What Buyers Should Know About Builder Contracts Before They Sign

Buyers who have purchased resale homes before sometimes approach a new construction purchase expecting a familiar contract experience. The documents are similar in some respects, but builder contracts have characteristics that are specific to new construction and worth understanding before you commit to anything.

The Builder Controls the Contract

Unlike a resale transaction where both parties negotiate the terms, builder contracts are typically drafted by the builder's legal team and written primarily to protect the builder's interests. That does not mean they are unfair, but it does mean that buyers should read them carefully and understand exactly what they are agreeing to rather than assuming the terms are standard.

In many cases, builders will not negotiate heavily on the contract itself, particularly in active communities where demand is strong. What they may be willing to adjust are the incentives attached to the purchase, such as rate buydowns, closing cost contributions, or upgrade credits. Understanding which parts of the conversation are flexible and which are not helps buyers focus their energy in the right places.

Price Escalation Clauses

Some builder contracts include provisions that allow the purchase price to increase under certain conditions, typically tied to material or labor cost increases. These clauses vary significantly in scope and should be read carefully. Understanding whether the price you agreed to today is the price you will pay at closing, or whether it can change under specific circumstances, is one of the most important things to clarify before signing.

Earnest Money and Cancellation Terms

Builder contracts typically require a larger earnest money deposit than resale transactions, and the cancellation terms are often less buyer-friendly. In a resale purchase, a buyer who walks away during due diligence usually gets their earnest money back. With a builder contract, the conditions under which earnest money is refundable are more limited and more specifically defined.

Understanding exactly what happens to your deposit if you need to cancel, and under what circumstances you can cancel without penalty, is essential before you put money down.

The Importance of Independent Review

Buyers are entitled to have a real estate attorney review a builder contract before signing, and doing so is worthwhile particularly for buyers who are not familiar with new construction purchases. An independent set of eyes on the specific language around pricing, cancellation, timeline guarantees, and warranty terms can surface details that are easy to miss on a first read.