If you’re buying a pre-construction property, the only thing protecting one of the largest investments you’ll ever make is the contract. In reviewing your pre-construction contract, you’ll want feedback from a seasoned real estate lawyer to make sure you’re properly protected.
Some pre-construction contract provisions you want to look for include:
Standard clauses – Check with your attorney to be sure that all the standard clauses are included and applicable for the area you are buying in as well as any non-standard clauses that may be of concern.
Seller – Only the legal registered owner of the property should be named as the seller.
Transfer of title – Some contracts provide the developer with a set period of time to transfer title after a buyer is in possession of the home. As soon as the sale closes, the property title should be transferred into your name.
Encumbrances – Be certain the developer has cleared the title of any encumbrances such as taxes, mortgages, or liens.
Description of property – The contract must provide specifics on the property and square footage of the home. In the event you are purchasing a condo, the property description should include the details unique to the unit you are purchasing — square footage, floor plan, unit number, etc.
Cost – The agreement should detail the cost of the house, payment terms, method of payment, as well as repayment specifics if the developer is involved in the financing.
Changes – If the agreement has an adjustment clause saying that the developer is able to increase the price by a fixed percent at closing, make sure that the increase can be justified — e.g., a rise in the cost of labor or materials. Request that the developer remove this clause if you are buying the home with cash.
Timeframe – The contract on your new build should include beginning and end dates for construction. If the developer is late in turning over the property after a particular date, you may want to include penalty payments in the contract.
Construction materials – The agreement should detail the quality of the supplies and finishes that the developer will be responsible for delivering. Be certain you do an inspection before closing to make sure you’ve received what you paid for.
Fixes – The agreement should include a timeframe for correcting any issues you might encounter with the building work.
Assignment – Review the agreement for assignment rights. You might wish to assign the agreement to another buyer before you close, but not all pre-construction contracts allow this.
Penalty for withdrawal – If you decide not to go through with the purchase, your agreement may stipulate certain monetary penalties. Be sure you understand what those penalties may be before proceeding.
Our real estate attorneys represent parties on either side of real estate and financing transactions, including buyers, sellers, landlords, tenants, lenders, borrowers, trustees, guarantors, shareholders, partners, and others. We advise, structure, negotiate, and document a variety of real estate and financing transactions, including leases, purchase and sale agreements, financing agreements, and development agreements for a variety of commercial and residential projects. Contact us today and learn how we can help.