How to Negotiate for a New Construction Home

When negotiating a new construction home purchase contract, a buyer should focus on several key legal terms to ensure their interests are protected. Firstly, the buyer should negotiate for robust express warranty coverage or preserve (not waive) the implied warranty of habitability, which helps ensure that the home is free from significant defects and is suitable for living. This warranty is often implied by law but can sometimes be waived, so it is crucial to ensure it is explicitly included in the contract. It’s also critical that the entity backing any warranties will have sufficient assets in the future in the event of any warranty claims. When in doubt, warranty coverage can be purchased (often at builder expense) from a third-party home warranty company.

Additionally, the buyer should seek a warranty against defects in workmanship and materials. This warranty should cover not only the builder's work but also the work of subcontractors, ensuring that all aspects of the construction meet acceptable standards. The buyer should also negotiate for a clear and detailed warranty period, specifying the duration and scope of coverage for various components of the home, such as structural elements, plumbing, electrical systems, and appliances.

Another important term to negotiate is the inclusion of a dispute resolution clause. This clause should outline the process for resolving any disputes that may arise, such as through mediation or arbitration, and should specify the jurisdiction and governing law. The buyer should also ensure that the contract includes provisions for change orders, which document any agreed-upon changes to the construction plan and their impact on the price and timeline.

Buyers should also negotiate for mechanic’s lien coverage at time of contract. The purchase agreement should obligate the builder to cooperate with the buyer’s title company to provide all records necessary to issue insurance coverage for potential mechanic’s lien claims.

It is also crucial to negotiate clear and fair terms concerning the conditions for settlement. Typcially, builders will agree that closing cannot occur until a certificate of occupancy is issued by the municipality. However, even when a C/O issues, there my be signficiant punch list work not completed by time of settlement. Buyers should make sure money can be escrowed post-closing, and only released to the builder after ALL work is complete.

Additionally, the buyer should negotiate for a clear payment schedule and the use of an escrow account to protect their funds until the construction is completed and the home is delivered as agreed. This helps ensure that the builder meets their obligations and that the buyer's money is secure in case of any issues.

This is not a comprehensive discussion of the contractual protections buyers should secure when negotiating with a new home builder. Every property is different, and every contract presented by property developers includes unique concerns that could pose serious risk.