Edgewood, WA Real Estate Blog

New home builders like to close as soon as possible. That’s when they get paid. As the closing date nears, chances are they’ve drawn as much as their lender will allow prior to closing. Most builders make periodic draws from their lender based upon construction progress. Once a final occupancy permit has been issued, you can bet your builder will be pressing hard to close the transaction regardless of defects or repairs needed.

Most builders have a final walk through with the buyer and the builder’s representative. Defects are noted on a “punch list”. The builder’s typical procedure is to repair or fix punch list items after closing. And many times if the builder is offering a warranty (typically one year), he’ll suggest minor defects (especially cosmetic issues) be “collected” to be fixed at about 11 months into the warranty (because they’re only going to be fixed once).

Having worked for a builder (and he was one of the good guys), I can assure you you’ll never have more leverage than you do before closing. Once the transaction is closed, the builder has been paid and your leverage drops to nil. His incentive to repair or fix items is largely a matter integrity and maintaining his reputation.

Additionally, most builders subcontract out actual construction. An electrical contractor handles the electrical, foundation contractor the foundation, roofer the roof, etc. Part of their contract is a provision that they will handle any rework or repair issues associated with the work they originally performed. Subcontractors are selected by bid plus how well they performed on the last project – including any repair or warranty work. Getting subcontractors to come back for warranty repairs after they’ve been paid can be like pulling hen’s teeth.

With today’s mortgage mess/credit crunch portending a downturn in home sales, there are builders (especially smaller builders) and subcontractors who are not going to be in business when it comes time for punch list and warranty work.

Sure you can always sue, but sue who? Chances are your builder has built “firewalls” around his business and limited his liability by setting up a corporation or LLC for the plat/project. Getting a return on the $8-10,000+ in attorney’s fees it’s going to cost you to go to court could prove difficult.

I suggest your most prudent approach, especially in today’s market, is to insist any significant repairs completed prior to closing.

But check your purchase and sale contract. If you’ve accepted the builder’s standard addendum(s) you may be in trouble. Chances are, there’s a clause in there saying you agree to close notwithstanding outstanding punch list items.

That’s one reason why an experienced, expert agent would have recommended a home inspection even for a new home (builders generally hate having a home inspection). As part of the home inspection contingency, your agent would have protected you by required repairs be completed as a condition of closing overriding any provision to the contrary in the builder’s standard addendum.

If you or your agent missed that potential trap in the builders addendum, hopefully you’ve also saved some money on representation (your agent). You might need that money for repairs or to consult your attorney.