NEW HOME CONTRACT ISSUES | ARTICLE 2 OF 2

NEW HOME CONTRACT ISSUES | ARTICLE 2 OF 2

In last week’s Article, I discussed some basic issues that are often involved in New Home Contracts.  Agents should not be providing legal advice about these contracts, but should at least be familiar with some of the frequently encountered questions and issues that purchasers might encounter.

Purchasers can expect the contract to have exculpatory language for delivery dates.  In the event that the home has not yet been constructed, the builder will give an estimated completion date.  However, there will usually be an outside date for the completion, often as long as two years from the contract date.  The builder will not be liable if there are delays in obtaining materials, weather issues, or other factors beyond the control of the builder.  Purchasers need to be aware of the possibility of delays that could impact their current housing situation.  Have they sold their current residence and need to vacate at a date certain or have they given notice to their landlord if they are renting?

Expect to have a blanket disclaimer of liability for hazardous materials, radon, mold and any similar issues.  Nevertheless, today essentially all builders are using safe materials and installing passive radon remediation venting, leaving little likelihood of health hazards to the consumer.

Most home builders hold the Earnest Money Deposits.  Maryland law requires that the deposit be held in a separate escrow account, or, if the builder plans to use the money in their construction cash flow, they must post a bond to ensure refund of the deposit if appropriate.  In the past, there were occasions where home builders went out of business before completing the home and purchasers lost their deposit money.  That should no longer be a concern.

There is usually the right to substitute materials or change the plans such as reversing the layout.  I counsel buyers to be concerned only if there is a particular material or product that is indispensable to their decision to purchase.  For example, if the buyers only want the particular brand of kitchen cabinets or light fixtures, I advise buyers to provide that those items cannot be substituted by the builder.

 If a purchaser wants to have the property inspected, the best time is during various phases of construction.  Inspecting after the drywall has been installed prohibits examination of the electrical, plumbing and other covered systems.  Although builders are reluctant to allow periodic inspections, it is a good idea to try to secure the right to have periodic inspections to ensure optimum construction quality.

Maryland law requires home builders to provide statutory warranties (a) one year freedom from defects in materials or workmanship; (b) two years warranty against defects in systems, including electrical, plumbing, HVAC and other mechanical systems; and (c) five years free from major structural defects.  Appliances include the manufacturer warranties as long as the warranty is no less than the statutory requirements.

Finally, although most New Home Contracts provide for an equal division of state and county transfer taxes, that is not true in every case.  That is one provision that can usually be negotiated by a purchaser.  In fact, if the builder is offering a large closing credit, they often require the purchaser to pay all of the transfer and recording costs rather than split them.

Again, agents should not give legal advice about the contracts but rather should be aware of some of the issues that arise.  If it becomes at all complicated, seek the assistance of competent legal counsel.

James E. Savitz, Esq. 

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