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Buying new construction differs from purchasing an existing home. Builder contracts favor the builder, warranties have limitations, and timelines are unpredictable. Understanding the process helps buyers protect their interests when purchasing from a builder.

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How New Construction Differs

Builders use their own contracts, not standard real estate association forms. These contracts are written by builder’s attorneys and favor the builder.Terms are often negotiable, but buyers must ask. Builders won’t volunteer buyer-friendly changes.
New construction takes months to complete. Production homes: 4-8 months. Custom homes: 8-18 months. Delays are common.Must coordinate sale of current home, lease endings, and financing with uncertain completion date.
Builders require significant deposits (often 5-10% or more) that may not be fully protected if deal falls through.Understand when deposits become non-refundable and under what circumstances.
Builders rarely negotiate base price. May offer incentives (upgrades, closing cost credits) but protect list prices to avoid affecting other sales in development.

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Builder Contracts

  • Purchase price and what’s included
  • Deposit amounts and refund conditions
  • Estimated completion date
  • What constitutes “substantial completion”
  • Allowances and upgrade pricing
  • Change order procedures
  • Delay provisions
  • Walkthrough and punch list process
  • Warranty terms
  • Dispute resolution (often mandatory arbitration)
Base price often excludes items shown in model home. Verify what’s included:
  • Landscaping
  • Appliances
  • Window treatments
  • Lighting fixtures
  • Driveway
  • Fencing
  • Finished basement or garage
Get inclusions in writing. Model home upgrades can add 50,000+ to base price.
Fixed amounts for buyer to select finishes (flooring, countertops, fixtures). If selections exceed allowance, buyer pays difference.Allowances are often unrealistically low. Visit design center before signing to understand true costs.
Some contracts allow builder to increase price if material or labor costs rise. Common during volatile markets.Try to cap increases or add right to cancel if price rises beyond certain percentage.
Builder contracts often require mandatory arbitration and waive jury trial rights. Arbitration typically favors builders. Consider negotiating these provisions or at minimum understand what you’re agreeing to.

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Deposits and Payments

Typical structure:
  • Initial deposit at contract signing (1-5%)
  • Additional deposit at certain milestones
  • Final payment at closing
Total pre-closing deposits often 5-10% of purchase price.
Questions to ask:
  • Are deposits held in escrow or used by builder?
  • When do deposits become non-refundable?
  • What happens to deposit if builder defaults?
  • Is deposit protected if builder goes bankrupt?
Request escrow holding if possible. Builders often resist.
Most contracts limit refund to specific circumstances:
  • Financing denial (with proof of good faith effort)
  • Builder unable to deliver by outside date
  • Major specification changes by builder
Buyer changing mind typically forfeits deposit.

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Change Orders

Modifications to original plans after contract signing.
Buyer requests change. Builder provides pricing. If accepted, change order documents modification and cost adjustment.Changes during construction cost more than selections made before construction starts.
Builders charge premium for changes:
  • Administrative fees
  • Markup on materials and labor
  • Delay costs if work must be redone
Minor changes can cost hundreds. Major changes can cost thousands.
Many changes impossible after certain construction stages. Can’t move plumbing after foundation is poured. Can’t change window locations after framing.Make decisions early. Delays in selecting finishes can delay completion.

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Inspections

Buyers should negotiate right to have independent inspector examine property at key stages:
  • Pre-drywall (framing, electrical, plumbing visible)
  • Final walkthrough before closing
Some builders resist pre-drywall inspections. Push for this right.
Critical inspection while framing, wiring, plumbing, and HVAC are visible. Problems found now are cheap to fix. After drywall, issues are hidden and expensive.Cost: $300 - $500. Worth every dollar.
Before closing, hire inspector to identify defects for punch list. Separate from builder’s walkthrough.Professional catches issues buyers miss. Creates documented list of items needing correction.
Building department inspects at required stages and issues certificate of occupancy. Passing code inspection doesn’t mean quality construction.Code is minimum standard. Independent inspection evaluates quality.
Never skip independent inspections on new construction. “New” doesn’t mean “perfect.” Construction defects are common and easier to address before closing.

