Contractual Difference with New and Pre-Owned Homes
Many of you know that I got started in San Antonio real estate selling new homes for some of the nation’s largest builders. I then transitioned into personal investment properties and house “flipping”, and currently share my experiences with clients as a residential real estate agent.
If you are considering buying a new home directly for a large production builder there are some contractual things you need to consider so you don’t get caught off guard.
1) The contracts Realtors use for pre-owned homes are typically “TREC Promulgated” and because we are not attorneys all we do is fill in the blanks. The contracts are written to favor neither the buyer or the seller, but to make the transaction as equal as possible. When you buy a home from a builder you typically use their contracts written by their attorneys. This means the contracts are written almost entirely in the favor of the builder. For example you will see paragraph after paragraph letting you know the penalties you face if you do not make selections by a certain time, or close by a certain time, but when it comes to the builder and penalties they face there is almost nothing in most contracts. I worked for a builder that had in their contract that 180 days after the start of construction the house had to be completed or the buyer got a full refund. That sounds pretty good right? Well the next part of that paragraph said that the builder could go past that date if any of the following were the cause: weather, delay in materials, manpower shortage, etc. and it ended with “any unforeseen even”. Well if that doesn’t absolutely cover every possible event I don’t know what would!
The bottom line is READ THE CONTRACT! I’m not saying you can change anything in there, but you should at least know what you are getting into.
2) Money Deposits. Writing a typically pre-owned contract in Texas usually results in some Earnest Money and some Option Money being deposited. With the builders you typically put up Earnest Money, but then may have to give a second check to cover some or all of the upgrades you add to the house. I have never worked with a builder that took an option check, but most give you about 2 weeks to determine all the changes you plan to make on the house and then bring the required check to cover those upgrades. When that second check is deposited your “option time” is then up, your money goes “live”, and if you cancel after that point you risk losing all the money deposited – even if the reason for your cancellation is that the builder is incompetent! Make sure you know what money you will have to deposit and when you can no longer get it back!
3) The builder’s contract is so important to understand fully. Remember everything you talk to about the builder is not the responsibility of the builder to remember. If you make any change you need to sign for that change and GET A COPY OF THE CHANGE ORDER. I have worked with people before who went back and forth on different upgrades so many times that I couldn’t keep track of what they wanted. I’d have to tell them to SLOW DOWN and go over everything they wanted. Even with that they may come back and say, “WE TOLD YOU WE WANTED… AT THE TIME OF CONTRACT!!” I would have to tell them that if they didn’t have it written down then it wasn’t my responsibility to make sure it was in the house. This cause some big-time problems, but the builder is in the right. If you don’t have something saying it is going in the house, don’t expect it in the house!
Those are just a couple of the biggest items to look at when buying a new home when you are used to dealing in pre-owned. There is a lot to consider and you should work with an experienced Realtor.
If you would like to work with me on your next SAN ANTONIO REAL ESTATE transaction, please contact me!
CHRIS COWLEY
210-389-6006
