builder to change facets of your project. Keep in mind that your builder might want to make changes during the project. Having this section in your contract stops your builder from doing these without your approval.

Inspections

You should be able to check on the progress of your home construction project. Your contract should state that you may do this, as long as you plan to stop by at reasonable times, depending on the specific work that is going on. These inspections give you a chance to make sure your project is going as planned and bring up any issues you might have with the builder.

Home Building Pros and Cons

How do you know if it’s better to buy or to build? There are many factors to take into consideration when trying to decide which direction to take. The most popular reasons to build a house are the freedom of customization and the lower ongoing maintenance costs, but these benefits can also have drawbacks. Buying a home is almost always quicker and more convenient and sometimes less expensive. So how do you choose? To help you decide which is best for you, we’ll go over these key benefits and disadvantages.

Building Pro: Customization and Control

When you build a home, you literally begin with a blank canvas. You can make all the decisions and get exactly what you want. You can decide on the size, location, number of bedrooms and bathrooms, layout and architectural style of the home. You can also opt for specific features that might be hard to find in pre-existing homes in your area, like bay windows or a daylight basement. Everything down to the drawer-pulls and counter tops is up to you. While this can be incredibly overwhelming for some, others thrive with complete creative freedom.

Building a home also gives you control over every part of the process. You have your choice of architects, builders, real estate agents and other professionals to help you build your dream home. Building a home allows you to be involved in every stage and decision and make changes or requests at the right time. While the builder will serve as the official project manager for the build, you still get a front-row seat and can give input anytime.

Building Con: It’s a Long Process

Downside to customization and control of the process is that the process is long. Even if you go for a more hands-off approach to your home build, you’re still starting literally from the ground up. There are contracts and permits and financial processes to complete before you break ground. Once the work actually begins you will need to wait at least several months before your home is move-in ready. Delays can and often happen, whether they be due to weather, materials or labor issues. Even outside of the construction, the freedom to make all the decisions also means taking the time to make those decisions carefully. Careful planning is essential if you choose to build a home, as is flexibility and patience.

Building Pro: New = Less Maintenance

From the concrete in the foundation to the countertops in the kitchen, every piece of the home you build will be brand new. The latest and greatest materials, construction methods and system design all combine to give you peace of mind regarding maintenance. It’s common for homeowners to save thousands of dollars in maintenance costs in the first several years and beyond. Major components like roofing and HVAC systems will remain in great condition for a decade or more. Brand-new appliances and features like windows or countertops often come with warranties that last years as well. Most builders also provide their own warranties or even insurance to cover the possibility of problems or defects with the structure of the house. Overall, building a new home means you don’t have to worry about things like outdated plumbing or cracking foundations, saving you money and stress.

Building Con: New = More Expensive

Building a new house is frequently more expensive than buying an existing home. All the reasons above can factor into this cost: builder fees, custom material choices, brand-new appliances and more. The larger and more custom your home design is, the higher the price, especially if you request specific non-standard components and materials. Labor also accounts for a significant amount of the cost, as your builder will hire out an entire team of individuals to do the best work possible. Getting a construction loan will help you finance the project, but most require large down payments that will cost you more up front. You being involved in every part of the process also means your money being involved in every part of the process and that includes any unexpected expenses that may arise.

There are exceptions to all the above. Not every home building project takes an extremely long time and not all pre-existing homes are immediately move-in ready. There are plenty of ways to save money on a custom home build just as there are plenty of ways to pay unexpectedly large amounts for an existing home. Creating a detailed breakdown of your wants and needs and building a well-informed budget will help you decide which option is best for you.