Reading a new-build purchase agreement — clauses to know

The purchase agreement at a builder's sales office is not the OREF standard form your buyer's agent uses on a resale. It is a multi-page document drafted by the builder's legal team, designed to limit the builder's exposure and preserve the builder's flexibility. Some of the clauses are routine and reasonable. Some of them benefit the builder more aggressively than a buyer might assume. Here are the ones to pay attention to.

The basics first

Builder purchase agreements typically include:

A description of the home (plan, lot, elevation)

Base price plus selected upgrades

Earnest money requirements

Closing date or "estimated completion" window

Financing contingencies (if any)

Specifications addendum

Selection deadlines for structural and design-center choices

Warranty provisions

Default and remedy clauses

Dispute resolution clause

Builder's right to modify clauses

That last bullet is one of the ones to pay attention to.

The builder's right to modify

Most builder agreements include a clause that lets the builder change the home's specifications — sometimes within stated limits, sometimes broadly — if a material or product becomes unavailable. The clause is reasonable in concept (the builder shouldn't have to redo the whole project because a specific tile got discontinued). It's less reasonable when the substitution authority is broad.

What to look for: Language describing what kinds of substitutions are allowed and whether the substituted material must be of "equal or greater value" or "substantially similar quality." The latter is vaguer and gives the builder more latitude.

What to push for: Notification to the buyer before substitution and an opportunity to discuss alternatives. Some builders include this; some don't.

The completion date is an estimate

The agreement will typically describe the closing date as an "estimated completion date." That's not the same as a hard deadline. The builder usually has latitude to extend the date for various reasons — weather, supply chain, scheduling, force majeure.

What to look for: The contract's definition of what counts as a permitted delay. Some are narrow (defined force majeure events only). Some are broad (anything the builder considers reasonable).

What to push for: A reasonable outside date with buyer's right to terminate and recover earnest money if the home isn't ready by that date. Builders generally won't agree to a hard "must close by date X" with penalties — but they will sometimes agree to a buyer-friendly termination right if the delay exceeds a threshold (e.g., 6 months past estimated completion).

Mandatory binding arbitration

Most builder purchase agreements include a clause requiring disputes to be resolved through binding arbitration rather than in court. The clause typically specifies the arbitration provider, location, and rules.

What it means: You give up your right to sue in court. Disputes are decided by an arbitrator, often selected from a panel the builder has agreed to in advance. Arbitration is generally faster and less expensive than litigation but has fewer procedural protections (limited discovery, no jury, narrow grounds for appeal).

Whether to push back: Some buyers and consumer advocates strongly object to mandatory arbitration. The builder's negotiability on this clause varies — some will remove it on request, most won't. A reasonable middle path is to read the specific arbitration provisions carefully and confirm that the arbitration provider is a neutral one (the American Arbitration Association is common and reasonably balanced).

Liquidated damages

A liquidated damages clause specifies what the seller (builder) keeps if the buyer defaults. The amount is typically expressed as a percentage of purchase price (1%, 3%, sometimes 5%) or a fixed dollar amount.

What's normal: 1% to 3% of purchase price.

What's aggressive: 5%+ or all earnest money plus all design-center selections regardless of cost.

What to push for: A reasonable cap. Some builders will agree to a 2% cap; some will hold firm at 3%. Above 3% is worth scrutinizing.

Financing contingency

The financing contingency clause governs what happens if your loan doesn't come through. Three variations:

No financing contingency. Some builders, especially at the top of the market, sell as cash deals or with no financing contingency. Risky for the buyer if their lender doesn't deliver.

Financing contingency tied to a specific lender. Common when the builder is offering a lender incentive — your contingency only applies if you use their lender. If their lender denies you, you're out (or required to find alternative financing within a tight window).

General financing contingency. Cleanest for the buyer — if you can't get financing from any qualified lender within the contingency window, you can terminate and recover earnest money.

What to push for: A general financing contingency, even if you intend to use the builder's lender, with a reasonable contingency window (15–30 days typical).

Warranty disclaimer

The builder will warrant the home (typically per the 1-2-10 structural warranty discussed in our warranty post) and explicitly disclaim other warranties — including the warranty of habitability and any implied warranties.

What it means: Your remedies for defects are limited to what the contract specifies. Anything not covered by the express warranty is not covered by an implied warranty under the contract.

Whether to push back: Generally not worth fighting; the express warranty is what you have. The play is to make sure the warranty document is the right one (the 1-2-10 structural warranty from a recognized warranty company, not a builder-self-administered warranty) and that you understand the coverage.

Selection deadline addendum

The agreement will typically include selection deadlines for:

Structural options (often the earliest, sometimes 30 days from contract)

Major design choices (cabinets, countertops, flooring)

Final color selections

Appliance packages

What to watch: What happens if you miss a deadline. Some builders impose a "builder selects" default — meaning you take whatever they pick. Others impose a re-selection fee. Push for the latter (a fee with the option to make your own selection late) over the former (default to builder's choice).

HOA disclosure

The agreement should reference the community's CC&R document and HOA budget. Don't sign without seeing these — see the HOA reality check for what to look for in them.

Closing the loop

The right time to read these clauses is before you sign, not after the model home tour where the on-site agent says "we just need a signature to hold the lot." Builders typically allow 24–72 hours for contract review. Use it. Bring Kaz, bring a real estate attorney if the deal is large, and read the addenda alongside the base contract.

The clauses above aren't reasons to avoid new construction. They're reasons to read what you're signing and to push back on the ones that aren't reasonable for your specific deal.