Understanding New Construction Contracts: A Comprehensive Guide

New construction contracts differ significantly from resale home contracts. They're comprehensive legal documents, often 20-40 pages long, written by builders' attorneys to protect the builder's interests first. Understanding what you're signing is crucial to protecting yourself throughout the building process and beyond.

While your buyer's agent handles negotiations and advocates for favorable terms, you need to understand the fundamental components of these contracts and what to watch for. This knowledge empowers you to ask the right questions and make informed decisions with your agent's guidance.

The Fundamental Difference: Builder Contracts vs. Resale Contracts

In a resale transaction, you typically use a standard real estate contract (in Georgia, this is the GAR contract) that provides balanced protection for both buyer and seller. It's a negotiated document with established norms.

In new construction, you use the builder's contract. This is a proprietary legal document created entirely by the builder's legal team. Each builder has their own contract, and while they share common elements, the specific language and terms vary significantly.

Key Understanding: The builder's sales representative will often present this as a "standard, non-negotiable contract." While certain fundamental elements may indeed be fixed, your buyer's agent knows which terms are customarily modified and how to protect your interests. This is why representation matters—you're not expected to become a contract expert, but you should understand what you're committing to.

Essential Contract Components to Understand

1. Purchase Price and Inclusions

This section details what you're actually buying and what it costs.

What's Typically Included:

• Base home price for your specific floor plan
• Lot designation and any lot premium
• Basic landscaping (usually front yard only)
• Standard features and finishes
• Homesite preparation
• Utility connections

What You Need to Understand:

The contract should clearly itemize every cost component. The "purchase price" might be just the base home, with lot premiums, upgrades, and other fees added separately. Make sure you understand the total cost before signing.

Common terms to recognize:

• Lot Premium: Additional charge for desirable lots (corner, cul-de-sac, backing to woods, etc.)
• Homesite Preparation: Grading, clearing, and preparing your lot for construction
• Base Specifications: The standard features included in the purchase price
• Allowances: Credits toward certain items (like appliances or flooring) where you select from specified options

Your contract should specify exactly what's included in your base price versus what costs extra. If the model home has features you want, verify whether they're standard or upgrades.

2. Design Center Process and Allowances

This section governs how you customize your home's finishes.

Typical Timeline:

• Design center appointment scheduled within 10-14 days of contract signing
• 2-4 hour appointment to make selections
• Deadline to finalize selections (often before construction starts)
• Limited ability to make changes after deadline

What to Understand:

You'll receive a design center allowance—a credit toward upgrades and customizations. This might be $10,000, $20,000, or more depending on the builder and home price.

Important concepts:

• Base Selections: What's included if you spend nothing additional
• Upgrade Pricing: Cost per square foot or per item for enhanced selections
• Change Order Deadlines: When you can no longer modify choices
• Overage Payment: When and how you pay for selections exceeding your allowance

Many buyers underestimate how quickly design center costs add up. Your agent should accompany you to the design center to help you make informed choices and avoid overspending.

3. Construction Timeline

This is often the most misunderstood section of the contract.

What You'll See:

Most contracts provide an "estimated completion date" or "estimated construction timeframe" (such as "6-7 months from start of construction").

Critical Understanding:

These are estimates, not guarantees. The contract typically includes language protecting the builder from delays caused by:

• Weather conditions
• Material shortages
• Labor shortages
• Permitting delays
• Acts of God
• Other circumstances beyond builder's control

What This Means for You:

You cannot rely absolutely on a specific move-in date. While most builders hit their timelines, delays happen. Your agent will work to include specific provisions that give you recourse if delays become excessive, but you should plan for flexibility.

If you're selling a current home: This uncertainty creates complexity. Your agent will help you coordinate timelines and create contingency plans, but understand that some risk exists in any scenario.

4. Deposit Terms

This section defines how much you pay upfront and when.

