Expert Tips on Contracts
Reprinted from www.charlotteobserver.com. Excellent work!
Posted: Friday, Nov. 21, 2008
1. Hire a lawyer to review all the paper work.
2. Never sign contracts the first day you see them. “There are lots of landmines in these things,” as one expert put it. If you must sign a contract immediately to avoid losing the opportunity to buy a particular house, demand this provision be added to the contract: “Subject to attorney approval without penalty.” That’s the advice of Charlotte School of Law professor Phyliss Craig-Taylor. That provision will give you a few days to have a lawyer read the documents.
3. Don’t agree to a binding arbitration agreement where you shoulder all the costs. If the builder requires a certain arbitrator, call the arbitrator to find out what your share of the fees would be if you initiated action. Charlotte real estate lawyer Ralph McMillan says arbitration costs should either be split or structured so the losing party pays.
4. Watch for contracts that allow the builder to modify your floor plan or switch out components with “similar or better-quality items,” says Steve McLinden, a real estate columnist for the Web site bankrate.com. “All modifications must be subject to approval by the buyer.” If you’re building a custom home, get a detailed inventory of exactly what kind of appliances, accessories and fixtures will be used.
5. Keep your excitement in check. “Buying a home can be very emotional, so don’t allow the onsite agent to play on that emotion,” Craig-Taylor says. “This is not a trust relationship where this person is acting in your best interest. They are there as a seller, so they are acting in the builder’s interest.” Take note of how documents are presented and how much explanation is given to each. Seller’s agents will often spend lots of time at the beginning going over the sales price, the options, etc. “You won’t find very much time being spent over the builder’s obligations.”
6. Negotiate. In today’s market, you have lots of power. If you don’t want to sign the agreement for binding arbitration or another portion of the closing documents, the builder may well acquiesce, McLinden says. “This is a time where they need you more than you need them. … You can ask for additional things like closing costs, first-year property taxes and first-year homeowner dues. Start asking for this stuff, and they’ll know they’re dealing with a savvy consumer.”
7. Get a completion date in the contract. “The buyer needs to have a drop-dead date, where after that the builder pays a penalty,” McMillan says.
8. Never sign a contract without getting an inspection by a licensed inspector of your choosing. Make sure there’s a provision in the contract that you can “rescind without penalty” if the inspection turns up serious problems and you don’t want to buy the home.
Cristina Bolling
Regarding number 3, I would go further and say don’t agree to a binding mandatory arbitration clause at all. The arbitration clause isn’t just a danger with the builder, either, it is also in warranty policies that builders buy from 3rd party companies like 2-10 HBW, RWC, and others. Between the warranty policies’ exclusions and the arbitration clause, the builder and warranty co are pretty well covered but the homeowner may not be.
The main drawback of arbitration clauses with a business is that the business is a repeat player with arbitrators, a big chance for bias against the consumer. Another drawback is the inability to appeal even a horrendously bad decision. Yet another drawback is the secrecy of private arbitration decisions; it hides complaints from the public. These are all reasons the corporations love arbitration of course.
Many courts already require parties to mediate, (negotiate formally), before you can go to trial. So I don’t see any sense in it for the consumer, to waste more time and money with any other forms of arbitration or mediation in a contract even if it were set up to be fair and open. I don’t believe the builders and warranty co’s want a fair process, I believe they want a process that’s under their control more, and more likely to go their way. They have found, like other industries, that arbitration clauses help them get exactly that.