Beaverton Real Estate: Purchasing a Home from a Builder: It’s different and needs special care

By Ken Reetz17 home builder

The Builder’s Purchase Agreement will be much different than the Oregon Real Estate Purchase Agreement. It will be more one sided in favor of the Seller (Builder) and the Buyer will want to review the terms of a Builder Contract with due consideration.

First, it’s also important to recognize that a builder is taking significantly more risk than a seller of resale homes, and therefore must account for all the things that could easily spiral their building costs out of control.

The one sided aspect of the Builder Contract should not signal that they are predators, but it should signal the Buyer their need for due diligence.

Make sure you understand and can live with these Terms of Sale:

  • Inspections – Being new isn’t a guarantee of anything, and neither is being the country’s biggest home builder with a thousand testimonials saying how great they are. I have personally seen a home inspection, then a subsequent re-inspection, save a NEW home buyer what would have been many thousands of dollars in repairs. If you’re building from the foundation up, get a good home inspector of your own to follow the process at three key points of construction. Don’t rely on state, city, or county inspectors and certainly don’t rely on the builder (especially on the larger builders who hire so many sub-contractors that they cannot properly supervise them). Think that is an exaggeration? Research the number of law suits filed against the big builders and you will be surprised – triple that amount for those who have not filed but still have the problem with leaks and mold and it is even more surprising. This is first on my list for a reason.
  • Earnest Money – Unlike the typical Oregon Real Estate Purchase Agreement, Earnest Money is not easily returned to the Buyer if there is an undesirable home inspection, a lower appraisal than the sale price, delay in possession date, or loan issues for any reason. The Builder Contract will likely deny the Buyer any return of Earnest Money and may even obligate the Buyer for additional costs.
  • A loan commitment that will not have a “rate lock” – Your date of possession may be out a while; manage the risk of your interest rate going higher if you cannot get a rate lock.
  • Substantial Completion – It means different things to different people so read the contract carefully and know what to expect. If you don’t want to be susceptible to workers lingering in your home after you have moved in then negotiate accordingly. This also affects your final payment to the builder so be specific on what substantial completion really means.
  • Third Party Warrantees – If the contract obligates you to waive your rights and enter into a third party warranty, does it also require you to pay administration fees? And arbitration fees if there is a dispute?
  • According to Plans and Specifications – Watch out for phrases such as “substitute materials of equal or greater value.” It may be necessary, but who decides? Also, insist that the builder comply with all required building codes according to what was permitted, including any approved variations or modifications. Finally, it should be spelled out that the builder will perform all work to meet or exceed professional standards.
  • Hold Harmless – Do you want to be subject to third party claims that may arise during the construction of your home? If not, realize this: ALL subcontractors doing work for the builder should be required to hold you harmless. Period.

There is so much more to cover but the idea is to take this seriously. Personally, even though I know most of this stuff, I would not buy a home from ANY builder without using a real estate attorney to review and edit the contract. Then, your Realtor will be an important part of negotiating what has been counter proposed.

If you don’t know who to contact and need either a good real estate attorney or Realtor just give me a call and I’ll be happy to help out. Ken Reetz, Realtor – Principal Broker. Zip Realty Residential Brokerage. (503) 330-4148 ksreetz@gmail.com, www.KenReetz.com