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November 10, 2014

7 Things To Know About New Home Builder Contracts

Building a new home in Stapleton, or any neighborhood, from the ground up can be a great experience.  My family and I did it, we love our new home and I’ve been lucky enough to help other families navigate the building process as well.    That said, buying new is very different from buying a resale, especially when it comes to the contract that is used.   Builders have their own in-house contracts they use rather than using the Colorado approved forms, which were designed to handle resale transactions.  My goal is to help buyers understand some of these differences between a builder contract and a standard resale contract.  I’m a big supporter of the builders so I don’t want this to come off as negative, but these are the recurring issues that buyers ask me if they can change when they read the builder contracts.

7 Things to Know about New Home Builder Contracts:

1.  Earnest money on a new build is typically much more than a resale.  A builder is building a home for you and allowing you to pick all the structural upgrades and finishes.  There is risk involved with that (if you fall through that next buyer may not love the green carpet you picked!) so they usually require earnest money upon signing the contract and then additional earnest money as a percentage of the finishes that are selected along the way.  (amount varies by builder)

2.  The buyer’s loan “out” may not be as favorable as it is on a resale.  On a resale transaction in Colorado buyers can back out all the way up to their Loan Objection Deadline if they have a loan problem, typically with no loss of their earnest money.  With new builds, a buyer typically has 30 -45 days to back out based on loan reasons but there are often penalties that the builder will hold back from the buyer’s earnest money.  Even if they tell you there is a loan “out” be cautious and read the fine print in their contract.  If the buyer’s loan falls through late in the building process the builder typically keeps the earnest money.

3.  Builder contracts are not contingent upon an appraisal.  Meaning if the appraisal of the home comes in low once it’s built the builder is not obligated to drop their price to match the appraisal.  The lender can still lend on it but because it appraised low the buyer will have to bring more cash to the table to keep the lender happy.  The buyer can’t back out if the appraisal is low, unlike a resale, without losing earnest money.

4.  Builders typically give themselves 1 – 2 years to build the home per the contract.  This always makes buyers nervous.  They are expecting to have the home built in 8 months based on conversations with the sales staff but when it comes time to sign the contract the builders give themselves a ton of leeway and most builders say they have 2 years to build it.  (I’ve never seen one last even close to 2 years)

5.  Inspections on a new build are different.  When you inspect your home on a resale you can back out of the deal if you find issues.  If you find issues on a new build you can’t back out but they will fix them for you if you are still in the building process.  (or under warranty after closing)

6.  Builders do not offer a lot of flexibility for changes.  Buyers should know that most builders are “production builders”, meaning they build off a preset plan they offer their clients.  Builders aren’t typically set up to make a lot of custom changes, so what you see in the floor plan is what you get.  “Custom” builders are the ones who serve clients who want to build something completely unique where changes are encouraged.

7.  Lastly, new build contracts involve time frames that are much longer than resale ones, so buyers can’t lock their interest rates right away because lenders don’t usually lock rates that long.  New home buyers will need to wait to lock their rate later in the building process.  In a rising rate environment this can be nerve racking.

So those are the 7 most common issues that buyers have once they review their builder contracts.  Am I saying new homes are bad compared to resale?  Absolutely not!  They are a great fit for many of my buyers because they offer flexibility, customization and often the longer building time allows the client to sell their existing home.  I just want buyers to go into the contract process knowing it will be a little different than the resale transactions they’ve done in the past.

Can anything be done by buyers to negotiate on some of these items from the builder contract?  I’ll give you the attorney answer….it depends!  Your leverage as a buyer depends on the state of the market and currently it’s a seller’s market…so builders don’t need to be flexible on making changes for their buyers.  If you don’t like their terms there are other buyers that do right now.  As the market balances, and eventually shifts back to a buyer’s market (real estate is always a cycle) buyer’s will gain more power and builders will be more eager to adjust some of these contract items.  I’m not saying you shouldn’t try to improve the contract but I want to be upfront with clients that if they want a ton of changes made to the contract it’s not happening in the current market.

Hope this has helped set the right expectations regarding some of the differences between builder contracts and resale ones.  If you have questions or if I can be of service as you make your next move I’d love to help!  As a Realtor I’m not affiliated with any one builder so I can show clients the new and resale market to help them find the home that fits their needs!

54 Responses

  1. Bryan



    Can you back out of a contract if a structural defect is found? Concrete block wall overhangs the slab by 2″ in multiple areas.
    has already failed inspection by city and call for structural engineering review.

  2. Norman

    Let’s say a buyer entered into contract on a new home build and paid upfront for the extras he chose (Earnest Money) as well as a lot premium. The home falls out of escrow and the original buyer does not receive a refund on the Earnest Money. The builder is now selling the home with the price to include the already paid for lot premium and extras that they recieved from the original buyer. Is there anything that can be done to negotiate a lower price for the home based on the money the builder has already received for the home?

    1. Joe Phillips

      Norman, thanks for your comment on my post. No, I don’t believe the next buyer has any ability to get a lower priced based on the previous buyer’s loss of earnest money. The two things really don’t have anything to do with each other, the market value of the home is the market value of the home..regardless of whether or not the builder/seller made money from previously selling it to another buyer. Especially in this hot Denver market, the builder will be able to sell it for full market value to another buyer.
      I hope this helps. It’s just my two cents. Thanks

  3. Dana

    Can I back out of the contract because I am just not happy with how things turned out? Do I have to buy the house after it is built?
    How can a person be forced to buy a house?

    1. Anonymous

      …because you signed a contract saying you would buy it???

  4. Patel

    I’ve just sign contract for to build new home, How many days within i can get my money back.
    I singed on day before yesterday, As per laws in Texas? is it possible to get earnest money back as my mind changed.

  5. Rhonda Stubbs

    We are suppose to close on our new house on 7/26 @ 1030. Twelve hours before closing I get a call from the corporate office stating they are canceling our contract because my husband has had to many issues with the quality of the build. Is this legal. We have already sold our house and now we will be “homeless” in 26 days as I cannot get out of my contract. Do I have any rights in this manner.

    1. Anonymous

      Just curious, was the builder Thrive home builders? We had something similar happen to us.

    2. Mike Maggio

      Would be interested in an answer to this. Something similar happened to us 2 mos ago. Rather than fix significant mistakes, they returned all our money, plus inspection fees. Our contract restricted us to arbitration for dispute resolution. It was not worth it to us to go through this, even though we suffered uncompensated damages.

  6. anonymous

    The other day my husband signed a contract for a new property that the previous buyer fell through on. Can the loaner take away your contract and give it to a previous buyer after you was told that they fell through. Are they allowed to do that

  7. It’s very comforting to know that you have never seen a build take two years. A similar situation just happened and I was feeling a bit worried. Feeling that I can trust the contractor is important to me. After all, this is going to be my home for years to come.

    1. Maryann

      We’re doing a new build – smaller condo and it’s at a year and a half. And we still have a few more months to go. So no, it happens.

  8. Hi Joe Phillips, nice suggestions. Can you guys suggest me should i hire a home builder or should i purchase a already build home.

  9. If u don’t get your walk thru is the contract that you signed broken every wall is up in the house this a new construction build

  10. Boda

    Just enter into a contract with my builder not yet sign the final contract. Is it possible to back out now before signing the final contract as we’re not cot comfortable with the new variation that the builder want us to sign for. Please advice.

  11. Thanks for your comment about how you should know the difference between a new builder contract and other house contracts. I like how you said that you can choose how to finish and upgrade it. My parents are considering new home construction for sale to move into a new home.

  12. It’s amazing how involved a builder contract is! Great steps outlining what to look for.

  13. Jaime

    So, I’m confused. We just entered into contract with a builder, gave earnest money and was told we need to make a 10% deposit to design team for upgrades. Does any of this money get credited towards closing costs? I’m just thinking wow so now I need closing costs plus design deposit plus down payment…what happened to the money I already gave?

  14. cindy

    We signed a builder contract and paid $2000 deposit for earnest money. The sales person didn’t say it is non-refundable before we signed the contract. Now we found the garage floor has many cracks, the big one is from one side all through to the other side. We have to back out. The sales person says you can back out but no deposit refund and we also need to pay $250 administration fee to them. What should we do? Can we ask for some money back?

  15. cody

    My builder hired a company to come in and dig my basement. they hit nasty muddy ground. they had to get a engineer out there and say what they needed to do to sure up my ground so I could have a basement . I ok’d the change order to get if done but come to find out they had dumped 7 loads of the wrong size rock in the basement hole and had to dig it out…. I feel I shouldn’t pay for the wrong rock or the man hours putting it in and taking it out. What are my options? My builder is acting like its between me and the guy he had hired and I disagree.

  16. Bibek

    I am going to sign a contract with by builder in the near future to build a new house. However, I am very new in this area with limited knowledge how the process moves forward. Is there any benefits to keeping a realtor from the beginning?

  17. Peter Nguyen

    I signed negotiations contract to build a new home but I decided to take something out from my upgrade contract can I still renegotiating my contract or back out the whole deal

  18. Heather

    We signed a contract to build a home, put money down to start the building process. We had mortgage approval but in the meantime my husbands credit score took a hit. The mortgage broker has been working with him to get the score back up to borrow what we need but the builder is threatening to end our deal. We are still in contract but our lot has a for sale sign? Is this legal?

  19. What you said about the earnest that won’t be lost, was really interesting to me. As you were saying in number 3, the buyer can’t back out if the appraisal is low, unlike a resale, without losing earnest money. Could you please explain this further? Hoping to see more of this topic in your next posts.

  20. Very informative blog!!! Thanks for sharing this blog. I really enjoy reading this blog.

  21. This was a really interesting read and I have to admit that I had no idea that there was so much to hiring a new construction contractor. I am especially surprised to learn that builders don’y offer flexibility for charges. Although, I guess that that does make sense since you’d want to make sure that you can get paid correctly to begin with.

  22. Obed

    By canceling a new construction contract and losing your earnest money can the builder come back and try to sue you because you walked out of the contract.

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  24. It’s great to learn more about building a new home. My wife and I really want to build one this year, or at least start, so this is great. If the contract gives the builders 2 years to build, I’ll remember that you said you’ve never seen one last that long!

  25. I never knew that builders typically give themselves 1 – 2 years to build the home per the contract. Our new home is now under construction and I am so excited to move in. Thanks for the information on what to know about new home builder contracts.

  26. Nicole Ford

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  27. I have so little knowledge about new home builders contract but for sure I will be using these information for future needs. Thanks for this information!

  28. My sister and her husband wanted to buy a home because they are expecting their first child. It was explained here that builder contracts are upon appraisal. Moreover, it’s advisable to talk to real estate experts when considering a new home.

  29. Wendi

    We have put down Earnest money with a builder in Texas. The floor plan listed when we signed the ” contract” has changed. We were not notified by the seller of this change. The change is from a tech center to a mud room. We have actual pictures of the blue prints left in the house this week, that has tech center on it. When questioned about this change, my husband was told they don’t have to notify us. The listing then promptly changed the next day on ALL sites but one. They will not negotiate on price of house. Another house with the same floor plan is 3k less. They have offered to cover the washer, dryer and Fridge. These appliances do not add up to 3k.
    We now stand with accepting the appliances and are asking for 1k towards closing costs. They have”offered” to release us from contract. So, take the offer and call it good. Or stick to our principals? Thanks in advance for reading this an any advice or thoughts. Wendi

  30. Wendi

    The Builder decided after some discussion.. to build the tech center.

  31. Thanks for helping me understand that this information is needed to ensure that the clients will be aware of the new contracts that they might get. I will share this information with my cousin. This is because they will be needing their services to raise the house they just bought to be safe since it is near a river.

  32. You have raised great points, I find this very helpful on both sides specially for new homeowners. True, Builders usually give 1 -2 years per contract which gives clients a bit of something to worry, but this is only a leeway, usually it only takes a year for them to complete (some might take longer depending on the work needed). And I couldn’t agree more, Real Estate is always a cycle, it all depends on the current state of the market. Thanks for citing this recurring issues!

  33. Thanks for pointing out that concrete is durable and low maintenance. My husband and I have been thinking about building a patio in our backyard. I’d love to use a material that won’t require much care after we’ve finished putting it in. I’ll have to see what my husband thinks about concrete as an option!

  34. You were doing a great job such an excellent article with creative tips. I am so thankful for you and your blog. Thanks for sharing such a informative post to us.

  35. If I were to build a new home, I would for sure take all these things into consideration. As you said here, these contracts do last longer than those ones with reselling. I’d always do a bit of research before I went out and hired someone just to be sure that I’m getting a good deal on the home.

  36. I thought it was interesting how you said that home builders will give themselves one to two years to build the home per the contract. My wife and I are expecting our second child, so we want to move out of our apartment and into a house. Since it takes a while to build a home, we will probably just look for already built homes that are on sale.

  37. Devan Gallimore

    So the contract will lock in the price correct? For example, I feel certain that prices are going to rise in an area like Colorado Springs (I intend to move there in January 2020), and interest rates will drop in that same time frame. Would it makes sense to lock in a new home and then finance it in 6 months?



  38. Deb Warren

    We signed a contract for a new home build and the builder’s representative stated that we had to add a realtor. At the time we were going to use a VA loan, so we added the realtor provided by VA; however, we have never met nor signed any type of agreement with this person. We have changed to a conventional loan and do not want to use this realtor. Can we get them removed from our builder contract? Do we have to use them even though we have not signed any agreements?


  39. I think it’s important to know how long the builders would take to build your dream house. It can be daunting to wait two years for your house to be built, but it’s nice for us to know most houses don’t usually take that long to actually be built. I can understand why they would say two years though, better safe than sorry!

  40. Kerry Hardy

    We currently have a contract with a builder now and spent several thousand dollars on upgrades and one in particular is our stone for the fireplace
    They have put the stone in backwards and now the stone is ruined because it has mortar on it now and the builder seems irritated to fix it now. We were told by builder manager it would cost to much to fix because they do not want to replace the stone which the brick layers screwed up. The wrong mortar was used as well. So they tried to etch out a quarter inch and put in the right mortar but this mortar did not bond and it’s coming out in chunks plus they rinsed the fireplace with muriatic acid and turned the back of the stone yellow. This was complete shoddy work. Now after I emailed the corporation the Vice President is coming out to look at our fireplace.
    We are not budging or closing on this house until this fireplace is replaced and installed the right way after we paid 1000 dollars upgrade for this stone.
    My question is can the home builder cancel our contract and keep the many thousands dollars we spent on upgrades?

  41. Thanks for mentioning that builders usually give themselves a year or two to build the home in the contract but generally don’t take that long. My husband and I are wanting to build our own home so we can better accommodate the needs of our growing family. Hopefully we can find a great contractor in our area!

  42. Buying or constructing a home is a dream of everyone. Usually, most of the money gets spent in this dream event. Hence each penny they spend on this achievement must be worth. The suggestions are most received from this post. Thank you for the very valuable points shared.

  43. Ellen McClure

    I walked away from a new construction build after several issues with the buileder and craftsmanship of the home. I found that the materials of the build were not of quality and the loan did not close at the rate at which I was originally quote at time of contract signing 8 months ago. Needless to say I did not close on the home and walked away very disappointed. I do not know if I will get my 3000.00 ernst money in return. I do see however the house is still on the market and may be thinking about giving this home a second try at financing. Please help.

  44. I love your tip about knowing that builders typically give themselves about 1-2 years to build the home. My husband just got a job offer in Colorado Springs, CO and we need to get a professional to build our new home. We will keep these tips in mind as we find a professional.

  45. It’s good to know that builders usually give themselves 1-2 years to finish a home construction project. My wife and I would like to get a house built for our family, and we want to know how long it could take. We’ll be sure to look into our options for professionals who can help us find the right lot to build on and get the project done in a reasonable amount of time.

  46. Thank you for stating that builders typically give themselves 1 – 2 years to build the home per the contract. My husband and I have been living in an apartment ever since we got married, but we’ve been considering starting a family soon, and want to build a house. I will definitely keep all of your great tips and information in mind in my search for the best home builder to build our dream house.

  47. You explained it very well. I totally agree with you, it is very important that we need to check whether the contractor is licensed or not. Nonprofessionals can waste your time and money as well as they can be put you in some trouble.

  48. This blog is definitely helpful and informative. Great blog by the way and thanks for sharing these!

  49. I like what you said about needing 1-2 years to get your home built. My sister has been telling me about how she’d like to get a custom home built for her family soon. I’ll share this information with her so that she knows how long it could take.

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