Strategic Points Group: Buying Homes: It's just preliminary

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Choosing a builder without knowing how much your new home will cost to build may seem counterproductive. However, it can be very helpful to have a builder's assistance during the site selection and design stages of building your home. To over-come this dilemma you can choose a builder on a preliminary basis early in the process with the understanding on both sides that you may later select a different builder for the construction of your new home. This agreement between you and the builder should afford you the opportunity to cancel the contract for any reason at any time prior to the start of construction. That way, you'll be in a better position to avoid repeating the preliminary steps if you decide to use another builder.

Preliminary Agreements
A preliminary agreement gives an understanding of the services the builder will render and the fee for those services. These types of agreements typically retain the builder to assist the buyer in evaluating and selecting a lot, monitoring the design and specifications process, estimating the cost of building the home, preparing a loan package and begining the building approval process. Builder's fees for these services run approximately 1 percent of the total construction cost.

If you later hire the same builder to construct your home, the fees for these preliminary services generally will be included their cost estimate. If the builder's performance under the preliminary agreement is satisfactory, you are comfortable with the builder and he or she bids a fair price for constructing your home, it's probably in your best interest to move ahead with the same builder.

There are a couple basic types of contracts to choose from for constructing your home. The most comprehensive option is a full general contract. The least complicated option is a construction management contract. The latter arrangement requires more time, commitment and effort from the buyer. Getting some advice from your attorney before you sign a contract with a builder is a good idea.

The contract typically can include similar provisions:

Price and allowances
Items outlined what is--and is not--included in the builder's cost-breakdown.

Plans, specifications and cost-breakdown
These items can be incorporated by reference into the contract.

Completion date

Dispute resolution procedure
Negotiation, mediation and arbitration are alternatives to legal litigation.

Procedures for change orders

Insurance
Typically builder's risk, worker's compensation and liability. The contract should state the types of insurance, policy limits and designate whether you or the builder will be purchasing each type of policy.

Warranty
Timeframes and performance standards for warranty work should be clearly stated.

Special conditions
Issues related to soils, weather or other miscellaneous factors should be explained in the contract.

Contingencies
Contingencies can include obtaining financing or selling your current home.

Payment procedures
The contract should detail when and how payments will be made to the builder.

Try these other related FAQ sections:


			New Mortgage

			Refinance

			Home Equity

			Debt Consolidation

			Construction

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