Does Your Custom Home Building Agreement Protect You or Just Your Builder?
A contract is nothing more than an agreement between two or more parties that is enforceable by law. Regardless of your age or your level of income, most adults have entered into hundreds and perhaps thousands of contracts in their lifetime. When you apply for your first library card, purchase a concert ticket, install a new software program, open a charge account, or place your signature on the paperwork that allows you to drive off the lot in a brand new car, you are signing your name and agreeing to abide by the terms and conditions of a legally binding document.
Since the purchase of a new home is typically the largest investment that most people will make, it would stand to reason that the number of legal documents associated with that purchase would also be of a substantial nature. Additionally, since a new home construction contract is first and foremost a legally binding agreement, it is very important that you retain a lawyer to review and modify the agreement so that it is complete, accurate, fair, and enforceable, for all parties.
That last part of the previous paragraph – about hiring a lawyer – is perhaps the best advice you will ever get for free. Professional builders have lawyers to protect their interests and you need your own professional local real estate attorney to look out for your money and your interests.
Typical Content of a Home Building Contract
- Names of all parties
- Addresses of all parties
- Phone, fax, email contacts and procedures
- Date of contract
- Property description
- Street address
- Subdivision
- Homeowners association
- Amount of contract
- Terms of financing
- Construction draw schedule
- Construction draw procedure
- Insurance requirements
- Start date and definition
- Substantial completion date and definition
- Plans, drawings, blueprints, sketches
- Specifications – as complete as possible
- Substitution policy
- Allowances – including labor and/or material
- Change order procedures and pricing
- Exclusions to the contract
- Authorized delay conditions
- Penalties or fines
- Access to the construction site
- Owner, lender, and third party inspection procedures
- Methods to solve disputes
- Arbitration clause
- Settlement terms
- Formal notification times and procedures
- Warranties and service policies
- Any documents required by state or local laws
- Signatures and dates of all parties on every page of every document with original copies for all signing parties
- Witness to all signatures
- And anything else about which two or more people can disagree, misunderstand, fail to do, install improperly, overlook, ignore, or that otherwise might create a problem between any or all of the aforementioned parties.
- WITNESSETH, the party of the first part hereafter known as owner, and the party of the second part, hereafter known as contractor that have here today placed their hands and seals on this document have hereby agreed to just be friends, get along nicely with each other at all times, expect only what is reasonable of each other, neither charge too much nor pay too little for services rendered, and build the perfect house on schedule, under budget, with no problems whatsoever.
OK, the last one is a little too much to ask under even the best of circumstances. However, the point we are hoping to make is that without a good set of documents, on which everyone has agreed, you can almost be assured of a bad experience.
Do not sign any agreement with which you are not completely comfortable. If there is any part of a contract that does not make sense to you or with which you do not agree, you should clarify and/or change it so that it accurately reflects your understanding of the agreement.
So, take the time to thoroughly read the entire contract, be sure you understand what you are reading, speak up and make changes and additions where you feel they are necessary, and above all, seek competent legal advice, before you build!
Here are a few other construction contract resources:
- Maine Attorney General’s Consumer Law Guide – look specifically at items #17 and #18 by using the links on the right side of the page.
- Links to other online legal resources.
- Links to legal books, forms, and contract documents.
- Sample construction schedule for a large custom home.
- Contract specifications and square foot costs.