Signing a Contract to Buy New Construction in Delaware
When a husband and wife who are looking around for a new house find one they like, the next step is to make an offer. The offer usually takes the form of a standard agreement of sale that their real estate agent helps them with. They sign the agreement and their agent submits it to the seller’s agent, who in turn takes it to the seller to accept or reject. If the seller isn’t happy with any of the terms in the offer, both sides are free to negotiate until they reach an agreement they both can live with.
New construction is quite different. If the same couple decides to have a house built, the builder presents them with the builder’s form of contract to sign. The terms are usually one-sided, and there’s not much room for negotiating the terms. As a Delaware real estate attorney, let me share with you a few examples.
A common provision in a builder’s contract gives a tentative settlement date, but goes on to say that the date of settlement will be extended in the event of unforeseen issues or other problems beyond the control of the builder. Most people read this language and sign the contract without giving it any further thought. They assume that the house will be ready by the settlement date, and if it’s not, any delay will be short. That’s not necessarily a good assumption.
Let’s take for an example a contract that says the newly built house will be ready by November 4, 2011. As this date draws near, the buyers start making all kinds of plans. They arrange for a moving company, they contact the utility companies, and they may even schedule people to come in right after the settlement. In addition, they also lock in the interest rate with their mortgage company.
The first question, therefore, is how much notice should the builder give you if settlement has to be delayed? Would you be okay if the builder calls a few days before the settlement date to tell you there will be a delay? The builder’s contract probably does not provide how much notice you are entitled to. If notice is important to you, ask the builder to add this to the contract.
The contract should also have what I call a “drop dead” date. In other words, if the builder is not ready to go to settlement by that date, you as the buyers should have to right to terminate the contract and get back your deposit. To be clear, I’m not suggesting that the builder should have any liability for a long delay. What I am saying is that you shouldn’t be required to put your life on hold for an unreasonable period of time. In the above example, the settlement date in the contract is November 4, 2011. How long can the delay be before you want out of the deal? What if the house isn’t ready by January, or March, or the following November?
If the builder is unwilling to insert a drop dead date, maybe you should think about working with a different builder. And this brings me to my final point. What if you talk to the builder’s representative, who very nicely tells you that you don’t need to worry because if the delay is too long, the builder will let you out of the contract? This sounds fine until you read another provision in the contract that says the written contract contains the entire understanding between you and the builder, and you are not relying on anything else that anyone has told you or that you may have read. The lesson to be learned is that if it’s not written in the contract, that’s the same as if you never heard it.
Builders' contracts are not as simple as they might seem. Buyers can read them and understand the language, but what buyers don’t realize is what’s missing from the contract that should be there for the buyers’ protection.
