Last updated on August 14th, 2023 at 12:16 pm

Quick Facts

  • A builders contract should include the scope of the project, the timeline for completion, and the payment schedule.
  • It should also include a list of materials and labor that will be used in the project.
  • It should also state who is responsible for any damages or losses that occur during the construction process.

Building a home is an exciting process, but it can also be nerve-wracking. One way to ensure that the project goes smoothly is by having a property builder’s contract in place.

However, not all contracts are created equal, and it’s important to know what to look for when reviewing one. 

Lets discuss the key elements of a builder’s contract that you should consider before signing on the dotted line.

We will cover everything from understanding earnest money deposit clauses to the warranty and repairs that should be included in the contract.

We’ll also go over change orders, financing, appraisals, and home inspections so that you have a complete understanding of what to expect.

Lastly, we’ll talk about how to protect yourself by looking out for red flags such as liens and waivers. 

Hopefully though you did your research and checked the references of said builder that is of high quality and has a phenomenal reputation.

Also do yourself a favor a choose a builder with experience who has all the proper licenses. 

You will be equipped with all the knowledge you need to confidently sign a builder’s contract and start building your house.

What to Look for in a Builder’s Contract

It is important to understand what to look out for in a builder contract before signing one.

89% of home builders suggest that homeowners read the contract thoroughly before signing.

Ensure that all of the project’s specifications are outlined in the scope of work section.

Payment terms should be made clear, with deadlines included in a payment schedule. 

Be aware of how change orders will be handled and any potential additional costs that may arise.

It’s important to confirm the expected start and end dates for construction, as well as any possible delays.

It takes about 8 months to build a new house. 

Lastly, check for warranties or guarantees regarding workmanship and materials used. 

By keeping these points in mind, you can protect yourself from any disputes with your builder down the line.

Understanding the Parts of the contract

To safeguard your interests as a property owner, comprehending the components of a builder’s contract is critical.

Acquainting yourself with key facets such as payment terms, scope of work and timeline will help you immensely.

Know your rights and responsibilities before signing on the dotted line.

Seek legal advice from an expert [attorneys] to ensure that the legally binding agreement is fair for both parties involved.

Breaching the agreement can result in dire consequences for all stakeholders in the construction process.

What are exclusions and inclusions in a builders contract

Inclusions are often found under a heading somewhere along the lines of “Scope of Work” or “Services Provided”. This section outlines all the tasks, materials, and services that the builder or contractor will provide as part of the construction project.

Exclusions are usually listed in a separate section often labeled “Exclusions” or “Items Not Included”. This section outlines things that the builder or contractor will not be providing or responsible for.

What is the scope of work to be performed

65% of home builders advise that homeowners should be aware of the scope of work in the contract.

When reviewing a builder’s contract, one of the most important things to consider is the scope of work to be performed.

This section should outline in detail what the builder will be responsible for throughout the construction process.

It should include specifics such as:

Make sure that this section is comprehensive and clear so that there are no misunderstandings or disputes down the line.

If there is anything that you are unsure about, don’t hesitate to ask questions and clarify before signing the contract.

What is a builders payment schedule

A builder’s payment schedule is a written plan outlining how and when the builder will be paid for their work on a construction project.

It typically includes deadlines for payments at different stages of the project, such as upon completion of certain milestones or phases.

The payment schedule should be clearly outlined in the builder’s contract, along with any penalties or incentives for early or late payments.

What is a subcontractor

A subcontractor is a person or company hired by a contractor to perform a specific task as part of a larger project.

For example, if a builder is constructing a house, they may hire subcontractors to handle tasks such as plumbing, electrical work, or roofing.

Subcontractors are typically experts in their field and are brought in to perform specialized work within the scope of the overall project.

The builder remains responsible for ensuring that all work is completed to their standards, but the subcontractor is responsible for completing their specific portion of the job.

What if the builder doesn’t pay the subcontractor

If the builder doesn’t pay the subcontractor for their work, it can become a legal issue that affects the homeowner [that’s you].

This is why it’s essential to ensure the builder has included lien waivers in their contract.

A lien waiver is a legal document that confirms payment has been made to all parties involved in the construction project and releases any claims on your property by contractors, subcontractors, and suppliers.

The most common type of lien in this situation is a mechanic’s lien. This occurs when the builder or contractor hasn’t been paid. It is attached to the property.  

If a builder doesn’t pay the contractor, this lien can be placed on the house. 

Earnest Money Deposit Clause and Its Significance

The earnest money deposit clause is a component of a new home construction contract that homeowners must pay attention to while signing it.

This clause helps protect both parties by defining the amount and terms of the deposit in writing.

Negotiate this amount carefully and understand how it protects your interests in case of any dispute resolution or defects in the construction process.

