Proper use of New Construction Contract form
QUESTION: I have a couple of questions about using the Offer to Purchase and Contract –New Construction (Form 800-T). My first question is, why it does it say at the top of page 1 that it is not for use when the buyer will provide financing for construction? And what’s the difference between putting a new construction property under contract using Form 800-T and using the New Construction Addendum (Form 2A3-T) to the Offer to Purchase and Contract (Form 2-T)?
ANSWER: Before answering your questions, it’s important for you to understand that Form 800-T is only designed for use when the seller agrees with a buyer that the seller (or a contractor engaged by the seller) will construct a dwelling on the property and then convey the property to the buyer. It is a construction contract plus a contract for the sale of land rolled into one form. Since the form addresses the conveyance of the real estate to the buyer, it is not appropriate to use it when the buyer wants to hire a builder to build a house on property that the buyer already owns. In that situation, what’s needed is a construction contract between the builder and the buyer that should be drafted by an attorney (or reviewed by an attorney if the builder provides its own construction contract). Form 800-T is also not an appropriate form to use when the seller or the seller’s contractor will construct a house for the buyer after the real estate is conveyed to the buyer. In that situation, it would be possible to use the Offer to Purchase and Contract—Vacant Lot/Land (Form 12-T) for the conveyance of the property together with a construction contract for the later construction of the house. An attorney should be retained to make any necessary changes/additions to tie those two contracts together. In either situation, if the builder will be paying referral fees, the Broker-to-Builder Referral Agreement (Form 731) may be used to put the compensation arrangement into writing.
In response to your first question, the reason the form shouldn’t be used when the buyer will provide financing for the construction of the house is because it would be very risky for a buyer to pay for the cost of constructing the house when the buyer doesn’t own the property. If there’s a dispute between the seller/builder and the buyer, or if the seller/builder is unable to convey good title to the property for some reason, the buyer risks the expenditure of significant time and expense to recover what they’ve paid or the possible loss of their investment altogether. The seller/builder should bear the risks associated with constructing the house, and the buyer should only be required to pay for it when the construction is complete, except for special buyer upgrades, which are covered by the Building Deposit under paragraph 1(l). A buyer would be well-advised to heed the Warning at the end of paragraph 1(l) regarding how much Building Deposit to pay.
To answer your second question, the New Construction Addendum (Form 2A3-T) is designed for use with Form 2-T when construction on the new house has been completed, or very nearly completed. Although it does contemplate the potential for the seller/builder to make additional minor improvements, it lacks the detailed provisions regarding the construction process that are included in Form 800-T. However, Form 2A3-T does contain an important warranty of construction that establishes the seller/builder’s duty to make any necessary repairs and corrections.
This article is intended solely for the benefit of NC REALTORS® members, who may reproduce and distribute it to other NC REALTORS® members and their clients, provided it is reproduced in its entirety without any change to its format or content, including disclaimer and copyright notice, and provided that any such reproduction is not intended for monetary gain. Any unauthorized reproduction, use or distribution is prohibited.