Let the Buyer Beware: New Build Purchase Contracts
Colorado's booming population and rapid expansion mean that new construction homes are a common and attractive option for many prospective homeowners. The allure of a brand-new property with modern amenities is undeniable. However, many homeowners considering a new build are unaware of a fundamental difference from purchasing an existing home: builders use their own proprietary purchase contracts, drafted to primarily protect their interests, unlike the standardized forms for resales. This inherent imbalance in legal representation creates significant risks for buyers.
The implications of signing a builder's contract without proper review can be severe, ranging from unexpected costs and construction delays to limited recourse for defects and diminished buyer protections. These contracts often contain complex clauses regarding warranties, change orders, dispute resolution, and completion timelines that heavily favor the builder. GLO emphasizes that thoroughly reviewing any new build purchase contract with your own experienced attorney is not just recommended, but a critical step to safeguard your significant investment and ensure your dream home becomes a reality without unnecessary legal complications.
The Technical and Risky Landscape of New Build Purchase Contracts
New build purchase contracts are highly technical and often complex legal documents designed to favor the builder. For homeowners, failing to understand or negotiate the nuanced clauses within these agreements can lead to unexpected costs, frustrating delays, limited recourse for construction issues, and a significantly higher risk profile compared to purchasing an existing home with the standard CREC contract.
The Absence of Standardization: Buyer Protections Are Not Assumed
The most significant risk in purchasing a new build in Colorado stems from the lack of a standardized contract form. Unlike the CREC form, which has evolved to balance the rights and obligations of both buyers and sellers in existing home sales, new build contracts are unilateral, drafted by the builder's legal counsel. This means that many common buyer protections found in the CREC form—such as clear deadlines for loan objections, appraisal contingencies, inspection objection rights, and specific remedies for default—may be absent, significantly limited, or heavily skewed in the builder's favor. For instance, a new build contract might have vague "completion dates" that provide ample leeway for the builder to delay delivery without penalty, or it might define "completion" in a way that allows the builder to hand over a house that is technically complete but still has outstanding punch-list items or unfinished elements.
Furthermore, builders' contracts often contain clauses that limit a buyer's ability to access the property during construction, perform independent third-party inspections at critical stages, or even make change orders without incurring significant fees or extending the delivery timeline. The inherent imbalance means that the burden of identifying and negotiating for crucial buyer protections falls entirely on the homeowner. Without a discerning legal eye, a buyer might unknowingly waive critical rights, leaving them with limited recourse if construction quality issues arise, if delays occur, or if the finished product doesn't meet their expectations.
Hidden Costs, Dispute Resolution Restrictions, and Earnest Money Vulnerabilities
Beyond the general lack of buyer-centric protections, new build contracts often contain specific clauses that present significant financial and legal risks for homeowners. The handling of earnest money is a prime example. While earnest money in a standard resale contract is typically refundable under various contingencies, new build contracts may require a larger earnest money deposit, make it largely non-refundable, or define termination conditions so narrowly that the buyer risks forfeiture even for issues that would be protected under a standard contract. The contract also defines closing costs and who pays for what, which can be an area where builders shift more of the financial burden to the buyer than might be customary in a traditional resale. Without careful review, a homeowner could face unexpected fees at closing that eat into their budget.
Another critical, yet often overlooked, area of risk lies in the dispute resolution mechanisms. Builders' contracts frequently mandate arbitration as the sole method for resolving disputes, rather than allowing for traditional litigation. While arbitration can be faster and less costly than court, it also limits discovery, can restrict appeals, and might favor the party with more experience in the arbitration process (i.e., the builder). Furthermore, many new build contracts attempt to limit the builder's liability for construction defects, often requiring the buyer to adhere to a specific warranty process that may be less comprehensive than state statutory warranties or common law protections. These clauses, if not carefully reviewed and potentially negotiated, can significantly restrict a homeowner's ability to seek redress for structural issues, material defects, or unsatisfactory workmanship discovered after closing. The technical language surrounding these limitations can be opaque, making independent assessment extremely difficult for the average homeowner.
How GLO Can Help
Buying a newly constructed home in Colorado offers great rewards—but builder contracts are often complex and heavily one-sided. At GLO, our real estate attorneys carefully review new build agreements to protect your rights and investment.
We identify key risks in provisions related to completion timelines, earnest money, access for inspections, change orders, and dispute resolution. We also help you negotiate fair terms and, if needed, add an attorney review contingency before signing. With GLO’s guidance, you can move forward confidently and avoid costly surprises in your new home purchase.
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GLO has prepared this blog to provide general information on legal issues that may be of interest. This blog does not provide legal advice for any specific situation and this does not create an attorney-client relationship between any reader and GLO or its attorneys. GLO engages clients only through specific signed fee agreements. GLO does not guarantee any results.
