Builder Contracts, Be AWARE Of What You're Signing!

By "G-II" Varrato II, RealtorŪ, Retired USAF Red Horse 820th CES
ePRO 500, ABR, RECS, Mentor
Coldwell Banker Residential Brokerage

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Builder contracts come in all sizes, shapes and versions.  There is little opportunity for the alteration of any of the terms of a Builder’s Contract.  However, that said, it is imperative that you fully understand what you are signing.  Even if you have made several purchases of residential real estate in the past, unless you are specifically trained in the art of understanding contract language, this is not a swamp you should venture into without a seasoned real estate professional by your side to guide you through the murky maze of contract terms, phrases and conditions.

Confucius Say:  “Man who starts out on journey alone and without a guide is soon lost and bewildered and he who continues on his excursion alone has a fool for a guide.”

Arizona is one of the few states that engage a little understood protocol known as “The Threshold Rule”“The Threshold Rule”, simply stated, means if a consumer literally crosses the threshold of a builder’s showroom office entrance, the consumer gives up his/her right to FREE transaction representation.  That is to say, the overwhelming majority of builders in Arizona have an agreement with real estate brokers to pay a licensed real estate broker to represent the interests of a buyer at no additional cost to the buyer.  However, the caveat to this seemingly altruistic gesture is that the buyer MUST bring his/her licensed real estate agent with him/her on their first visit to the builder’s showroom.  Failure to do so automatically will forfeit the buyer’s right to have the builder pay for the buyer’s transaction representation.

Now, that is not to say that the buyer is not entitled to engage the services of a buyer representative, however, if the buyer does choose to do so, the buyer will be responsible for paying the broker for that service.

Many consumers unwittingly believe if they do not engage the services of a licensed real estate agent, to assist them with the purchase of their new construction home, the builder will cut them a better deal because the builder will not have to pay the real estate broker.  This could not be further from accurate.  The money the builder has budgeted into the transaction to pay the buyer broker, if not spent on that mission, is not refunded to the buyer in any form.  The builder simply puts those funds back into his profit portfolio and the buyer is left to tramp through the swamp of contract language, all alone.

Here are some passages from a few builder contracts.  For professional reasons, the builders have not been named but these excerpts are quoted directly from builder contracts.  If you would like more information about any specific language below, please eMail Lori.and.G-II@RealEstateInPhoenix.net or call us at 602-796-5674. 

Builder “W” Contract: “…Buyer’s obligations under this Contract are not contingent upon Buyer obtaining any specific interest rate on the loan or other loan terms…”
Builder “X” Contract:  “…FINANCING, Buyer understands and agrees that obtaining financing is not a contingency or condition precedent to Buyer’s obligations under this Agreement…”
Builder “Y” Contract:  “…Any delay in the Closing by Buyer… …shall constitute a material default hereunder by Buyer… …It is expressly agreed that the House… …may be subject to certain “punch list” items for additional work… the existence of such punch list items will not give Buyer cause to delay the closing or cancel this Contract. Punch list items may include failure of operation of appliances, electric outlets, plugs or fixtures…”
Builder “Z” Contract:
  “…AGENCY DISCLOSURE: …Our sales agents at the project where the Home is located solely represent us…”

So, what could the penalties be if the buyer is late to close on the property. 

Builder “W” Contract:  “…a late Closing fee equal to $300.00 per day for each day from and including the original Closing Date scheduled by Seller to and excluding the actual day of Closing…”
Builder “X” Contract:  “…a late closing fee equal to $75.00 per day for each day from and including the scheduled closing date and including the actual day of closing…”
Builder “Y” Contract:  “…a late closing fee equal to $50.00 per day for each day and including the Closing Date, to and excluding the actual day of Closing…”
Builder “Z” Contract:
  “…You agree to pay us a $100 per day extension fee for each day Closing is extended…”

This message covers ONLY the tip of the iceberg of Buyer Representation for buyers who wish to purchase New Construction from builders in Arizona.

If you would like to know more about how to take advantage of Buyer Representation, paid for by the builder, please contact us.  We can be reached at cell phones 602-574-5674 for Lori, 602-796-5674 for G-II or by eMail at any number of eMail addresses, such as Lori.and.G-II@RealEstateInPhoenix.net or Lori.G-II@AirForceHomeSeller.com.

Bye till next time.  Lori and I truly wish you and your family a Happy, Healthy, Safe, and Prosperous 2007!

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