New Home Construction Contract

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New Home Construction Contract

A Brief Introduction of New Home Construction Contract

The contractor presents a contract during the purchase of a new home. When deciding on what terms to include in the contract for negotiating, it might become tough to interpret the contract given by the contractor. Sometimes, you might miss out crucial details that you need to include in the contract to protect your needs.

It is extremely important that you treat your dream house as the most important project of yours and devote a good amount of time in drafting the contract. You can also take the help of an attorney or get your contract cross-verified with them. This contract contains all the information related to the house construction, responsibilities of the builder, pay structure and timelines.

This residential construction contract, or a Home Building Contract, is a legally binding agreement that protects both parties. For every state, there can be different laws for such an agreement. The agreement also gives a fair dispute resolution method and details of the governing laws in the state.

Who Takes the New Home Construction Contract?

When constructing a house, you need to focus on details that you don’t have to when buying an existing, and already built, house. When you decide to get a new home constructed by the builder, you both sign an agreement stating the responsibilities and obligations of both parties. So, the New Home Construction Contract is signed between the home buyer and the builder. In some cases, the builder adds the details of an arbitrator group who could resolve the disputes.

Purpose of the New Home Construction Contract

As a buyer, it is your responsibility to be aware of, and ensure that you understand each and every clause of the agreement, and it protects you equally from any wrongdoings, disputes or money fraud.

Here are some more pointwise reasons to sign a New Home Building Contract –

  • It spells out all the important details related to the construction of the house
  • It outlines all the responsibilities of the builder
  • It gives out specific timelines and deadlines for each task
  • It makes the business deal a legally binding one
  • It protects both parties from any fraud or dispute
  • It specifies the governing laws
  • It gives dispute resolution methods

Contents of the New Home Construction Contract

It is important to understand that there are different kinds of Home Construction Contracts. For each case, the contract may be entirely different. Depending on the type you choose, you should customize it. Some inclusions in all of the contracts are the details of the buyer and the builder. Basic details include name, address, phone number, photographs, etc. Basic details are simple to put; however, there should not be any mistake in mentioning them. Other terms include

  • The scope of work that each party is responsible for
  • Permissibility for altering the contract at any stage of the contract period, and the procedure to do it.
  • The schedule to adhere to for each process of the construction contract.
  • The payments schedule to be followed, and the mode of payment to be made.
  • Any warranty information that should be included for any construction and projects already completed.
  • Any default provisions subject to the laws that a contract would need to abide by
  • Process of dispute resolution, and any arbitration process along with jurisdiction issues that the parties want to include.

Further, the agreement would have the details of the builder’s responsibilities with specific timelines and deadlines. If both parties orally decide to exercise penalties on late deliveries, then that should be mentioned in the agreement. The agreement must also include governing laws, dispute resolution methods, and termination policy. It should also add the details of the payment method.

How to Draft the New Home Construction Contract?

Apart from the common terms and details, this contract must include key clauses such as witnesses, arbitration, third-party permission details, warranties, substitution policies, allowances, insurance, etc. The agreement should also add the details of any other document required to be submitted as per the regulations and laws mandated by the government. Both parties should first discuss all such important clauses and inclusions in person.

Oral agreements are common, but they are not reliable because there is no obligation of enforceability on them. When it comes to building a house, you should not trust mere words, unless there is a written agreement with the signature of the other party so that the originally agreed terms are met and contractual obligations are honored.

Negotiation Strategy

Like most other agreements, building a New Home Contract also requires a lot of discussion and negotiation between both parties. Builders are generally very good at ensuring that the agreement is in their favor, but a house buyer should be extremely cautious while dealing with the builder. You should also take the help of a real estate attorney to ensure that you are negotiating and making the agreement work in your favor as well. Negotiations should not hurt the relationship between both parties. It should only get the best deal out of a long discussion.

Benefits & Drawbacks of the New Home Construction Contract

There are various advantages and disadvantages of every agreement that we sign. However, a New Home Construction Contract is only beneficial for both parties if drafted properly. Hence, it is suggested that you draft the agreement in such a way that it works in favor of both parties. Both parties should take the help of their respective attorneys. The builder must make sure that he doesn’t use a standard contract for all his clients. If all these things are considered in mind, such an agreement would never have drawbacks.

Here are a few benefits of the contract –

  • It gives dispute resolution method
  • It makes the work legally binding
  • It spells out the responsibilities of both the parties
  • It can be referred in case of any minor confusion or doubt
  • It ensures that the work follows a proper structure
  • It ensures that payment and work delivery dates are pre-decided

What Happens in Case of Violation?

The contract is a legally binding agreement. Depending on the state you live in, the laws will be applied differently. In case of any breach or violation(1), either party can take the help of the court. Both parties should first try to resolve disputes through agreed arbitrations before pursuing other legal options. In case of any breach, damages could be awarded to the injured party. In worst scenarios, the contract could be terminated.

Building a new home contract requires careful examination of the contract to ensure that the final project is what you expected. You should draft the contract so that all your interests are considered. If there are any doubts regarding the final contract, it is advisable to approach professionals, or download templates from reliable sources.