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Walkthroughs and Punch Lists

Builder representative walks through home with buyer before closing. Buyer identifies cosmetic issues and incomplete items.Bring detailed checklist. Check every room, cabinet, fixture, outlet, and surface.
Written list of items needing correction before closing. Builder agrees to complete items.Get punch list in writing with completion timeline. Some items may be completed after closing.
  • Paint quality and touch-ups needed
  • Drywall finishing
  • Flooring installation and condition
  • Cabinet alignment and operation
  • Countertop seams and edges
  • Fixture operation
  • Door and window operation
  • Appliance function
  • HVAC operation
  • Exterior grading and drainage
  • Driveway and walkway condition
If punch list items aren’t complete before closing, options include:
  • Delay closing until complete
  • Escrow funds for completion
  • Written agreement with completion deadline
Avoid closing without firm commitment on open items. Leverage decreases after closing.

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Builder Warranties

Most builders provide tiered warranty:
  • 1 year: Workmanship and materials
  • 2 years: Mechanical systems (plumbing, electrical, HVAC)
  • 10 years: Structural defects
Terms vary by builder. Review specific coverage.
Generally covered:
  • Construction defects
  • Faulty materials
  • System failures
  • Structural problems
Generally NOT covered:
  • Normal wear and tear
  • Homeowner negligence
  • Cosmetic issues after move-in
  • Landscaping
  • Appliances (covered by manufacturer)
Some builders provide warranty through third-party companies rather than builder directly. Check:
  • Who administers claims
  • Financial backing of warranty company
  • Claims process and timelines
  • Coverage compared to builder-direct warranty
Document issues in writing with photos. Submit claims promptly. Keep copies of all correspondence.Most warranties require written notice within specific timeframe. Verbal complaints may not preserve rights.
Warranties have exclusions and limitations. Read warranty documents carefully before closing. Some warranties require maintenance (HVAC filter changes, caulking) to remain valid.

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Construction Delays

  • Weather
  • Material shortages
  • Labor shortages
  • Permit delays
  • Inspection failures
  • Change orders
  • Subcontractor scheduling
Delays of weeks to months are common.
Review how contract addresses delays:
  • Is completion date firm or estimated?
  • What triggers right to cancel?
  • Are there penalties for excessive delays?
  • Who bears costs of delay (storage, extended lease)?
  • Build buffer into your timeline
  • Avoid selling current home until completion is certain
  • Negotiate outside completion date with cancellation right
  • Keep deposit protected as long as possible
  • Document all communications about timing

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Common Defects

Most common new construction problems:
  • Grading and drainage issues
  • HVAC sizing or installation errors
  • Roof flashing problems
  • Window and door installation defects
  • Drywall cracks from settling
  • Plumbing leaks
  • Electrical issues
  • Poor caulking and weatherproofing
  • Foundation cracks
Some defects appear immediately. Others emerge over time:
  • First heavy rain reveals drainage problems
  • First winter reveals heating issues
  • First summer reveals cooling problems
  • Settling takes 1-2 years
Document and report issues as they appear.
If builder refuses warranty claim:
  • Document denial in writing
  • Review warranty for dispute process
  • Check state contractor licensing board
  • Consult attorney for significant defects
  • Consider mediation or arbitration
  • Small claims court for smaller issues

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Negotiating with Builders

  • Upgrades and options
  • Closing cost credits
  • Interest rate buydowns
  • Appliance packages
  • Landscaping
  • Extended warranties
  • Design center credits
Builders protect base price but may negotiate other items.
Best negotiating leverage:
  • End of month, quarter, or year (sales targets)
  • Slow market periods
  • Last lots in a phase
  • Completed spec homes sitting unsold
Strong markets reduce negotiating power.
Beyond price, negotiate:
  • Right to independent inspections
  • Caps on price escalation
  • Extended deposit refund period
  • Delay compensation or cancellation rights
  • Removal of mandatory arbitration
  • Expanded warranty terms
Get all modifications in writing as contract addenda.

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Using Builder’s Lender

Builders often offer incentives to use their affiliated lender. Consider carefully.
  • Closing cost credits
  • Interest rate buydowns
  • Smoother coordination with builder
  • May offer extended rate locks for construction period
  • May not offer best rates
  • Less independence in transaction
  • Incentive may not offset rate difference
  • RESPA requires disclosure of affiliated business relationship
Get quotes from multiple lenders. Compare total cost (rate plus fees) with and without builder incentives.Even with incentives, outside lender may be better deal.

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Getting Help

Before signing:
  • Have attorney review contract
  • Visit current and completed projects
  • Research builder reputation and complaints
  • Talk to owners in builder’s other developments
  • Understand all costs including upgrades
  • Get financing pre-approval
During construction:
  • Document everything with photos
  • Attend inspections when possible
  • Communicate in writing
  • Hire independent inspector at key stages
  • Review each change order carefully

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