Typical Structure:

• Initial earnest money deposit: $1,000-$5,000 at contract signing
• Additional deposit: Often 5-10% of purchase price within 15-30 days
• Final funds: At closing

Critical Questions Your Contract Should Answer:

• Under what circumstances is my deposit refundable?
• What happens if I can't secure financing?
• What happens if my current home doesn't sell (if applicable)?
• What happens if the builder can't complete construction?
• Where is my deposit held?
• Does my deposit earn interest?

Your agent ensures the contract includes appropriate protections for your deposit, such as financing contingencies and, if applicable, home sale contingencies.

5. Warranties

New construction comes with warranty protection, but the terms vary by builder.

Standard Warranty Framework:

• 1-Year Comprehensive: Coverage for defects in materials and workmanship
• 2-Year Mechanical Systems: HVAC, plumbing, electrical systems
• 10-Year Structural: Major structural components (usually through third-party insurance)

What You Need to Understand:

The warranty section should clearly define:

• What's covered and what's excluded
• How to submit warranty claims
• Builder's timeline to respond and repair
• What constitutes a "defect" vs. normal settling
• Process for dispute resolution
• What happens if the builder goes out of business (for 10-year structural warranty)

Common Exclusions to Recognize:

• Normal wear and tear
• Damage caused by homeowner negligence
• Issues arising from unauthorized modifications
• Cosmetic imperfections within certain tolerances
• Landscaping and irrigation (often limited or excluded)
• Appliances (usually covered by manufacturer warranty, not builder)

Your contract should specify the warranty provider for the 10-year structural coverage. This is typically a third-party insurance company, which is important because it provides protection even if the builder goes out of business.

6. Construction Specifications

This section (sometimes in attachments or addendums) details how your home will be built.

What Should Be Specified:

• Foundation type and specifications
• Framing materials and methods
• Insulation type and R-values
• HVAC system specifications (brand, SEER rating, size)
• Roofing materials and warranty
• Window specifications
• Plumbing and electrical standards
• Exterior materials (siding, brick, stone)

Why This Matters:

These specifications determine your home's quality, durability, and energy efficiency. While you may not understand all technical details, your agent and any inspectors you hire can review these specifications and identify any concerns.

Some builders provide detailed specifications; others use vague language like "builder standard materials." More detail is better—it prevents the builder from substituting cheaper alternatives.

7. Change Orders and Modifications

This section governs what changes you can make after signing the contract.

Types of Changes:

• Structural changes (adding windows, changing room sizes, upgrading HVAC, etc.)
• Finish changes (different flooring, countertops, paint colors)
• Additional options (fence, patio extension, extra outlets)

What to Understand:

Your contract defines:

• Deadlines for requesting changes (often very early in the process)
• How changes are priced
• Whether the builder must approve your requested changes
• How change orders are documented and added to your contract

Generally, structural changes must be requested within 30 days of contract signing (before foundation work begins). Finish changes can usually be made later but must be finalized before that work phase begins.

All change orders should be documented in writing with clear pricing before you approve them.

8. Inspection Rights

This section determines what inspections you can conduct during construction.

What Your Contract Should Allow:

You should have the right to:

• Inspect the home during construction at scheduled intervals
• Hire third-party inspectors at critical construction phases
• Conduct a final walkthrough before closing
• Create a punch list of items requiring correction

Common Inspection Phases:

• Post-foundation/pre-framing
• Post-framing/pre-drywall
• Pre-closing final inspection

Some builders try to discourage third-party inspections, claiming their own quality control is sufficient. However, independent inspections protect your interests and catch issues while they're still easy to correct.

Your agent will ensure your contract preserves your inspection rights and schedule these inspections at appropriate times.

9. Closing Timeline and Possession

This section defines when and how you take ownership.

