How to Minimize Your Risk When Buying New Construction

One of the differences between buying a resale home and buying new construction is the contract used. The Multi-Board Residential Real Estate Contract used by Chicago area Realtors for resale properties provides several contingencies for buyers including attorney review, inspection, homeowners insurance and mortgage contingencies.

New home contracts are typically unique to each developer and written by their attorneys to their advantage. A real estate attorney for a client of mine recently tried to negotiate a mortgage contingency for a new condo purchase in the South Loop, but the developer refused. My client was confident she would get financing and agreed to go ahead with the purchase. If for any reason, she can’t get a mortgage, she’ll lose her earnest money.

I worked with a couple last fall who made an offer on a new condo in Uptown contingent on selling their condo in Lakeview. The developer would only agree, if the couple was willing to forfeit their earnest money should they not be able to sell their condo within a month. The couple wisely withdrew their offer. The risk was too great.

Minimize your risk when buying a new home. Use a Realtor to help point out the risks with developer contracts. If you are considering buying a new home in a specific area, contact me before you visit sales offices. I’ll be glad to refer you to a Realtor who has experience helping buyers with new construction in that area. If the Realtor accompanies you on your first visit to a sales office, the developer will typically cover the Realtor’s compensation.

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ABOUT THE AUTHOR

Fran Bailey Fran Bailey is a Realtor who has been quoted in numerous Chicago and national publications. To schedule showings for any listings, get a free market analysis for your home or to contact Fran email her at fran.bailey@bairdwarner.com or call 773.793.4516. Learn More

Comments

  1. Frank Lin says

    Ms. Bailey,

    Your blog is great – it definitely deserves the accolades and publicity it has received recently. I am generally on board with your posts but have to disagree with this one. While realtors with experience may be able to provide sound advice (such as someone in your stature), but many new realtors will not understand some of the terms of the contract.

    Prospective buyers should have an attorney review the contract, especially when you tell us “(n)ew home contracts are typically unique to each developer and written by their attorneys to their advantage.”

    If the developer’s attorney can write the contract to their advantage, shouldn’t a buyer use his/her attorney to their advantage as well?

  2. Fran Bailey says

    Hi Frank,

    I certainly didn’t mean to imply that hew home buyers shouldn’t have a real estate attorney review their contract! Of course, they should! If buyers have questions about a contract, they should direct them to their attorney, not their Realtor.

    Part of the value I and other Realtors provide is explaining to buyers why they need to use an attorney and why that attorney needs to specialize in real estate. My guess is that a large percent of people buying new construction who don’t use a Realtor also don’t use a real estate attorney. I was guilty of that when I bought my first home which was new construction. Without a Realtor, I didn’t even know that I should have the contract reviewed by a real estate attorney.

    Thanks for your kind words regarding my blog!

  3. says

    As an attorney with my practice concentrated in real estate law, I can not state too strongly that purchasers need professional guidance from both agents and attorneys. While some of our focus and advise will be on different issues, some will definitely overlap. Often times it is helpful to have both the perspective of your attorney and agent when making decision. The sale of their existing property contingency Fran mentions above is an excellent example of this. An attorney should point the potential loss of earnest money and hence the risk of the contingency. An agent would usually be bettered position to apply the contingency to your specific circumstances. Is the price your getting on the purchase, worth the risk? What is the likelihood you could sell your existing place in the time allowed? A good loan officer also would be useful in this case, since maybe you could get a bridge loan and make the purchase even without the sale.

    Multiple professionals with different perspectives allow you to better understand your rights, benefits and the risk. Good professionals work together to protect your interest.

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