A written agreement helps ensure that this legally binding agreement is fair for both parties involved.

Homeowners should be wary of liens, waivers and look out for express warranties while considering this clause’s length of time.

Warranties and Repairs That Should be Included in the Contract

Understanding what to look for in a builders contract goes beyond just signing on the dotted line.

Homeowners should pay particular attention to warranties and associated repairs that may be required during or after completion.

Including provisions for dispute resolution and mediation ensures that both parties have a clear understanding of their obligations and can mitigate any future legal disputes.

What are Change Orders

Change orders in a builder’s contract refer to modifications or alterations made to the original scope of work. 

These changes can be requested by either the homeowner or the contractor due to various reasons such as design preferences, unforeseen circumstances, or material availability issues.

Change orders should always be made in writing and properly documented with signatures from both parties to prevent any confusion or disputes later on.

It is important to note that change orders may result in additional costs, delays, or impact the overall timeline of the project, so they should be carefully considered and negotiated before being approved.

How change orders can affect a contract

Change orders are an inevitable part of the construction process when building a new home.

Negotiating fair and reasonable changes with your builder while keeping in mind additional costs like upgrades can save you a lot of money in the long run.

Mediation or arbitration clauses within the contract documents can help resolve disagreements over defects or specifications effectively.

Financing, Appraisals, and Home Inspections Explained

When entering into a builder’s contract for your new home build, it is important to understand all aspects of the agreement. 

  • Financing is a key element of this legal and binding document; carefully reviewing the financing terms and conditions within it will prevent any unexpected costs from arising during the construction process. 
  • A professional appraisal ensures that your house is priced fairly. 
  • A thorough inspection covering every aspect of new construction is paramount to avoid defects, safety, and any issues before completion date.

Protecting your investment by negotiating favorable terms with lenders and inspectors can save you a lot of money in resale situations.

Financing: What You Need to Know

Be well-informed about financing options when reviewing a builder’s contract.

Make sure the document clearly outlines the terms and conditions around financing, including interest rates and the payment schedules, so you’re not hit with any surprises later on.

It’s also wise to understand the different types of financing available (like fixed- or adjustable-rate mortgages) before signing anything.

Getting pre-approved for a loan can help ensure you can afford the project and avoid potential disappointment down the line.

Remember that additional expenses like closing costs and insurance may impact your bottom line.

Appraisals: What to Expect in the Contract

Understanding appraisals when signing a builder’s contract.

  • Appraisals guarantee that you pay a fair price for your new home by evaluating its value based on similar properties sold nearby.
  • If a house doesn’t appraise for the value you paid for it, your lender may not give you the funds for the purchase.
  • A professional will inspect your property and research comparable properties before determining its worth using current market trends.

The written agreement should clearly state who orders and pays for the appraisal and address any contingencies if it comes back under your agreed-upon purchase price.

Don’t forget to factor in additional costs like closing costs when budgeting.

Home Inspections: Protecting Your Interests

As a homeowner, protect your interests during the home inspection.

To achieve this, ensure that you understand what exactly will be inspected and how it will be done.

The inspection report must include any issues found along with recommendations for repairs or replacements.

Having a contingency clause in your written agreement might also help you back out of the deal if needed.

Always get everything in writing to ensure all parties involved agree upon terms and conditions mentioned therein.

This way, you can protect yourself from disputes and other issues down the line.

Protecting Yourself: What Clauses to Look Out for

When entering into a new home construction contract as a homeowner in Texas or elsewhere, protecting yourself is paramount.

Pay attention to the various clauses included in your builder contract.

Ensuring that payment schedules are clear and transparent while avoiding hidden costs will minimize stress and frustration during construction.

Understanding timelines of completion date and specifying the scope of work with respect to subcontractors’ duties.

The written contractor agreement should cover warranties against defects in materials or workmanship as well as express warranties on certain appliances or landscaping features.

Understand that appraisal contingencies may affect financing down the line.

How to Avoid Liens, Waivers, and Other Red Flags

You must watch out for potential liens, waivers that could compromise the house.

The written agreement must clearly outline the scope of work, when to pay, completion date, warranties express or implied, specifications, change order clause(s), financing terms (if applicable), dispute resolution clause(s), among others.

Furthermore, liens and waivers can be used to ensure payment is made but you should carefully analyze their implications before agreeing to them.

Beware of red flags like vague or incomplete contracts that do not cover all aspects of the building process.

Consulting with an attorney during the building permit application process can save you a lot of money in the long run.

Final Take-aways

  • Before signing a builder’s contract, you must carefully evaluate each clause and ensure that it contains all the necessary components.
  • This includes warranties, repairs, change orders, financing, appraisals, and home inspections.
  • By understanding the key elements of a builder’s contract and working with a trustworthy contractor, you can ensure a smooth and successful construction project.