Homeowners frequently come to us after a dispute has arisen. Careful consideration on the front end of the builder-homeowner relationship can avoid a lot of problems later. It pays to remember that the builder is not your friend. He wants to make money from you. Money and friendship don’t mix. The following are some things to consider before you build or buy.
- Have an attorney review your sales contract before you sign. The best lawyer in the world can’t automatically undo the worst deal you may make, but he/she might be able to save you from making the worst deal in the first place. Don’t rely on the real estate salesperson to look out for your legal interests. That’s not what salespeople are trained to do and they aren’t qualified to do it.
- Read the contract and ask what the provisions mean. You should not simply sign it because they give it to you to sign. Form contracts from builders and real estate people rarely favor your interests.
- Understand that many real estate agents use a form contract, which is created by their company. That’s usually fine and good for the sale of an existing house although it is true that it pays to carefully look at that form contract before you sign it. It’s usually not OK for the sale of a new house under construction to use a real estate boilerplate form. Those forms do not cover the things that need to be covered with brand-new construction. Have a lawyer who understands construction look at the contract. These contracts tell you what you are agreeing to and will control your destiny once in court or arbitration.
- Consider carefully before you agree to an arbitration clause. Arbitration, in and of itself, is not a bad thing, but there are plenty of circumstances where you will want to be in front of a jury. Actually read the arbitration rules. On our links page there are links to the major arbitration associations. The rules do vary and they do matter. Make sure you know how much it costs to arbitrate before you sign. Remember that you are the customer and they want to sell you a house. Negotiate.
- Read the builder’s warranty before you sign a sales contract. If the builder won’t give you a copy before the sale, run away. Understand that the warranty is going to govern your destiny as a new homeowner. Most (if not all) warranties are written to favor the builder, so don’t be surprised that it doesn’t cover an inch-wide crack in your wall. As every builder will tell you, that’s not a structural defect. If you don’t understand it, hire someone to explain it to you. The links page of this site has links to the major warranty companies and what they do and don’t cover. Read your warranty cover to cover and understand what it says.
- Just because the house has a certificate of occupancy from the local codes guy, don’t assume you have a well-built house. The code is a minimum standard, and codes inspectors have been known to miss problems — sometimes big ones. Aim higher and get a licensed home inspector or engineer to oversee the construction process. Even better, put a clause in your contract that calls for successful inspections at specific stages of construction by your inspector. Generally, codes departments are understaffed and overworked—don’t rely on them to protect your interests because they can’t. For existing construction, get your own independent inspection and do not rely on the referral of your realtor. An inspector referred by your realtor may be working for your realtor and the next referral they might send him, and not necessarily for you.
- Home inspectors perform limited inspections. The law in the State of Tennessee spells out what they have to do and their contracts for inspection are now by and large mirrors of that law. Home inspectors do not move furniture to look behind it and they don’t remove insulation to check for damage. They are supposed to give you a general look at the home. For $500 or less, you can’t expect more. If you want more, hire experts, including an engineer, a roofing specialist, electricians/plumbers/HVAC. Do not be cheap about hiring experts because that $1000 may save you $100,000.
- Tennessee law allows builders to disclaim warranties for habitability. This means that a builder can legally deny that the home is fit for use as a home. This is, of course, insane. Anyone buying a house assumes that the house is fit to be used as a home. Make sure that your contract does not have a clause that says you expressly disclaim the warranty of habitability, fitness for a particular purpose or warranty of merchantability. Your builder should warrant that the home is fit to be used as a home.
- Beware of 'as is' clauses. They mean exactly what they say. You are buying a home 'as is' with no representations, meaning you must inspect the home very carefully and thoroughly. If you close on the home and discover something later, you are likely out of luck.
- Consider including a provision in your contract that the home will comply with the building code. Insist on a provision that says the builder guarantees that the home is in compliance with the building code. The building code is a minimum standard and guarantees only that the house won’t fall over in stiff wind, not that it is built well.
- In most small counties in Tennessee, building inspections are handled by a regional state office. This means that if you live in one of those small counties, inspections performed are going to be minimal. Put a provision in the contract that makes the builder construct the home in accordance with the most current edition of the International Residential Building Code in effect at the time the contract is signed.
- Check with the Tennessee Board for Licensing Contractors to see if your builder is licensed and that your contract price is within the license limits of your builder. The rules governing contractors in Tennessee are complicated, so ask for clarification and get it in writing from your builder.
- Get a survey and know where the property lines are BEFORE you buy. The real estate contracts all say that the buyer is responsible for obtaining a survey. If this matters to you, get it done.
- Pull the plat from the Register of Deeds. Read it. All kinds of things are on that plat and you are charged by law with knowing what it says. Get someone who knows what they are doing to explain it to you. Look for drainage features, injection wells, easements, and specific notes on your lot. It's amazing what the plat can tell you.
- Injection wells show up sometimes on properties. Generally, the owner of the property is responsible for maintaining them. There are many different kind of injection wells for many purposes, but in areas of Middle Tennessee, they are typically sinkholes used to dispose of storm water runoff. If one of these wells is on your property, you may be responsible for its upkeep.
You get what you pay for:
- Understand what it costs to build properly and be reasonable. If a spec house is up for sale for $350,000 and you have a bid for the same size home from a custom builder that is $75,000 more, consider why that is. There is no such thing as builders saving money by building in volume no matter what they say. You get what you pay for.
- Be careful about using any mortgage company referred by your realtor or builder. Even if the referral is reputable, shopping around pays off and it is a good idea to remember builders and realtors have relationships for a reason.