If you are buying a property currently under construction, there are several additional factors to take into account beyond those of the customary purchase of an existing property. Following are some considerations which should be addressed in any contract for the purchase of new construction:
1. TIMING: the builder will project a completion and closing date which will be incorporated into the purchase and sale agreement. Notwithstanding, home builders generally provide the right to extend a completion and closing date for periods of up to 120 days from the originally projected date to protect against construction delays. If you are buying new construction, be sure you have a contingency plan for storage of your possessions and somewhere to live in the likely case your closing is delayed.
2. INSPECTIONS: a purchase and sale agreement should always give the buyer the right to do a comprehensive inspection of the property at the completion of construction but prior to closing to ascertain that the property has been constructed in accordance with all plans and specs. Once you close, you lose the right to object to property condition except as may be covered by a builder’s warranty.
3. “SUBSTANTIAL COMPLETION” AND UNFINISHED WORK: It should be a condition of any purchase and sale agreement that the builder deliver a final and unconditional Certificate of Occupancy from the building department before closing occurs. Without this, the property is not certified as complete or legally habitable. Yet even if a C.O. has been issued, it is possible, even probable, that there may be a “punch list” of smaller items not yet finished which will be completed after the closing. In your final inspection, you and the builder should develop a “punch list” of unfinished work so all parties have a common understanding of what remains. Ideally, for maximum protection, a buyer should seek a holdback from the builder’s sale proceeds in an amount at least equal to the value of the unfinished work (one and one-half times the value is better), with such funds being held in escrow by buyer’s attorney until the punch list is completed. Many builders, however, will not agree to holdbacks in any circumstances. In that case, the buyer is limited to a contractual obligation on the builder’s part to complete the punch list within a stated period of time following closing.
4. COMMUNICATION: it is imperative to keep in regular communication with the builder and conduct periodic inspections to ensure that the property is being completed as agreed. It is much easier to fix a problem as it occurs than to have to go back much later and try to remedy non-compliance.
5. WARRANTY: always seek a written one-year warranty from the builder covering structural and systemic matters and warranting against any defects in materials or workmanship.
If you are buying new construction, keep these matters in mind, and seek the assistance of a qualified attorney to negotiate your purchase and sale agreement so these items are incorporated into the contract.