When you sign a contract with a builder to begin construction on your new home it is an exciting time! If you’re like most, it’s tempting to sign without reading every word. Sometimes we gloss over things in our contract or just don’t remember. We get bored with all the legal mumbo-jumbo and miss some important stuff! We get it! We’ve done it too!
I could tell you a humbling story of an investment property we were trying to sell that had some language in the contract with the lender that we told the broker we didn’t want in there...but guess what? It made it in there and we missed it. I felt like an idiot because at the end of the day I signed on the dotted line. I was 100% responsible and had to deal with the massive headache this caused not to mention over $10,000. There was no one to blame but the person staring back at me in the mirror. Ugghhh….It was pretty painful.
Many builders will tell you they have to politely remind their clients of things stipulated in their contract. What are some things in your contract you may need to know?
What you are responsible for such as HOA approvals, builder's risk insurance. What the builder is responsible for. Most everything! lol....How payments are to be disbursed. Scope of work.
Basic specs...do I have a gas stove? What are my allowances? What is included in my lighting? Recessed cans? Is a refrigerator included? Wait, what? I thought it was but there it is in black and white. Hold on...I’m responsible for all items not purchased with a preferred vendor? I didn’t even think to stop and ask why much less read the whole contract! Maybe I should check to see if I have landscaping included so we don't live on a pile of dirt. Ugghhh…..Many facepalms have occurred over the rereading of contracts! Us included as you've just read.
If I quizzed you and asked you what the most common thing antsy clients forget as their house is getting close to completion what do you think that would be?
Did you come up with a guess?
Drumroll.....
Here it is: A client CANNOT move in before their builder is paid in full.
Many clients make the mistake of thinking they can move in when a CO (Certificate of Occupancy) is issued by the building department. Sorry. Not true. In the contract, it will read that both need to take place: A CO and final payment.
But wait, what if my lender is taking its own sweet time getting the inspector out and then the person issuing payment is slower than a snail running through peanut butter?
What if they’ve decided they need another appraisal?
What if my lease is up on my rental and we have nowhere else to go?
What if we’re living in my in-law’s basement with their 14 cats and I’m about to lose my mind?
While we are sympathetic to these plights, unfortunately, we can’t budge. These are all things adults have to deal with every day and we can’t be responsible for a lease not getting renegotiated, or your in-law’s being intolerable in some way, or a lender that just doesn’t care.
As I used to tell my daughters growing up, “We’re all responsible to carry our own backpack.” AKA: Don’t try to make someone else responsible for your stuff.
While this may sound super harsh, in reality, what is actually super harsh is our suppliers needing payment, calling us upset, not trusting us in the future, freezing our account (!) cutting off our ability to order more material for another person’s house because yours haven’t been paid, causing cash flow nightmares, us lying awake at night stressing about it.
It’s a domino effect that we need to play a positive role in. Unpaid bills can shred even the most stable person’s nerves especially if you are like us who pay everything as close to on time as humanly possible.
We have to keep doing business with our suppliers. This is our livelihood. If everyone just breached their contract and moved in without final payment we couldn’t continue. While you may think you have a 'special' circumstance the result is the same. That is why we have an “absolutely not” response when clients ask.
Sometimes a final payment can be north of $60,000 and without the owner (you) standing on the bank, it gets drawn out for weeks! Weeks! We had a VA lender draw this out for over 6 weeks. Heart attacks and gray hair coming right up!
We’ve learned this bitter lesson the hard way and every time we’ve made an exception either the bank doesn’t pay in a timely fashion or the client decides they want to dispute all those extra upgrades that are now in their beautiful home. That would be like trying to make Joe Blow down the street pay for your crown molding. Assinine! But it happens all the time! Ask any builder! It’s truly a head-scratcher….
So, what if you feel you HAVE to move in prior to the sllloooowwww bank issuing final payment? You stroke the check for the final payment to your builder and you work it out with the bank. Once your check has cleared your builder’s bank you are cleared to move in.
If you’ve read this article and you see the builder’s point we’d love to work with you!
Teresa Matias is a blog contributor for real estate and common sense teenage parenting blogs. She is a real estate investor, consultant, and Mom of 2 beautiful daughters.