The New Construction Home Purchase Agreement. 

The typical new construction residential purchase agreement in Florida is usually going be around 70 or 80 pages for new construction. Right at the top, it will tell you: 

This is a legally binding contract. In the event of a dispute buyer agrees that any dispute between the buyer and the builder will be resolved by binding arbitration and that you are waiving the right to proceed in court with a jury trial. Always a good idea to read anything that’s in upper case, especially if it’s in BOLD TYPE. If there is anything you don’t understand- STOP and get legal advice.

What Happens if the Appraisal is Low?

The purchase price, appraisals, and your deposit will usually be some of the next things. Now notice that as soon as you’ve signed it, it typically is going state that. …I’ll give you an example.: 

“Buyer cannot terminate the buyer’s obligations under the agreement without being deemed in default. in the event that an appraisal of the property is less than the total purchase price buyer will be obligated to pay the total purchase price or be subject to the paragraph entitled default and remedies”

If when this house is built in 18 months or so, it doesn’t appraise, you’re paying the difference. You’re paying that appraisal gap. And you’ve signed to say that you understand that. 

If you fail to close that deposit that you put down when you go under contract, and that could be as much as 10 or 15% of the value of the house is at risk. The majority of contracts will state that you aren’t getting it back. 

The Builder’s Affiliated Lender

You are typically going to be required to get approved through the builder’s home lender. Their affiliated lender.  While you aren’t required to close with them because they can’t force you to, there are some advantages. The main one being if their lender actually screws up, they’ve got to accept that. But if you go with an outside lender and they screw up, then that’s on you and they’re less forgiving. No matter what home you look at, get your own preapproval before looking at homes so you know where you stand and what the costs look like.

When do I Apply for the Loan?

As soon as you’re under contract, you need to get a conditional loan approval within the first 45 days– your house isn’t even started yet. It’s important that you understand once you’ve got that conditional loan approval in that first 45 days, then there’ll be a paragraph that’ll tell you something like this:

 “Upon termination of the conditional loan approval contingency, buyer will no longer have the right to receive a return of the deposit pursuant to this provision. Even if buyer is subsequently unable to satisfy any conditions necessary to fund the loan, or buyer is unable to obtain final loan approval.”

This means, once you are through that contingency, you are no longer getting that deposit back. Whether or not the house appraises, whether or not the interest rate goes down or up and whether or not your employment situation changes for any reason, the contract stands.

That 12 month Mortgage Rate Lock

I’ve been hearing some lenders in new construction are offering 12 month mortgage rate locks. Building times are still extended past that. It’s a little bit squirly and it’s harder to predict than normal times. Now, obviously we’ve just had a very large shift in the mortgage rate since February, but we don’t know what’s ahead. Are we going to get to 8%, 9%? What if your lock expires?

Construction Timeline- Up to 2 Years

Usually there’s a section then about home inspections, construction time, and the timeframe for all of that. That’s determined by the seller in the seller’s sole discretion. According to the contract, they have two years after the purchase date of contract to complete the build. Prior to COVID that was never an issue. No one was ever really concerned about it taking any longer than about eight months. Now 16-18 months is common. With this in mind, if you’re selling a home, we might need to consider how you can stay in it a little beyond closing to give you some flexibility and peace of mind!

Can I do a Home Inspection on a new construction home?

We always advise you to do an independent home inspection, get that completed. There’s usually a section that allows for that, but note that it does say typically that whatever the home inspector finds is not a basis for you to cancel the purchase agreement or delay closing. 

Next, there’s a section about additional provisions in the contract. Typically that’s going to tell you for example, that the sales agent in the model home only represents the seller. (You’ve heard that here, right?) not the buyer. Don’t take any claims made by their sales agents as fact. You have to go with what’s in writing. 

Other Common New Construction Home Addenda

After that, usually it’s the beginning of the addenda, which would be things like:

• The model home you’ve chosen.
• Which elevation it is
• What structural options you’ve chosen.
• Timelines, e.g. visiting the design studio. 

Most of the time, everything goes according to plan and everyone’s happy. And we want that for you too. If you are interested in exploring new home  construction in Tampa Florida, Never Go ALONE. Take your agent right at that first visit to the models!

Post Closing

As you settle in, beware of rushing to make even MORE major changes to the house, slow down and do your homework, or reach out for information. For example, we are seeing many rush to add solar panels, not understanding that they need to pay off any loan on resale if they sell, and that the panels MIGHT NOT add value to the home either.

Start your next home search right here, or download the interactive App here, and let’s connect! If you want to know what your home is worth in this market, start here.