Key Terms to Understand:

• Substantial Completion: When the home is finished enough to receive a certificate of occupancy
• Final Walkthrough: Your opportunity to inspect before closing
• Closing Date: When ownership transfers and you pay remaining funds
• Possession: When you receive keys and can move in (usually same day as closing)

What Your Contract Should Specify:

• How much notice the builder provides before closing
• How long you have to close after receiving notice
• Whether you can delay closing if needed (and any penalties)
• What happens if the builder isn't ready to close on schedule

Most contracts require you to close within a specific timeframe (often 30 days) after the builder notifies you of substantial completion. Understanding this helps you plan financing, moving, and other logistics.

10. Dispute Resolution

This section determines how conflicts between you and the builder are resolved.

Common Provisions:

• Binding Arbitration: Disputes must be resolved through arbitration rather than court
• Mediation: Attempts to resolve disputes through mediation before arbitration
• Attorney Fees: Who pays legal costs if disputes arise
• Venue: Where (which state/county) disputes must be resolved

What to Understand:

Most builder contracts require arbitration. This means if you have a serious dispute with the builder, you cannot sue them in court—you must go through the arbitration process.

Arbitration can be faster and less expensive than litigation, but it also limits your rights to discovery (obtaining evidence) and appeal. This is a standard provision in most builder contracts, but you should understand what you're agreeing to.

Addendums and Attachments

Your contract likely includes numerous addendums and attachments:

• Plot Plan: Shows your lot boundaries and home placement
• Floor Plan: Details your specific home design
• Specifications: Lists materials and construction methods
• HOA Documents: Covenants, restrictions, and association rules
• Design Center Selections: Your chosen upgrades and finishes (added after design center visit)
• Change Orders: Any modifications to the original contract
• Incentive Agreements: Details of builder incentives (rate buydowns, closing cost credits, etc.)

All of these are part of your contract. Don't assume addendums are less important than the main contract—they're equally binding and often contain critical details.

Special Provisions Your Agent May Add

While the builder's base contract is their document, your buyer's agent can request addendums that provide additional protections:

• Financing Contingency: Protection if you can't secure financing under specific terms
• Home Sale Contingency: Protection if your current home doesn't sell (if applicable)
• Specific Completion Date: While builders resist firm dates, your agent may negotiate specific provisions if timing is critical
• Incentive Documentation: Clear specification of all promised incentives (rate buydowns, closing costs, upgrades, etc.)
• Material Substitution Approval: Requiring your approval for any material changes from specified products
• Extended Walkthrough Rights: Additional inspection opportunities beyond standard provisions

Your agent knows which provisions are reasonable to request and how to present them to maximize the likelihood of builder acceptance.

Red Flags in Contracts

While your agent reviews your contract in detail, watch for these warning signs:

Vague Language:

• "Builder standard materials"
• "Comparable substitution"
• "Estimated timeframes"

Better contracts specify:

• Exact products by brand and model
• Clear substitution approval process
• Specific dates or reasonable timeframes with remedies for delays

Excessive Builder Protection:

• Unlimited delay rights with no buyer recourse
• Broad warranty exclusions
• Waiver of your rights to inspection or independent appraisal

Missing Information:

• No specification sheet attached
• Incentives promised verbally but not documented
• Unclear lot identification
• No construction timeline provided

One-Sided Terms:

• You have penalties for delays, but builder doesn't
• Builder can terminate for any reason, but you can't
• Builder can substitute materials freely without your approval

Your agent identifies these issues and works to address them before you sign.

What Happens After Signing

Understanding your post-contract obligations helps you avoid problems:

Immediate Actions Required:

• Schedule design center appointment
• Maintain communication with your lender
• Keep earnest money deposit current
• Meet any contingency deadlines (financing approval, home sale, etc.)

