Before signing the sales contract for a new home, know what you’re getting into


Newly built houses stand in the KB Home's Whisler Ridge housing community in Lake Forest, Calif. (Patrick T. Fallon/Bloomberg)
October 18, 2013

You walk into the home builder’s furnished model, take one look and are blown away. Yes! This is it — the place where you can put down roots and raise your growing family.

Before you rush to sign on the dotted line, push the pause button and take a step back. Construction of your dream home won’t begin until you sign a sales contract. This document is so weighted in the builder’s favor that one attorney characterized it by saying, “The builder has inoculated himself against everything.”

To understand how the terms of this one-sided contract may affect you, you need the help of an experienced real estate attorney.

The sales agent may pressure you to sign the sales contract without an attorney’s review — “our special deal on the free basement rec room expires tomorrow” — but you can get the rec room and the attorney’s review if you add the following: “This contract is subject to and contingent upon review and approval by purchaser’s attorney.” Most builders are amenable to this but require it to be done within a limited time period, Alexandria attorney Beau Brincefield said.

The sales contract will be a preprinted document with various blanks to fill in or initial. Very little is negotiable; most of an attorney’s review for a new house is “managing expectations,” explained McLean attorney Marcus Simon.

Here are some things to keep in mind:

The entity that will build and sell your dream house to you may not be the firm whose name is prominently displayed in the model home and the sales materials. It may be a limited liability company set up to build this particular community; when construction and sales are complete, it will become inactive. If something happens down the line, you may be chasing a shell company with no assets.

The promises and assurances of the sales agent will not be honored if they are not included in the contract document. Some sales contracts explicitly state that oral statements, assurances and promises made by any employee or representative of the firm regarding anything about the house are unenforceable, Brincefield said.

Beware of “substitution” and “substantially similar” clauses. After move-in, a common complaint concerns the differences between a buyer’s house and the sales model. The attorneys said buyers should not be surprised; these possibilities are addressed in the sales contract.

The “substitution clause” says the builder may substitute another material “of equal or greater value” if the one that is standardly used is unavailable. The substitution may be innocuous or more obvious.

The “substantially similar” clause states that the house will be similar to the model but may vary in dimensions by an amount that is not specified.

Know what the builder’s warranties cover. In Maryland, state consumer protection laws and the additional ordinances in some counties are strong and cannot be waived. In Virginia, the state code provides a strong warranty for new homes, but the law allows builders to include a waiver in their sales contract. (D.C. doesn’t have much new construction.)

Scrutinize the builder’s lending package. Almost all builders offer inducements to use their preferred lender. But the lender is not obliged to give you a competitive rate.

Katherine Salant has an architecture degree from Harvard. A native Washingtonian, she grew up in Fairfax County and now lives in Ann Arbor, Mich. If you have questions or column ideas, she can be contacted at salanthousewatch@gmail.com or www.katherinesalant.com .

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