Realty Times - Just What Am I Getting Into? Signing on The Dotted Line..

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Just What Am I Getting Into? Signing on The Dotted Line..

by Dena Kouremetis

It's all set. You are to meet at the model home sales office at 10 a.m. on Saturday morning and draw up what the sales person calls the "purchase agreement" for the elegant home-to-be on that great lot overlooking the greenbelt. It took some hard thinking, comparison shopping and sleepless nights to get to this point, but you did the Ben Franklin, took into consideration what the sales consultant said about the home and the neighborhood, and walked all the available home sites. This is it.

So what can you expect from this appointment; how long will it take, what should you do to prepare for it and how do you know you are getting an explanation you can feel comfortable with by the time this mini-seminar on a new home purchase is complete?

If you are the type of buyer who will not consider buying a big-ticket item (and this would assuredly qualify as one of the biggest) without reading all the fine print, it would not be uncommon to ask for a copy of the entire purchase agreement ahead of time. Most builders would acquiesce to this request, though some may have rules about releasing proprietary documents before explaining them.

Take the documents home and look them over, however, try to keep yourself from overreacting to the "legalese" of every paragraph or you will surely never buy a home. Most of the phrases are in the form of disclosures and explanations geared to protecting the builder from a myriad of issues to avoid litigation of them. After all, this is America, where people sue over too-hot coffee, so just think of what a builder/developer must deal with in guarding their business from extremism. If you decide to wait until signing time to review the purchase agreement, it is wise to at least take home a copy of the public report, the document required by the local Department of Real Estate giving permission for the builder to sell there. In it, you may read all about the area, its public easements, its intended future use, and the community parameters. Also take home a copy of the Covenants, Conditions, and Restrictions (C.C. & R's) and look them over carefully, making sure this is a neighborhood that doesn't "cramp your style". Now is not the time to assume that parking your trailer on your driveway will be "overlooked" by the neighborhood association just because you're you. By the same token, if there are not a sufficient number of restrictions to make you comfortable with the eventual "streetscape" of the neighborhood, this is also the time to re-think your purchase.

Builder purchase agreements are customarily not "fill in the blanks" type documents, as in resale varieties. The newer, sophisticated builder software enables them to have their agreements and addenda computer generated, to make them unique to each subdivision the builder sells. Oftentimes, the information from your visitor guest registration card has been input into their computer hard drive and lies in wait for your decision to purchase, making it easy for the agent to transfer the information to the purchase agreement.

Although builders vary greatly in their presentation of purchase documents, these are the basic ingredients of most builder agreements:

In-file sheet: A document for you to fill out, detailing just who you are and where you came from; your estimated income, family size, employer, etc. This may be used in-house by the builder for demographics use (and is confidential) and also given to the lender to help start the pre-approval process. Although this can be computer-generated by the agent after a verbal interview, most buyers like to fill the information out themselves.

Statement of Identity: In states where title and escrow companies are used in lieu of attorneys, this document (and the extreme pain that it causes in jogging your memory about past residence addresses) is used for various title searches under your name, both past and present. It is vital to getting clear title to your new home, assuring you will not record under someone else's name, and making sure there are no unpaid liens to contend with at close of escrow.

Purchase Agreement: Usually the most detailed document, presented in clauses describing what is agreed to by both buyer and seller. It should explain and define terms (such as title, escrow, deposits, mortgage loan, and defaults and how they are dealt with). Most have allowances for arbitration, liquidated damages, casualty before closing, and disclaimers about anomalies to soils conditions. Builders may state that their production homes cannot mirror a model home item for item, inform you of their right to make changes or feature substitutions to the house, change suppliers during construction when deemed necessary, and spell out a general time frame for completion of the dwelling. I have covered only a few items here; this, of course, is the heart of your agreement with the builder.

Addenda: How many of these you encounter will definitely vary with the builder you buy from. Addenda to the purchase agreement are extra agreements "tacked on" to the original agreement, but become part and parcel of the contract. They can deal with more disclosures, financing terms, decorator items, upgrades to be added to the purchase price, explanations regarding the use of their in-house lender, and even deal with minutiae that we cannot even predict (such as allowing for inevitable variations to colors and cabinet stains from your design center tour.) More of these will, no doubt, pop up during the construction of the home as things are added or changed.

Receipt for Public Report and Receipt for C.C. & Rs: Sign these after reviewing the documents.

Loan Packet: this may or may not be given to you at the time of purchase. Some builders will make sure you have a full loan pre-approval (pending property address) for an adequate amount, and some will have pre-qualified you briefly and will hand you a packet to fill out before meeting with their lender or your own.

Be prepared for the builder to request the entire earnest money deposit to get the construction of your new home off the starting blocks, if you haven't already surrendered it. This deposit becomes a part of your down payment monies, along with further deposits given by you when opting for upgrades to the new home. Most builders will not even touch the dirt on your home site without the required deposits, so plan ahead to have this money available.

Get copies of everything you sign. If the copies are from a handwritten agreement, make sure your copy is legible. If not, ask the agent to make copies of the original. Another copy will usually be generated from the builder's main office after the seller (usually the builder's division president or sales manager) has signed the contract. Don't forget that the new home agent is usually only a representative of the seller. Although their signature may appear on most documents, they are not the owners of the property and cannot be the final word on the agreement.

Keep all your documents in a special folder, easily accessible during and after the construction of your new home. It's also advisable to keep a copy of the original brochure, with its renderings and included features list attached, in case there are claims you may need to make over something that didn't turn out quite the way it was described originally. The brochure also comes in handy someday when selling your home.

Plan at least two hours for a full-tilt discussion of your agreement; less if you got explanations ahead of time. Leave small children with a sitter to give your undivided attention to this meeting, and make sure every person who wishes to be on title is there to sign. If doing this long distance, make special arrangements with the agent for overnight parcels, conference calls, and e-mails to cover the same territory you would face to face.

This process may indeed sound extremely formidable compared to the process of purchasing a re-sale home. Special attention to written details paid at this time will reap its rewards later on. You may feel increasingly comfortable with your purchase and have fewer questions during construction, giving you the peace of mind you need to look forward to moving day.

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Published: September 8, 1999

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A veteran of the real estate and homebuilding industries since 1986, Dena Kouremetis first joined Realty Times as a new homes writer in 1998. Since then, she has authored four books, written consumer columns on new homes issues for websites and newspapers all across the country, contributed to builder trade magazines, appeared as a guest expert on several radio shows and even created a ten-chapter podcast for LendingTree.com’s homebuilder website, iNest.com, now available on iTunes, entitled Uncharted Waters; Navigating the Purchase of a New Production Home.

Kouremetis recently joined her local Folsom, CA Coldwell Banker office as a broker associate while continuing to write for the real estate industry. For the past three years, she has been training real estate agents for both the resale and new homes industries, putting her experience, research expertise and gift of expression to work to help others entering the business.

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