What You Need to Know BEFORE Signing Any New Construction Contract

If you're thinking about buying a brand-new home, let me stop you right here: don't sign anything just yet. Because what I’m about to share with you might just save your sanity—and your deposit.

I’ve seen it too many times. A client falls in love with the model home, gets excited, and rushes to sign on the dotted line... only to get blindsided later by fine print they didn’t fully understand.

Let’s start with a wild one. Did you know that posting something negative about the builder on Facebook could put you in default on your contract? I’m serious. Some builders has a clause that considers public "disparagement" (yep, even on social media) as a breach of contract. If that happens, they can keep your earnest money, terminate your contract, and walk away.

Liquidation Clauses: When the Builder Demands You Sell Off Assets

Toll Brothers goes even further. Their contract actually says that if your financing falls through, you agree to liquidate your own assets to cover the shortfall. That could mean selling your rental property or tapping into investments—even if your original plan was to qualify for a mortgage.

Now imagine this: you apply for an $800,000 loan and only get approved for $600,000. Under this contract, you’ve already agreed to sell whatever it takes to come up with the difference.

They Can Back Out. You Can’t.

One of the biggest red flags I’ve come across is how many new construction contracts are stacked in favor of the builder. For example, Toll Brothers gives themselves 30 days to decide if they even want to sign your offer. During that time, you're locked in, but they’re not. Your money is tied up. You can’t pursue other homes, but they can decide at any point not to proceed—with zero consequences for them.

And even worse? They can deposit your earnest money into their own accounts during this limbo period, and that still doesn’t mean they’re going to sign the deal.

The "Convenience Clause" (AKA The Eject Button for Builders)

Let’s talk about what’s known as the convenience clause. Normandy’s version says they can cancel the contract at any time, for any reason—or no reason at all—and just return your deposit. That might not sound horrible, but think about the time, effort, and emotional energy you put in... only for them to decide they’ve changed their minds.

Some builders offer small "liquidated damages" if they back out—like Bloomfield offering $1,000 or Grand Homes offering $250. But trust me, that barely covers the time you’ve lost, let alone the stress.

The Escalation Clause: When Your Price Isn’t Really Locked In

Let’s say you’re under contract and feel great about the price. But then you get hit with a price hike because the cost of materials went up. Normandy has a clause allowing them to pass that cost on to you if it exceeds 10%. Yep, your "locked-in" price isn’t so locked in after all.

Late Closing Fees That’ll Make Your Jaw Drop

And heaven forbid you can’t close on time. Some builders—like MI Homes—charge a $150-per-day extension fee, which turns into $2,000 if you spill into the next calendar month.

Taylor Morrison charges 1% of the purchase price per day, up to $1,000. Normandy is $250/day. K Hovnanian? They’ll charge $500 per day AND make you forfeit any incentives (like $10K in closing cost credits) if you miss your date.

Property Taxes: Final or Adjustable?

Another detail that trips up buyers is how builders handle property tax proration. Some builders—like Toll Brothers and Bloomfield—treat the proration as final at closing, even if the actual tax bill later comes in much higher. Others, like MI Homes and Taylor Morrison, allow adjustments post-closing, which could save you money down the line.

This may sound minor, but when you’re dealing with luxury homes and six-figure tax bills, it adds up fast.

Final Thoughts

At the end of the day, builder contracts are designed to protect them, not you. That’s why it’s crucial to understand every clause—especially the ones buried deep in the contract. These clauses may seem harmless at first glance, but they can cost you tens of thousands of dollars or leave you stuck in a situation you never saw coming.

Always have a trusted agent by your side who knows how to navigate new construction. Someone who can flag these landmines before you sign. Because once you do, it’s too late.

Ready to Build Your Dream Home Without the Nightmares?

If you're thinking about new construction and want an expert on your side to review contracts, protect your interests, and guide you through the process, let's connect!

Post written by Michael Stephens from Living Local Texas.