The purchase agreement you sign with a new construction builder is typically 30–60 pages long, written by the builder's legal team, and heavily weighted in the builder's favor. Understanding the key provisions before you sign can save you significant money — and stress.
1. Non-Refundable Earnest Money
Many builder contracts make earnest money (typically $5,000–$20,000+) non-refundable after a short review period (3–10 days). Unlike resale where earnest money is often refundable during inspection, builder contracts may keep your deposit even if you cancel for legitimate reasons.
2. Material Substitution Clauses
Builders reserve the right to substitute materials of 'equal or greater value' without your approval. This means the specific flooring, cabinets, or fixtures you selected could be swapped without notice. Get any material commitments in writing as an addendum.
3. Construction Delay Provisions
Builder contracts almost always allow for delays — sometimes open-ended. Force majeure clauses cover weather, supply chain, and labor. Some contracts allow the builder to delay indefinitely without penalty. Know your rights and the cancellation terms if delays become extreme.
If you're locking a mortgage rate, understand that builder delays can cause your rate lock to expire. Budget for a rate lock extension (typically 0.125–0.25% of loan amount per month) if your timeline is uncertain.
4. Right to Modify Plans
Builders may change floor plans, elevation styles, or community layout based on permitting, engineering, or business decisions. Your contract may allow them to build a different elevation than what you selected if supply issues arise.
5. Warranty Limitations
Builder warranties are typically: 1 year workmanship/materials, 2 years mechanical systems, 10 years structural. What's not covered matters as much as what is. Get the full warranty booklet before closing and note what's excluded.
6. Preferred Lender Requirements
Some incentive packages require you to close with the builder's preferred lender. If you switch lenders, you may forfeit significant credits. Understand this before committing — and make sure your outside lender quote is genuinely better after accounting for lost incentives.
Ask for an addendum that lists every incentive explicitly — the dollar amount, what it covers, and any conditions. Verbal promises from sales reps don't hold up.
7. HOA Disclosures
If the community has an HOA, you have a right to review CC&Rs, bylaws, and budget before closing. HOA fees, special assessments, and restrictions (fencing, landscaping, parking) can materially affect your lifestyle and resale value. Don't skip this.
The Bottom Line
A new construction contract review isn't optional — it's how you protect a $400K–$700K purchase. An experienced new construction buyer's agent knows what's standard, what's negotiable, and what's a red flag.
Have questions about this topic? We can walk you through it for your specific situation.