Buying a new construction home has unique legal terms that can significantly impact your experience. Here are the most important ones to understand before signing your contract:
1. Base Price
The home’s starting price excludes upgrades, options, or lot premiums, which is the basis for calculating the total cost.
2. Builder’s Warranty
A guarantee from the builder covering defects in materials or workmanship for a specified period, often broken into structural and non-structural coverage.
3. Change Order
A written agreement detailing alterations or upgrades requested after the initial contract. These can affect the cost and timeline of the project.
4. Closing Date
The agreed date is when the property’s ownership is transferred to the buyer. This date may shift depending on construction progress.
5. Completion Date
The projected date is when the builder expects the home to be finished and ready for the final walkthrough. This is often subject to delays.
6. Contingencies
Conditions must be met for the contract to proceed, such as securing financing, selling your current home, or having the builder complete construction.
7. Escalation Clause
A provision allowing the builder to adjust the home’s price due to increases in material costs or labor shortages.
8. Earnest Money Deposit (EMD)
A deposit paid by the buyer is a sign of good faith. In new construction, this amount is often non-refundable after certain milestones.
9. Final Walkthrough
An inspection is conducted by the buyer before closing to ensure the home has been completed as agreed and any outstanding items are resolved.
10. Force Majeure Clause
A clause protecting the builder from penalties if delays occur due to uncontrollable events, such as weather or supply chain issues.
11. Lot Premium
An extra charge for selecting a more desirable lot within the development, such as a larger lot or one with better views.
12. Punch List
A document listing unfinished or unsatisfactory items in the home that the builder must complete or fix before the closing date.
13. Title Insurance
A policy protecting the buyer and lender against potential disputes or defects in the property’s title.
14. Substantial Completion
The stage when the home is deemed livable and ready for occupancy, even if minor items still need to be addressed.
15. Warranty Period
The specific timeframe during which the builder is responsible for repairs related to construction defects or materials.
Why These Terms Matter
Understanding these key terms can help you confidently navigate the process of buying a new construction home. Knowing your rights and obligations ensures a smooth experience and minimizes surprises.