Building a custom home is exciting and it can be easy to dive into the project before you’re fully prepared. From floor plans to paint colors, handpicking every detail can be a gratifying process as long as you have the right builder. With an inflexible or unresponsive builder, homeowners risk a long and drawn out legal headache.
It’s important to outline your expectations before signing a contract with a builder. In this regard, an Arizona real estate attorney can help make the custom home contract much easier on you and avoid most common legal issues. Finding an attorney who represents your best interests throughout the entire home building project will ensure that you have a seamless transition into your dream home.
New Construction Contract Checklist for Custom Home Builds in Arizona
For the future owner(s) of a custom home, this is a checklist of necessities before signing a contract with a builder:
- Gather the builder’s experience/history and references, as well as other due diligence.
- Understand the difference between standard and upgraded features.
- Read about the Arizona Home Warranty Law.
- Ensure a fair cancellation policy.
- Make sure you understand consumer rights on construction defects in Arizona.
A builder’s job is to captivate your interest with beautiful model homes, but these models are supposed to paint them in the best light possible. When you’re shopping around for custom home builders, ask each builder for more examples of completed homes and for references of owners who have recently purchased a designed home from them. The references can speak to how well the builder adheres to the timeline and if they have further recommendations for the designing and building process. If the builder is reluctant to provide any references or background information, that could be a sign that they have something to hide.
2) Standard vs. Upgraded
Another question to ask the builder is the difference between standard and upgraded features. Again, the model homes are meant to wow potential buyers, so they can be full of upgraded elements that translate to surprise expenses when replicating the home. Make sure that the models and plans reflect the design features that you want! And definitely make sure you understand the full cost of any upgrades you decide to add into your custom home. The builder should be able to provide you an accurate quote of any and all upgrades.
Once you have an idea of the builder’s history and the way they build their standard homes, be sure that you read about the Arizona Home Warranty Law. Under Arizona law, there is an eight-year implied warranty of workmanship and habitability by the home builder that the home was properly constructed. This means that even if you sign an express warranty, you can still give your builder opportunity to correct their construction problem within that eight-year time frame under Arizona law.
If there is no express warranty in your contract, consider adding one. The terms outline what types of defects the contractor will take care of once the home is built, how long the warranty lasts, your maintenance obligations, and what the contractor is required to do to fix any defects you find.
While one would hope everything goes smoothly, unforeseen and unfortunate circumstances can arise. If this is the case and you want out of your contract, you will need to have a way out planned of time to avoid a breach of contract. While you may lose a deposit, it will only be a small price to pay compared to the cost you may spend in arbitration or litigation.
Common Legal Issues with Custom Home Contract
Custom homes can be full of complicated legal issues during and after the building process, but homeowners can prepare themselves and be more informed throughout it. Here are the most common legal issues with custom home contracts that anyone looking to build their own custom home should understand before executing the agreement:
1) Details of Work to be Completed
This section of your contract finalizes the scope of the work that the builder agrees to complete. The section also exists as an important record. Consequently, if there is a discrepancy between the plans and specifications, you and your builder should put your resolution in to writing. That way, you’ll avoid a legal dispute, or at the very least you will have a resource to reference in the event of arbitration or litigation. Additionally, it is important to be as specific as possible.
A custom home contract should also contain an estimated timeline of work to be completed. There are exceptions made for unavoidable occurrences, such as inclement weather, but a timeline will protect you from delays.
One thing to consider is adding a provision for liquidated damages, which is further protection from delays. Essentially, with liquidated damages, the parties can predetermine the damages owed for specific breaches, such as late performance. Thus, it is an extra incentive for the builder to finish the project on time or else pay per diem for each additional day of construction.
3) Payment Schedule
Delayed payments are another reason the home building could be delayed. One way to easily avoid this problem is with a payment schedule. The payment schedule section details when and how the builder is paid by the owner, as well as the payment details for any contractors involved with the project. A standard contract will include an initial payment to cover the cost of labor and goods, a set amount per time frame and a payment to be made once the home is completed.
4) How to Handle Proposed Changes and Delays
Just as you need a written section in your contract for the scope of work on your custom home, you need another one for changes to the scope of work. City permits, owner add-ons and other circumstances could spur a change to your custom home build, so you and your builder need to agree on a course of action in the event of a change to your home. The section should cover time frame and expenses.
5) New Home Builder Breach of Contract
No matter how careful you are when entering into a custom home project with a builder, a dispute could arise in the form of a new home builder breach of contract. Contracts could either require arbitration—a less formal conflict resolution process—or litigation. In both circumstances, a Phoenix real estate attorney can help tremendously. You should make sure you understand what legal process the contract details and prepare for how you will handle it if there is a breach of contract. Even having your contract reviewed by an experienced real estate attorney in Arizona before signing is a great decision and it will help prepare you with legal representation should any issues arise.
Have an Experienced Real Estate Lawyer Review Custom Home Contracts
MacQueen & Gottlieb have significant experience with custom home contracts in Arizona. Our firm can help you draft, negotiate and structure the contract to protect your rights and give your custom home the best chance of being completed on-time and on-budget. Contact us today at 602-726-2229 to schedule an initial consultation or make an appointment online.