During Construction:

• Respond to builder communications promptly
• Attend scheduled inspections
• Review and approve any change orders
• Avoid unauthorized visits to the construction site

Before Closing:

• Complete final walkthrough thoroughly
• Create punch list of items needing correction
• Review closing disclosure and all final documents
• Secure homeowner's insurance
• Confirm final numbers with your lender

At Closing:

• Review all documents before signing
• Understand your warranty procedures
• Obtain all warranties, manuals, and documentation
• Receive keys and garage door openers
• Get builder's contact information for warranty service

Questions to Ask Before Signing

Your agent will guide you through the contract review, but consider these questions:

• What is my total out-of-pocket cost at closing?
• What happens if construction is delayed beyond the estimated completion?
• Are all promised incentives clearly documented in the contract?
• What are my deposit refund rights if I can't proceed?
• When must I make design center selections?
• Can I make changes after signing? Until when?
• What inspections can I conduct during construction?
• How does the warranty claim process work?
• What happens if there are defects discovered after closing?
• Who do I contact with questions during construction?

Don't rush this process. Take time to read and understand what you're signing.

The Role of Your Buyer's Agent

Your buyer's agent provides critical value in the contract process:

Before You Sign:

• Reviews the entire contract and all addendums
• Explains terms in plain language
• Identifies problematic clauses
• Recommends protective addendums
• Negotiates improved terms where possible
• Ensures all verbal promises are documented

During Construction:

• Monitors construction progress
• Attends inspections with you
• Communicates with builder on your behalf
• Reviews and advises on change orders
• Identifies issues requiring attention

Before Closing:

• Reviews closing documents
• Attends final walkthrough
• Ensures punch list items are addressed
• Verifies all contract terms were met

This expertise is invaluable—and costs you nothing when your agent is properly registered with the builder from your first visit.

Protecting Yourself

While builder contracts favor builders, you're not powerless:

• Read Everything: Never sign anything you haven't read and understood
• Ask Questions: No question is too simple or too obvious
• Get It in Writing: Verbal promises don't exist—everything must be documented
• Use Your Agent: They're experts in these contracts and advocate solely for you
• Consider Legal Review: For high-value purchases or complex situations, having a real estate attorney review the contract provides additional protection
• Don't Rush: Real opportunities don't require rushed decisions
• Trust Your Instincts: If something feels wrong or unclear, stop and get clarification

Common Contract Misunderstandings

Misunderstanding #1: "The model home shows what I'm getting"

Reality: Model homes are loaded with upgrades. Your contract specifies your actual finishes—which may be quite different.

Misunderstanding #2: "The estimated completion date is guaranteed"

Reality: It's an estimate. Delays happen, and builders have broad protection for them.

Misunderstanding #3: "The builder's agent is helping me"

Reality: The builder's agent represents the builder's interests, not yours. You need your own representation.

Misunderstanding #4: "Everything promised verbally will happen"

Reality: Only what's written in your contract is enforceable.

Misunderstanding #5: "I can't negotiate anything"

Reality: While you won't rewrite the contract, many terms are negotiable through your agent.

Misunderstanding #6: "The warranty covers everything for a year"

Reality: Warranties have specific exclusions and limitations. Read the warranty terms carefully.

Before You Move Forward

New construction contracts are complex legal documents with significant financial implications. The purchase of a home is likely the largest financial commitment you'll make—treat the contract with the seriousness it deserves.

Your Three-Step Protection Plan:

1. Engage a Buyer's Agent First: Before visiting any communities, work with an agent who specializes in new construction. They'll guide you through the entire process and handle negotiations.
2. Read and Understand Your Contract: Don't sign anything you haven't read. Ask your agent to explain anything unclear.
3. Document Everything: Keep copies of all communications, contracts, addendums, change orders, and promises in writing.

The goal isn't to become a contract expert—it's to understand what you're committing to so you can make informed decisions with your agent's guidance.

New construction offers exciting opportunities to customize your dream home, but protecting your interests throughout the process requires understanding your contract and having expert representation.

Ready to explore new construction with expert guidance through every step of the process? Contact me to ensure your interests are protected from your first community visit through closing and beyond.