Bring in this New Year with a New Home – Home Construction Contract 101 for this Crazy World of 2022

If you are a prospective Florida single-family residence homebuyer just like me, you found 2021’s resale market to be a challenge.  From 2020 through 2021, the supply of good and affordable Florida homes vanished and resale home prices have risen to heights not seen since Snow Patrol was Chasing Cars. Consequently, 2022’s potential homebuyers may wish to look at new construction for affordable housing.  When they do, it will be necessary for them to be advised on new construction contracts, which are very different from FAR/BAR’s resale purchase and sale contracts that protect both a buyer and seller. In Florida, builders sometimes will negotiate on their contracts and others will not.  Regardless, the new home construction contract will be binding and enforceable as written. Very few have “cooling off” periods or cancellation clauses and these contracts are usually drafted by the builder to the disadvantage of the buyer.  So what are the big-ticket items to look for when you review your proposed new home construction contract?

  • Licensing.  Is the developer/builder a licensed builder? If the developer/builder is not licensed, say “NEXT!” and move on because unlicensed home construction is illegal and a crime in Florida.
  • Secure Appropriate Buyer Representation. I cannot stress this enough – builders’ sales representatives do not represent the buyers; they represent the builder and look out for their interests.  In this hot market, it is not unheard of for a buyer to miss a contractual deadline and breach the contract, lose the earnest money escrow deposit, and within a week the property is under contract with a new buyer for a higher price.  Buyers should consider the services of a local realtor or attorney to navigate the sale process to protect their interests.
  • Homeowners Association (“HOA”). Is the property subject to HOA declarations?  Has the HOA been turned over to the owners of the community or is the HOA still controlled by the developer?  If the developer controls the association, has the developer subsidized the HOA’s budget to keep monthly/quarterly assessments low?  Failure to answer these questions may result in a one-time large special assessment or an increase in regular assessments.
  • Price, Timeframes, and Material Terms.  Price, timeframes, and material terms must be defined and as specific as possible for enforcement.  Any ambiguity may result in payment draw disputes, construction delays (without any financial or legal consequence to the builder), contractor/subcontractor lien liability, pre-closing construction plans/inspection disputes, and post-closing warranty disputes.
  • Punch List and Holdbacks of Final Payment. What is the contractual mechanism to enforce the builder to complete the punch list?  Many buyers are dismayed when they are advised a closing must occur when the home is substantially completed even when the builder failed or refused to complete a punch list of uncompleted items prior to closing and the contract allows a one-year window to complete any item on a buyer punch list!
  • Escalation Clauses.  Delay and escalation clauses are enforceable.  They can extend contractual deadlines and increase the previously agreed to purchase price.  An unwary buyer that does not negotiate such a clause may effectively write a blank check to the builder!
  • Dispute Resolution and Arbitration Clauses.  Florida law allows for the waiver of certain legal remedies.  Often, the parties agree to resolve a dispute by arbitration that precludes a purchaser from seeking traditional judicial remedies.
  • Attorney’s fees.  Does the contract provide a prevailing party attorney’s fees in any legal dispute?  If not, the buyer may be at a disadvantage from the start if the builder fails to live up to its sales pitch on the quality of its construction or when the home will be completed.

Ultimately, the above is a short synopsis to get the conversation started on what is best for you and your family in 2022.  At Berlin Patten Ebling, we wish for all of our clients and their realtors to have a happy and successful 2022 home buying experience!  Be safe this New Year and if you have any questions prior to or during your new home construction search and closing, do not hesitate to contact your local real estate attorney.

 

Sincerely,

Michael E. Schuchat, Esq. mschuchat@berlinpatten.com
Berlin Patten Ebling, PLLC

 

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