When it comes to buying a home or investment property, pre construction contracts are a big part of the process.
These building contracts help protect both buyers and builders, ensuring that the project runs smoothly from start to finish.
However, it’s crucial to understand the key clauses, terms, and protections in these contracts to avoid any surprises.
In this post, you will learn about pre-construction contracts, construction agreements, and what to look for in a real estate pre-construction deal.
What is a Pre-Construction Contract?
A pre construction contract is an agreement between a buyer and a builder to buy a property before it’s built. It explains the sale details, like the price, timeline, and other important information.
These contracts are common in pre construction real estate, especially for new homes, condos, and commercial buildings.
Before signing any building contract, it’s important to understand the construction contract terms to make sure you’re protected during the process.
Key Clauses in Pre-Construction Contracts
When reviewing construction contracts, there are several key clauses to look for. These clauses clearly outline what you will get in the contract and explain your rights as a buyer.
Here are some of the most important ones:
1. Purchase Price and Payment Terms
The pre construction deposit terms should be clearly outlined in the contract. Typically, buyers must pay a deposit, which they can pay in installments.
Make sure you know how much you need to pay and when. Also, pay attention to the total price of the property and any potential changes to the cost during the construction process.
2. Project Timeline
It’s important to know the expected start and completion dates for the project. The contract should specify the timeline for construction.
It includes any penalties if there are delays. Construction delays can happen for various reasons, but your contract should protect you if the project takes longer than expected.
3. Completion and Occupancy
One of the most crucial construction contract legal terms to watch for is the expected completion date.
The contract should state when the property will be ready for occupancy, as well as the procedure for taking possession.
If the builder misses this deadline, you can receive compensation or choose to cancel the contract.
4. Builder Responsibilities
The builder contract terms should include a clear list of the builder’s responsibilities. This includes the quality of materials, construction standards, and any warranties offered on the property. Make sure your pre-construction real estate contract includes this warranty.
5. Change Orders
Sometimes, changes to the original plan may be necessary. The contract should clearly explain how these changes will be handled.
A real estate contract clause that deals with changes is called a “change order,” and it should specify how additional costs will be managed and who is responsible for paying them.
Pre-Construction Contract Protections
When signing a pre-construction contract, it’s important to ensure that your interests are protected.
The contract should include several protections to give you peace of mind during the building process.
1. Refund and Cancellation Rights
A good pre-construction contract should outline your rights to cancel the contract or receive a refund if the builder fails to meet certain conditions, such as not finishing the project on time or not delivering the property as agreed.
2. Construction Insurance
Check if the contract includes provisions for insurance in case of damage during construction. Builders should carry insurance that protects you and the property against any risks.
3. Dispute Resolution
What happens if a dispute arises between you and the builder? Look for clauses that explain how disputes will be resolved. This may include arbitration or mediation before taking legal action.
4. Tarion Warranty
In Canada, the Tarion Warranty program covers most new homes, protecting buyers against construction defects. Ensure that this warranty is included in your pre-construction real estate contract.
Moreover, you can discover the benefits of investing in pre-construction homes, such as affordable prices, potential appreciation, and customization opportunities.
Pre-Construction Contract Checklist
Before signing any home construction agreements or pre-sale agreements in real estate, you should have a checklist to ensure everything is in order. Here are some things to look out for:
- Is the price clearly stated, and are the payment terms fair?
- Does the contract specify the expected completion date?
- Are the builder’s duties clearly outlined?
- Are you protected in case of issues with the construction?
- How will disputes be handled if they arise?
- What happens if the builder doesn’t meet the terms of the contract?
Why Do You Need the Best Real Estate Agencies in Canada?
If you’re new to the real estate pre-construction process, working with a real estate agency in Canada can make a huge difference.
A professional agent can help you understand the contract, negotiate terms, and make sure everything is in your best interest.
Plus, they can guide you through the entire process, from signing the pre-sale agreement to taking possession of your new property.
