Dissecting the New-Home Sale Agreement: What Real Estate Professionals Need to Know

For buyers new to building a home, the contract phase at the outset often can be just as intimidating as the closing process.

Signing a contract image
A new-home sales agreement differs from a resale home contract. Knowing how to navigate new-home sales agreements will help clients and agents alike.

Clients are faced with a large stack of papers to sign, making sure they have funds for any required deposits and a list of construction and mortgage-related deadlines to fret over. How can you help ease your clients through this phase, particularly when a new-home sales contract may be uncharted territory for you as well?

Read the Contract

“Preparation is everything,” says Kelly Hager, CEO and founder of the Kelly Hager Group in St. Louis, Mo. “If you know your client is interested in a builder, call the builder and ask for a copy of the contract.”

Then you need to take the time to read it thoroughly, she advises. “You should know the contract inside and out, otherwise you’re not doing your client any favors.”

Sharon Voss, president of the Orlando Regional Realtor Association, agrees. While new construction can be one of the easiest transactions you’ll do, according to Voss, it’s still important to read over a new-home sale agreement because it does differ from the sales contract agents normally use.

“Most of the new-home sale agreements are similar,” Voss says.

A typical new-home sale agreement may include sections detailing the following:

  • builder and community information;
  • the buyer’s chosen plan, lot and address;
  • the purchase price and any deposits;
  • payment method (cash or loan);
  • whether the agreement is contingent on the sale of an existing home
  • closing information, such as procedures, closing date, closing costs and prepaids;
  • lender and title company information;
  • deed restrictions;
  • the construction process; 
  • site conditions and access;
  • warranties;
  • breach of agreement and remedies, such as arbitration; and
  • any required notices pertaining to state or local property codes.

Depending on the builder, the community, mortgage lender and so on, your client may have to sign or initial various other disclosures, notices or addendums in addition to the sale agreement. That’s when things can start to get a little overwhelming, even with thorough explanations from the builder’s sales representative. It can be a lot for people to take in.

That’s why Hager recommends reading the contract together with your client to make sure the client understands everything that is included and is being required of them. “When I say ‘contract,’ I mean the whole stack of papers [that buyers are required to sign],” she adds.

Reviewing the contract is also a good way for you and your client to prepare any questions you may have for the builder’s sales representative.

Money and Time

According to Hager, the majority of the questions that come up during the contract phase revolve around money and time, such as when they have to pay for what and when they can move in to their new house.

Financial questions can revolve around non-refundable deposits, the base price of the home, budgeting for options and upgrades, choosing a mortgage lender and the amount of the down payment. One of the biggest decisions your client will have to make prior to signing the sale agreement is whether to go with an outside lender or use a builder’s affiliated or preferred mortgage lender — and that comes down to what is the best loan for the buyer.

“Using the builder’s lender is one option, but not the only option,” Hager says. “I tell my clients, ‘Let’s reach out to a couple of other lenders to compare and contrast the numbers.’ ”

Voss points out that an advantage to using a builder’s affiliated mortgage lender is that the process tends to go more smoothly as far as coordinating all of the paperwork, the loan approval and closing.

As for the time issue, at the contract phase for a home to be built, a builder can only provide an estimated completion date, which may be subject to change due to a variety of factors — construction delays due to weather, delays in receiving materials, permitting delays, etc.

“Realtors need to make sure their client understands the building process,” Voss says.

Learning the Process

Understanding the building process also extends to Realtors themselves, particularly if a Realtor hasn’t handled much new construction before. A great way to educate yourself, and subsequently your clients, is to talk with builders, ask questions about their products and communities and build relationships.

“If you’re a newer Realtor, it’s prudent to visit with builders,” Voss says, adding that it’s also important for clients to register you with a builder when they visit a home when you are not with them to ensure you receive your commission.

And ask for a copy of the sale agreement up front to familiarize yourself with the particulars before bringing clients along. That way you can eliminate any intimidation factors, even for yourself.

Hager says that new construction can be a great option depending on the client, so agents shouldn’t shy away from it just because the process differs from resale homes.

“If there are five offers on a listing, there’s going to be one winner and four losers. If they build, your clients can get more of what they want in the long run,” Hager says. “My clients are relying on me and it feels good to find the best solution for them.”

About the author 

Judy Marchman

Judy L. Marchman is a freelance writer and editor who, during her 20-year career, has written on a diverse number of topics, from horses to lawyers to home building and design. She currently writes for NewHomeSource, and, in a nod to her equestrian background, copyedits for Southern Racehorse magazine and The Horsemen’s Journal. Judy is also the proud owner of a newly built home and has gained plenty of story inspiration from her home ownership experiences.

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