fbpx

Backing Out of New Construction Home Contract - Things to Know

Backing Out of New Construction Home Contract – Everything You Should Know

By | 2020-03-02T21:02:58+00:00 February 24th, 2020|Hard Money Blogs|Comments Off on Backing Out of New Construction Home Contract – Everything You Should Know

As with many contract types, there may well come a time when you find yourself needing to back out of a new construction home contract. And this article will explain how backing out of a new construction home contract is done.

Though there can be several reasons why people back out of such contracts, it’s vital to ensure that you’re covered when you do so.

Here we consider what is meant by a new home construction contract. We then look to the many reasons people offer for backing out of them.

Finally, we conclude with suggestions on how to do so successfully and within the boundaries of your agreement.

Backing out of New Construction Home Contract

What is a New Home Construction Contract?

There are potentially many different types of new construction home contracts that builders can use. So, it’s worth gaining a basic understanding of what is involved in such contract types beforehand.

A new home construction contract is an essential piece of paper and one that isn’t optional. The idea is a signed contract be produced before any construction of your home begins. This should also be drawn up before any payments are made.

A new home construction contract is the proof to say that the home you’re paying for is the home your builder agrees to build. It also states that they will receive payment for this once it’s completed.

Most builders will have contracts drafted up and ready to sign. But, you, too, can hire a lawyer to get your own contract drafted up. Either way, a new home construction contract should ideally detail:

  • The scope of the work to be completed. This should highlight all to be done, and the standards to be adhered to, which are in keeping with the necessary laws.
  • The changes that can be made to the scope of the work alongside how those changes will be handled.
  • The schedule on the build and when you can expect to move into your new home, including any potential factors that may delay this.
  • The payments required and their delivery dates.
  • Additional essential information about contractor defaults and any resolutions procedures required should a dispute arise.

What Are the Reasons for Backing out of a New Home Construction Contract?

Most of the reasons offered by those backing out of new home construction contracts are, in fact, quite commonplace. These include:

The build isn’t going as expected – Many new builds can encounter teething problems, but some present more problems than others. Thus, if you believe that the finished product is not going to suit you, you may decide you want out. Incomplete work is one of the top concerns when reconsidering new home construction contracts.

An inspection throws up various issues – You may have decided to get a professional opinion, and the results are less than favorable. For this reason, you may simply decide you want to back out. Yet again, another common issue, this is, however, the more problematic here. This is because builders can work to fulfill new build issues if they are still within the official building process.

The work isn’t deliverable on time – Yet another big issue with a new home construction contract is that of lateness. You may find that you’ve made arrangements to be in your new home for a specific date. Yet, that date keeps getting pushed back further each time, with no immediate resolution. This often happens when the sales department suggests a building time of around eight months. The reality is often something closer to two years, however! For many people, this can be the tipping point in backing out of their contract.

Your loan falls through, or you’re offered less than you need – If you’re decided to go ahead and sign for a new build without confirmation as yet of your loan, there is a possibility of the loan falling through. This can happen for a variety of reasons. Some people also find that they aren’t offered the required amount they applied for. This leaves you grasping to make up a shortfall that some people find they just can’t achieve. This is why you should always work with a professional hard money loan company that can accompany you through the whole process. 

A change of personal circumstances – as with everything in life, personal situations can get in the way and change drastically after signing on that dotted line. For example, some people may lose their job and simply find themselves unable to keep up with the cost of such a contract. Work hours can be shortened, and contracts can be lost, all affecting your finances. Bereavement, separation, and divorce also factor in highly here and can contribute greatly to your decision to back out.

A change of mind – Otherwise known as buyer’s remorse, some people can experience a huge sense of regret when committing to such a substantial purchase. This can be particularly high with a new home construction considering the large time scale and, indeed, the scope of the project that lays ahead.

What Is the Process Involved in Backing out of a New Home Construction Contract?

Once you decide that you no longer want to proceed with your new home construction, you’ll need to look towards your contract.

This should be done as soon as you realize this is the process you want to take.

  1. Do not immediately cancel payments without informing your builder. This may only exasperate the situation further.
  2. Read thought your contract and seek further legal advice as to what your next steps are.
  3. Be prepared to lose some money and incur some penalties.
  4. Make your exit official, seeking confirmation with all paperwork between you both at this time, plus any deals or payments made.

Though most new home construction contracts are worded differently, you will more than likely find the term Purchaser Default on most. This will detail all rights of the seller should the buyer no longer continue with the contract. This will include the money required to be paid, including any deposits and any liquidated damages. A good contract should also refer here to the time limits involved.

Final Thoughts on Backing out of a New Home Construction Contract

Ultimately, if your new home construction has not yet begun, you stand a better chance of getting out of your contract. Though you may likely still incur charges, they will not be as hefty at this early stage.

However, the more into the build you get, the more complicated and indeed costly it can become to back out of such a unique contract.

For the best solution, ensure you get some sound legal advice before you consider this way of purchasing property and take time to read through the buyers’ contract with a professional in the field.

Thus, you should be clear at every stage what the consequences and, indeed, financial penalties are, alongside the process should you decide you really must back out of your new home construction contract.

About the Author:

Yanni Raz is The Founder and CEO of HML Investments, with over 15 years in the real estate and hard money lending industry, Yanni is an expert in real estate investing, trust deed investments and more.