New Home Building Agreements and Warranties

Friday, June 27, 2014

There are several scenarios in which you may purchase a new home, from purchasing a “package” of land and home from a building company which owns the land to hiring a builder to construct your home on land you own or will buy. Every scenario must be reflected in the building agreement, but beyond the legal requirements that all builders must follow, each has his or her own practices.

Building agreements are more complex than contracts for existing homes simply because building a new home is different from purchasing an existing one. And unlike contracts used to purchase existing homes, there is no standard “fill-in-the-blank” contract for building a new home. As a result, building agreements vary considerably. A general guide should be “the more detailed, the better” because a detailed contract which includes even minor details reduces the potential for misunderstanding.

A building agreement is a legally binding document which spells out the terms between buyers and builders. You should fully understand what’s in it - and what’s not - and make sure that your questions are fully answered to your satisfaction before signing. 

Beyond the legal requirements, good building agreements should include provisions for at least the following:

ATTORNEY APPROVAL: a specific number of days during which you may have an attorney review the agreement.

TIME FOR COMPLETION: Because weather and other factors such as the size of the home and the month in which it is started influence the time it takes to build a home, no builder can give you an exact date of completion for a home that must be built. However, experienced builders know how to account for these factors and should include a time frame within which your home will be completed at the very latest. 

SPECIFICATIONS: detailed specifications which itemize all the materials and products that will be used to build your home.

SELECTIONS: In addition to the detailed specifications, a building agreement may indicate that certain color and style selections may be made later, such as the color of your roof shingles or carpet. You should know the deadline for making these selections in order to avoid construction delays.

CHANGE ORDERS: After the building agreement is signed, you may change your mind about some of the specifications that were included or you may want to add extra items. Most builders, but not all, will allow you to make changes when possible. Because materials are often ordered weeks in advance, making changes after items have been ordered or purchased can mean significant extra cost as well as construction delays.

If a change is made, a written change order should always be signed by you and your builder. Your building agreement should specify when you pay for any additional costs that result from change orders.

ALLOWANCES: In some cases, your building agreement may include allowances, which are specific sums to be allocated to certain items, such as lighting or appliances. You can decide how to spend the allowances, and if your choices cost more or less than the allowance amount, know how you will be debited or credited.

ANN ARBOR BUILDERS’ BUILDING AGREEMENTS: Our building agreements consist of four parts:

  • The body of the agreement which includes the price, the terms and the legal obligations of both parties
  • A complete and detailed specification list which includes all the materials and products used to build your home, from permitting and excavating all the way to towel bars and tissue holders and everything in between
  • The plans
  • Our Warranty

WARRANTIES:  Each state sets its own laws regarding builder’s warranties and the State of Michigan does not require builders to provide warranties. Ann Arbor Builders’ warranty, which is incorporated into our building agreement so that you’ll know from the very beginning what to expect, ensures your peace of mind long after you’ve settled into your new home.

- Betsy de Parry, VP, Marketing and Sales