Buying new construction without a Realtor? Read this first!

If you’re thinking about buying new construction in the Charlottesville area or anywhere else, please, please, please be aware that onerous, hateful contracts are being used by some of the builders.

Contrary to the popular opinion that you can “get out of” any contract, these don’t fit that mold.

Try this out for starters –

Delivery Date, If Applicable: PURCHASER understands and accepts that there will be a longer than normal delivery date due to the location of this purchase being in a section currently not developed. SELLER will make all reasonable efforts to insure that a timely delivery is made. Any delivery date quoted is based on the best available information provided to SELLER at this time. The delivery date quotes should not be construed as a guarantee and SELLER contracts, will supersede any delivery date estimate.

That’s almost not so bad, despite the fact that there is really no guidance as to when closing might happen nor any penalties for not delivering a product by a certain time.

Purchaser and Seller shall jointly conduct the Pre-Settlement Inspection on a date and at a time specified by Seller, in its sole discretion, in accordance with he provisions of applicable laws. Seller will notify Purchaser when the condition of the site and the progress of construction is sufficient and appropriate, in Seller’s sole discretion, to permit the Pre-Settlement Inspection. It is  the mutual intent and understanding of Purchaser and Seller that the Pre-Settlement Inspection is a private inspection to be held in accordance with the terms and provisions of the Sales Agreement and applicable law and conducted in a manner acceptable to Seller in its sole and absolute discretion. Except to the extent otherwise provided by law, Purchaser is not entitled to be accompanied at the Pre-Settlement Inspection by any agent, family member or invitee including, without limitation, any home inspector (collectively, “Purchaser’s Agent”) without Seller’s express consent, which consent may be withheld in Seller’s sole discretion.

Purchaser acknowledges and agrees that if Purchaser is permitted to be accompanied by a Purchaser’s Agent at the Pre-Settlement Inspection … Purchaser’s Agent shall attend the Pre-Settlement Inspection as an observer only and under no circumstances will Purchaser’s Agent be permitted to perform any independent tests or inspection of the Property or in any way interfere with or actively participate in the performance of the Pre-Settlement Inspection. In the event of a breach or attempted breach of the restriction set forth in the immediately preceding sentence, Seller shall have the right to immediately stop the Pre-Settlement Inspection and require that Purchaser’s Agent leave the Property prior to resuming the Pre-Settlement Inspection.

Read: If the Realtor speaks, they can be asked to leave.

Let this serve as a warning to buyers – don’t become an example used as “what not to do.” I have heard of buyers who were suckered into thinking that they “had” to buy “today” in order to get the “best deal;” they sign the Contract and then go to a Realtor for advice – only to be told that the Realtor is, at that point, only able to say, “I’m sorry for you.” I have heard too many stories of buyers literally crying in the Realtor’s office after they signed the Contract without representation.

One size certainly does not fit all. Certainly, not all new construction contracts are this odious and one-sided, but buyers (and Realtors) need to be aware that this type of contract is out there, is being used and is being signed by Buyers without even a hint of Buyer Representation.

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  1. Sean Carr March 11, 2008 at 11:36

    Why rely on a realtor who may not even have a high school diploma? Better idea, use a real estate attorney for contracts.

  2. Heather March 11, 2008 at 12:09

    I would like to point out that this language is not part of the Blue Ridge Home Builders Association’s new construction contract, which is in use by many local builders here. Emphasis on “local”, if you get my drift – the “must buy today” pitch, and contract language like this, are typically tools of those big, national builders, not the local builders.

  3. Charleston real estate blog March 11, 2008 at 12:50

    Jim, I recently had someone contact me after the fact when they were feeling that the builder and the preferred lender weren’t exactly looking out for their best interests and wondered what I could do to help.

    Unfortunately, at that stage, my recommendation was to talk with a real estate attorney. And as a side note to Sean, not all realtors are stupid and not all real estate attorneys are intelligent, choose your resources wisely.

  4. TrvlnMn March 11, 2008 at 21:10

    I wonder if that’s the contract being used at one of those supposedly “green” developments.

  5. Roanoke real estate blog March 11, 2008 at 23:20

    You wouldn’t go to court without an attorney, why would you make the biggest purchase of your life (in most cases) without an experienced agent working on your behalf?

    Sean makes an interesting point in his comment above. He’s right that the duty of the real estate agent is not to give legal advice to their client but to point out potential pitfalls in contracts (like the extreme but real instances above) and encourage the buyer to seek legal advice if necessary.

    I for one though wouldn’t sign any contract like that.

  6. Bret Harris March 12, 2008 at 00:19

    Speaking as a buyer in Belvedere I can say that our contract did not contain any language like that.

  7. Jim Duncan March 12, 2008 at 06:49

    Thanks, Bret. Belvedere’s contract had a few things in it that I didn’t particularly like, but nothing like the language above.

    That these contracts have survived as long as they have is a testament to, in my opinion –

    – The “onerous-ness” of the companies
    – The lack of education of many buyers about Buyer Agency and representation
    – The “hot” real estate market

  8. Gerry Davidson March 12, 2008 at 10:31

    I don’t know VA RE law but in GA a contract with the delivery language you quoted is not enforceable without a proper legal description, i.e. a recorded plat for developed lots.

    I’ve been in new construction for over 30 years and wholeheartedly agree with you that the Builder’s language on Pre-settlement Inspection is a huge red flag to “run for your life.”

  9. arpash March 13, 2008 at 10:51

    We ran into a similar situation while negotiating a model home for sale last summer(Southland, Montgomery Ridge subdiv); Not only did the builder insist on a Blue Ridge Builder version of the contract, they also insisted that inspection be limited to a pre-close walk through. Obviously, we walked and have stayed off other properties by the same builder.

  10. Jim Duncan March 13, 2008 at 10:57

    arpash –

    Thank you for stopping by.

    I have found that generally, the Blue Ridge Homebuilder contract is quite good, with a few modifications I make for my clients.

    Without getting into more specifics, my question for you is this – did you have buyer representation?

    (If you did have buyer representation, please don’t mention names) 🙂 but please do contact me offline.

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  12. michael guthrie June 4, 2008 at 15:30

    Reading and understanding the contract is very important even when you feel good about your relationship with the builder. A realtor will also play the role as a buffer between the builder and the buyer helping to communicate and mediate if necessary. If the purchaser is working w a buyer agent, make sure they help you determine the best financing and with whom to close the transaction. Builders often times offer concessions if you use their lender and closing company or attorney. That can be a good thing but be careful of higher interest rates and hidden fees in your closing costs which eat up the benefits of the builder’s concessions.

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  14. Lone Tree Real Estate August 29, 2008 at 13:30

    Back ‘in the day’, builders could get away with this kind of thing. In Denver, builders are desparate and objectionable contract terms can frequently be modified via addendums or other written communication.

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