When you sign a contract to buy a new home, you are signing a binding agreement between you and the builder. The terms including the price, approximate completion date, walkthroughs, initial building plans, are included.
But that is just a small part of the contract. There are a lot of clauses contained in a builder’s contract that are not in resale real estate agreements.
That is why it might be a shock to learn that the builder tells you your contract price is increasing.
Here are some reasons that your home builder can (depending on the terms) increase the contract after it is signed.
• Builder Material Escalation Addendums
Of all of the possibilities, this one can be the most frustrating. These addendums have long been included in very large commercial construction contracts.
But after 2020, they started to also make there way into residential home contracts. The Covid pandemic and resulting supply chain disruptions caused materials to increase sharply.
Builders began to actually lose money on homes they were starting because, for example, lumber prices had doubled or more over a short period.
So in the event materials increase from the time the contract is signed to construction, this addendum will pass this cost along to the buyer. You can learn more about the material escalation addendum in this article.
• Choosing Your Finishes
If you go under contract on your new home before the builder has started building, you are likely to see a price increase when you pick out your finishes.
Many times, the builder’s contract price assumes the most basic cabinets, floors, counters, etc.
After a visit to the builder’s design center or catalog of selections, the price will be raised to reflect your options.
• Structural Changes
You might be looking over your floor plans and decide that in the basement, you really want part of the rec room to be a bedroom. Or maybe you want to turn a wall into a half wall.
With enough notice, these changes can be made in many cases. Your builder will tell you if there is still time, and if it is something that they do.
These changes will, most likely, cause the price of your home to go up. Especially if it is not an option that they normally offer in that model.
• Other Changes
Maybe you want to move an outlet, want to upgrade cabinetry hardware, or other small items after contract signing. Anything that changes the agreed upon plan could cause a price increase, even if it is small.
However, keep in mind that builders may make improvement to items that are deficient for no cost. This is why it is good to have a new home inspection done prior to your walkthrough(s).
And know that, just because you ask, does not mean the builder will do it. It will depend on what is available, what process of the build they are in and the builder’s policies.
Keep In Mind
Builder contracts are different than other real estate contracts. They are known for favoring the builder, and are often very inflexible as far as changing any of the terms.
So the best way to avoid a surprise, such as a material escalation clause, is to be thorough in reading and reviewing your contract before signing.
If you have a real estate agent, you can also ask them to go through it with you and then ask any questions to the builder about how a specific paragraph works.
There are instances where a home builder can increase the contract price. The most common is when changes are made structurally or finishes are picked out.
The trip to the design center to pick out your home’s finishes almost always results in a price increase.
More rarely, prices can increase when there is an increase in the materials used to build the home. This happens in markets with high inflation or supply chain problems.
All of this will be spelled out in the contract that you sign with the builder. So make sure you review it well.
Share this article: