Reading the Fine Print: Key Clauses in Builder Contracts That Homeowners Should Watch For
Buying a newly constructed home is an exciting milestone, but signing a builder’s contract without fully understanding it can lead to costly surprises down the road. Builder contracts are often written in favor of the developer, leaving homeowners with little recourse if construction defects or delays occur.
Before signing on the dotted line, homeowners should carefully review the contract to identify clauses that could limit their rights or expose them to unnecessary risks. In this article, we’ll break down the most critical contract clauses homeowners should watch for—and how to protect yourself before committing to a builder.
1. Limited Warranty Clauses: What’s Really Covered?
Most builder contracts include a limited warranty, which may sound reassuring but often provides far less coverage than homeowners expect.
What to Watch For:
Exclusions and Short Coverage Periods – Many builder warranties cover only major structural issues for 10 years, but only cover plumbing, electrical, and HVAC issues for one year or less.
‘As-Is’ or ‘Implied Warranty Disclaimers’ – Some contracts try to waive or limit the builder’s liability for construction defects.
Mandatory Repairs by Builder – Some contracts require homeowners to allow the builder to attempt repairs before seeking legal remedies.
How to Protect Yourself:
Ask for a copy of the full warranty before signing and compare it to industry-standard warranties, such as those offered by the National Association of Home Builders.
Negotiate longer coverage periods for key home components.
2. Arbitration and Dispute Resolution Clauses
Many builder contracts include a mandatory arbitration clause, which forces homeowners to resolve disputes outside of court through private arbitration.
What to Watch For:
Waiver of Jury Trial Rights – Arbitration clauses often prevent homeowners from suing in court, even if the builder has engaged in serious misconduct.
Who Picks the Arbitrator? – If the builder selects the arbitration company, it may favor developers over homeowners.
Limited Discovery Rights – Arbitration may restrict access to evidence, making it harder to prove claims.
How to Protect Yourself:
Negotiate for the right to sue in court or choose a neutral arbitrator.
Request a ‘Loser Pays’ Clause – This can help homeowners recover legal fees if they win.
3. Completion Date and Delay Clauses
Builders often promise completion by a certain date, but the contract may allow indefinite delays with little consequence.
What to Watch For:
‘Estimated Completion’ Language – Some contracts state approximate timeframes rather than binding dates.
Unilateral Extensions – Clauses that allow the builder to extend deadlines for any reason can leave homeowners waiting months—or even years.
No Buyer Remedies for Delays – Many contracts do not allow homeowners to cancel or receive compensation for prolonged delays.
How to Protect Yourself:
Insist on a firm completion date with penalties (such as per-day compensation) for delays.
Negotiate a termination clause that allows you to cancel if construction exceeds a reasonable timeline.
4. Change Order Clauses: Extra Costs That Can Sneak Up on You
Most builder contracts allow for change orders, which modify the agreed-upon scope of work—often at a steep cost.
What to Watch For:
Builder’s Right to Make Unilateral Changes – Some contracts let builders alter materials, layouts, or finishes without homeowner approval.
Hidden Costs – Change orders can be significantly marked up, leading to unexpected expenses.
Dispute Resolution Limitations – If you disagree with a change order, the contract may limit your ability to challenge it.
How to Protect Yourself:
Negotiate the right to approve all changes in writing before they happen.
Cap additional costs so change orders don’t spiral out of control.
5. Limitation of Liability Clauses: Protecting the Builder, Not You
Many builder contracts severely limit the developer’s liability for construction defects, financial losses, and even personal injury.
What to Watch For:
Cap on Damages – Some contracts limit the builder’s liability to only the cost of repairs, even if the defect causes significant financial losses.
Waiver of Consequential Damages – This clause may prevent homeowners from recovering costs for temporary housing, lost wages, or reduced property value.
Mandatory Mediation Before Lawsuit – Some contracts require homeowners to mediate disputes before taking further legal action.
How to Protect Yourself:
Negotiate to remove or modify ‘cap on damages’ clauses.
Clarify that the builder is responsible for defects that result in major financial losses.
6. Homeowner Responsibilities and Maintenance Requirements
Some contracts place unfair obligations on homeowners, requiring them to perform ongoing maintenance or follow strict rules to avoid voiding the warranty.
What to Watch For:
Unreasonable Maintenance Requirements – Some contracts require homeowners to seal tile grout, clean gutters monthly, or maintain landscaping to specific standards.
Warranty Voiding Provisions – Failing to follow these rules may cancel your warranty—even for unrelated defects.
How to Protect Yourself:
Ask for a written list of all maintenance responsibilities before signing.
Negotiate for a grace period before warranty coverage is voided for maintenance-related issues.
Final Thoughts: Protecting Yourself from a One-Sided Builder Contract
Builder contracts are often drafted in favor of the developer, but homeowners can and should negotiate key provisions to protect their rights.
Before signing a builder contract, be sure to:
Hire a real estate attorney to review the contract for unfair clauses.
Request modifications to ensure fair dispute resolution, reasonable warranties, and protections against delays and cost overruns.
Compare the builder’s contract to industry standards to identify red flags.
If you’re purchasing a newly built home in Colorado and have questions about your builder contract, our firm is here to help. Contact us today for a contract review and consultation to ensure your rights are fully protected.
The information provided on this website is for general informational purposes only and should not be construed as legal advice or legal opinion. You should not act or refrain from acting on the basis of any information provided on this website without seeking legal advice from an attorney.