Building A New Home: Should You Sign Your Builder's Contract?

Building a new home is a dream for many people. If you are really lucky, you have saved to hire a talented architect, and then you find a reputable builder to build your dream house. When the builder presents his standard construction contract, should you just accept it as is, hire a lawyer, or do you have enough business experience to act as your own lawyer?

Do you act as your own dentist, or perform your own colonoscopy? One who acts as his own lawyer has a fool for a client. The simple answer to whether you need someone to review your construction contract is YES! And, that someone shouldn’t be your dentist, hairdresser, or even your divorce lawyer. If you aren’t comfortable hiring your mother in law to be your interior designer or dentist, or both, then you should be sure to find a lawyer who understands residential construction law.

Here are just a few things that can go wrong when you sign a builder’s contract:

Many contracts waive your right to go to court, or have a jury decide your case. Instead, they require you to arbitrate disputes, often by a group who works only for builders. This is similar to the financial industry that requires you to agree that you will resolve any disputes with your broker by submitting your complaint to an arbitrator chosen by the broker.
Some builder contracts require you to agree to a third party’s warranty, while also asking you to waive any rights you may have under state law. A third party warranty typically requires you to pay an administrative fee of hundreds of dollars, then also requires you to pay for the arbitrator up front before the arbitrator will begin reviewing the case.
Some unscrupulous builders will put in a provision that says the builder has the right to determine whether the quality of work is satisfactory, and that you have no right to challenge his decisions. Imagine the true life story of where a builder forgot which edge a homeowner wanted on her kitchen counter, and instead of installing one continuous edge, the builder put round edges on one side and square edges on the other. When challenged, the builder pointed to the contract and said the homeowner had no right to complain.
Another typical provision requires homeowners to pay the costs of any changes before the builder proceeds with the work. Sounds fair, except that frequently the builder causes the change by making a mistake, and requires the owners to pay for the mistake.
Finally, imagine a contract in which the customer pays $100,000 down at the beginning of the contract, then pays for any and all upgrades and changes. Just before closing, when the homeowner inspects the work and finds missing toilets, missing faucets, and missing doors, the contractor says, “take it or leave it”.

These are all real examples of builder contracts we have seen over the past few years, when you would expect that hungry contractors would bend over every which way possible to create good will with their customers. Instead, we have seen some of the worst contracts ever written, from the perspective of the customer.

What should you do before signing a custom contract with a builder? If you insist on being your own lawyer, or hiring your spouse’s brother in law, the dentist, then there may be no hope for you anyway. But, if you are serious about avoiding acatastrophe on your biggest investment, consider the following suggestions to improve the one-sided contract.

Insist that the contractor promise to perform all work in a workmanlike manner with a quality recognized by the construction industry standards as good to excellent.
- Recently a court decided that this language was enforceable against a builder who installed a concrete driveway, which began to crack soon after installation. The owner sued the contractor and argued that he was entitled to get the quality of work described in the contract. The court agreed and allowed the owner to recover the cost of a new installation equal to the high standard of quality originally promised.
Insist that the contractor comply with all applicable building codes, the conditions of the original permit and any modifications to it.
- It may be hard to believe, but without this language, you may have no claim against the builder if he fails to comply with building codes. Maybe your local city building department could cite him for a violation, but you can’t. In other words, you have no right to enforce the building codes that apply to your house.
Insist that the builder comply with and build the house to the approved plans and specifications.
- When you submit your drawings to a city to obtain a permit, the city will issue the permit based on the plans. If the architect changes the plans, they may have to be reviewed and approved again. The builder must be required to build the house to match the approved plans. NEVER should the builder get to decide to deviate from approved plans.
Make sure the builder requires all of his subcontractors to agree to the same terms as the builder has agreed to. Then, insist on a provision that says the builder will hold you harmless and indemnify you from any and all claims brought by third persons arising out of the construction of your new home.

These are just a few crucial terms to add to your custom home construction contract. If your builder refuses to agree to one or more of these, and won’t offer a reasonable compromise or substitute provision, you should move on until you find a qualified builder that will accept these terms. Otherwise, you could find yourself paying thousands of dollars for an industry lackie serving as an arbitrator, interpreting a contract the builder wrote, and which is so one-sided you will have lost before you begin.

We can assist you in both the drafting or review of contracts, and negotiating the terms with your builders. In turn, we won’t offer to do your dental work, if you agree not to do our legal work.

Let’s talk. Contact us today.