Purchasing New Construction

You have found a new construction house that you would like to purchase. Although in many ways these transactions are similar to other purchases, as a practical matter, there are some important differences. Witt Law can help navigate these transactions.

I. Contract Negotiation

Depending on the real estate market conditions and other factors that impact the Buyer and the builder's relative bargaining power, there may or may not be the opportunity for meaningful negotiations in the purchase of new residential construction. Regardless of what the builder may tell you, however, there are some situations in which provisions in the builder's form of purchase contract must be, and will be revised. As in any purchase, we advise that any Buyer should have an experienced, competent real estate attorney review the proposed agreement and advise the Buyer.

II. Closing Date and Location

New construction contracts provide for a closing date, but that closing date is merely a target date. It is our experience that new construction transactions hardly ever close on time, and in fact often close weeks or months after the proposed closing date.

It is important to keep yourself apprised of the status of the construction so that you will not be surprised by a closing date that is far off from the target date. If you believe that your closing date is approaching, please give us as much notice as possible, because we will have to coordinate the closing with your lender and will need to update the applicable title and judgment searches, if necessary.

Most new construction closings occur at the office of the builder's attorney. Please refer to your contract for the exact location of the closing. Our office will of course confirm the time and location of the closing prior to the closing.

III. Punch-List Items

It is typical with new construction that the Certificate of Occupancy will be issued even though there is some minor work to be done, certain appliances to install, or outside grading or paving to complete. Prior to closing, the builder will do a walk-through inspection with you and the parties will prepare a "Punch-list". It will provide that the builder will do certain work or install certain items within a specified period after the closing. Larger builders provide for multiple post-closing punch lists.

Most contracts provide that the builder will not permit the Buyer to hold an escrow for the items set forth on the punch list. For this reason, it is critical that you are comfortable with the builder's reputation, because usually, no money is held post-closing to secure the builder's obligation, and your only recourse will be to sue based on non-completion of punch list items.

IV. Homeowner's Warranty

Under New Jersey law, when you purchase new construction, the builder must pay for and provide you with a new homeowner's warranty. This warranty is a 10-year warranty, but not all aspects of the home are insured for the full 10-year period. You can obtain information about this warranty and approved New Jersey Warranty companies from www.nj.gov/dca/codes.

Please note that a new home warranty does not cover punch-list items and if the Seller does not complete punch-list items it is not appropriate to file a claim under the homeowner's warranty program.