Law Firm of Richard T McCarthy
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NEW CONSTRUCTION

The Law Firm Of Richard T. McCarthy provides the expertise and personal service needed to assist you in making the purchase of new construction simple and manageable. Provided here are some basic answers to the most common questions asked during the purchase of a new construction home.

Please feel free to call our office about your real estate needs.


SHOULD I HAVE AN ATTORNEY INVOLVED IF I AM PURCHASING A NEW CONSTRUCTION HOME?

Yes, there is no 'standard' new construction contract. Each contact can vary depending upon the builder and the subdivision. Are you purchasing a tract home or are you buying the land, working with an architect and then contracting with a builder? There are many more issues and risks associated with new construction contracts then there are in resale contracts.


DO I HAVE TO GET A MORTGAGE COMMITMENT IMMEDIATELY EVEN THOUGH THE CLOSING DATE IN MORE THAN THREE MONTHS AWAY?

Typically, yes, if you are buying a tract home from a builder. Your builder wants to know you have the ability to buy his home. Each party assumes certain risks in the transaction. For example, the builder typically assumes the risk that if the cost of materials goes up while the home is being constructed, that is his responsibility. The builder in turn expects that you will obtain a mortgage up-front and float the rate. You assume the risk of any increase in interest rates pending the closing of title. It is possible that you may be able to lock into a long term pre-closing rate with your lender. However, the rate will not be as competitive as current rates or you may have to pay a fee for a long term rate lock.


WILL I HAVE TO RELEASE MY DEPOSIT TO THE BUILDER PRIOR TO THE CLOSING?

Unless your builder is a national or major regional builder that will permit an escrow of your deposit, most smaller builders will require that a Buyer release a significant deposit to the builder prior to the closing. The release of the deposit is probably the single biggest risk faced by most Buyers prior to the closing. The deposit is supposed to be used to fund construction. However, you will never know what your deposit is actually used for. Most builders will not provide a mortgage or bond for the released deposit funds. Often, the only security provided to the Buyer for the return of the deposit will be the written 'guarantee' of the principal of the builder. However, a guarantee is no security and if the builder goes bankrupt the Buyer may loose his/her deposit. Therefore, it is critical that a Buyer do research on the builder and be comfortable with the builder's track record and experience. Ask for references and contact people who have purchased homes from your builder.


CAN I MAKE CHANGES/UPGRADES TO THE HOME AFTER THE CONTRACT IS FINALIZED?

This depends on what the Contract says, what the requested changes or upgrades are and how they impact upon the delivery date of your home. If the change or upgrade will slow down the delivery date (closing date) significantly, the builder will often resist making the change or charge a change order cost which far exceeds the change or updgrade requested. Built in to the builders change order charge will be his construction carrying costs passed on to you as a result of any delay.

Builders will typically require that any changes/upgrades be paid for at the time they are made.


WHAT HAPPENS IF SOME ITEMS ARE NOT COMPLETE AT THE TIME OF CLOSING?

Our office has yet to see a new construction home where everything is complete at the closing. Typically, once the Certificate of Occupancy is issued by the municipality, the Buyer has an obligation to close with the builder. It is common practice for the Buyer and builder to undertake a pre-walk through inspection and compile a 'punch list' of small items which the Buyer wants the builder to complete post closing. Generally, a builder will not allow an escrow for uncompleted items. The builder's rationale is that the builder is often advancing hundreds of thousands of dollars to construct a new home based upon the Buyers 'promise' to pay for the same at the closing. If the builder can advance his own funds in reliance upon the Buyers promise, then the Buyer should have no issue in relying upon the Builder promise to complete punch list items post closing. The bottom line is that you must pick a builder with a good reputation and track record.


IS THE CLOSING DATE IN THE CONTRACT GUARANTEED?

No, the closing date is an estimated date. It is common for closing dates to be delayed for new construction. Delays can range from weeks to months. Typically, a builder will want a 'minimum' four month closing window. This means that if the closing is scheduled for Sept 1st, he has the right to delay the same until the following January 1st. Some builder's contracts start with a two year delay provision. However, this period is typically reduced via our attorney negotiation.


WILL I GET A HOME OWNERS WARRANTY?

Yes, New Jersey law requires a builder to provide a home owners warranty which runs for a period of ten (10) years. As each year passes, the warranty coverage is less. You will need to read the actual warranty for covered items and length of coverage.

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