Signing a builder contract without understanding the terms is like buying a house blind—you won't know what you're getting until it's too late. Most new construction disputes stem from vague language, unclear timelines, and surprise costs that buyers thought were covered. This guide walks you through the critical clauses every buyer should scrutinize before putting pen to paper.
The Price and Payment Schedule
The contract should spell out the exact base price, any allowances (for finishes, appliances, flooring), and what costs are not included. Builders often quote a low base price, then hit you with $30,000–$50,000 in upgrades and site-specific fees.
Look for the payment schedule breakdown. Most builders require 10–20% down at signing, with draws tied to construction milestones (foundation, framing, drywall, final). Ask for a timeline—typically 8–14 months for a standard single-family home, but this varies by region and complexity. If the schedule slips, understand whether you're entitled to credits or if delays are simply "acts beyond builder control."
Upgrades and Allowance Limits
Standard allowances usually cap at $2,000–$5,000 per category (kitchen, flooring, paint). Exceeding the allowance means you pay the difference out-of-pocket. The contract should clearly state:
- Which items fall under allowances
- The exact dollar cap for each
- Whether unused allowance carries over or is forfeited
- The timeline for selecting upgrades (some builders demand selections 30–60 days before installation)
Missing this detail often leads to surprise invoices during construction when you've already spent your budget.
Warranty and Defect Language
New construction warranties vary wildly. Standard coverage typically includes:
- Structural defects: 10 years (varies by state)
- Major systems (HVAC, plumbing, electrical): 2–5 years
- Cosmetic finishes (paint, drywall): 90 days to 1 year
The contract should specify what isn't covered—settlement cracks, minor nail pops, and shrinkage are common exclusions. Request a detailed punch-list process: you'll walk the home before closing and document any incomplete or damaged items. The builder then has 30–90 days to correct them.
Builder Changes and Delays
Contracts often include language allowing builders to make "minor changes" without consent. Define what "minor" means in writing—a different window style or paint color? A repositioned bedroom? Insist on approval for anything affecting layout, square footage, or cost.
For delays, clarify liability. Most contracts shift delay risk to you (no compensation for construction slowdowns), but some include liquidated damages—a set dollar amount per day if the builder misses the deadline. Standard damages range from $50–$200 daily, depending on the home's price point. Never waive all delay penalties; negotiate a realistic buffer and defined compensation.
Financing and Contingencies
The contract should specify whether your offer is contingent on obtaining a mortgage. A standard contingency period is 21–45 days for loan approval. If the builder requires a non-contingent offer (common in hot markets), understand the risk: you're obligated to close even if financing falls through.
Ask about the builder's mortgage contingency release deadline. If you haven't locked in financing by this date, the builder may cancel and keep your down payment. Negotiate this timeline based on your lender's speed.
Closing Costs and Final Walkthrough
Closing costs in new construction typically run 2–5% of the purchase price. The contract should itemize who pays for what: title insurance, appraisal, survey, HOA setup fees. Some builders offer closing-cost credits to sweeten the deal—verify these in writing.
Schedule a final walkthrough 24 hours before closing. Walk every room, test appliances, check for incomplete work, and compare against your original selections. This is your last chance to flag missing upgrades or defects before you own the home.
Frequently Asked Questions
Q: Can I negotiate a builder contract after it's drafted? Yes. Builders expect negotiation on price, upgrades, warranty terms, and delay penalties. They rarely negotiate the boilerplate arbitration clause, but upgrades, timelines, and payment schedules are fair game.
Q: What happens if the builder goes bankrupt mid-construction? Most states require builders to hold deposits in escrow, protecting your down payment. Verify your state's escrow requirements and confirm the builder complies before signing.
Q: Should I hire a real estate attorney to review the contract? Strongly recommended. A local attorney costs $500–$1,500 but can catch region-specific pitfalls and negotiate on your behalf. If you're comparing builders, platforms like Mercoly help you find trusted new construction providers you can vet alongside legal review.
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