New-Home Builder Contract: Red Flags to Watch Before You Sign

Most buyers coming from the resale market expect the new-construction contract to feel familiar. It does not. A resale purchase in Texas runs on the standard TREC promulgated contract, a form written to be reasonably even-handed between buyer and seller. New-construction builders do not use that form. They use their own, drafted by their own attorneys to protect the company, and the differences hide in exactly the clauses that cost you money if the deal goes sideways. Here is where to look.

It is the builder’s paper, not a neutral form

This is the single most important thing to internalize: nothing about a builder’s contract is standardized or presumed fair. Every clause was chosen. That does not make builders villains, it makes them a counterparty with a well-drafted contract, and it means your protection comes from reading it carefully and negotiating the terms that matter, not from assuming the form is balanced the way the resale one is.

Earnest money and deposits at risk

Builders generally ask for more up front than a resale seller: earnest money plus, often, a design-center or lot deposit, together commonly in the 1 to 5 percent range or higher. The trap is not the amount, it is when it becomes non-refundable. Much of it can lock up the moment your short option or review period ends, and design selections you make can be non-refundable even if the deal later falls apart. Know exactly how much is at risk, what triggers forfeiture, and the narrow conditions under which you get it back.

Price escalation and change orders

On a to-be-built home you are agreeing today to buy a home that will not be finished for months. Some contracts let the builder pass through cost increases or adjust specifications, and change orders you request almost always add cost on the builder’s terms. Look for whether your price is genuinely fixed, how substitutions of materials are handled, and what the builder can change without your consent.

Completion dates and delay language

Read the completion clause closely, because this is where buyer expectations and contract reality diverge most. Many builder contracts give themselves generous, occasionally open-ended, timeframes and cap their liability for delays, while still holding you to your rate lock, your lease, and your deposit. Look for an estimated completion window, any hard outside date, and what remedies, if any, you actually have if the home runs late.

In the resale world the form protects you by default. In new construction, the only protection you get is the protection you read for and negotiate.

The appraisal gap

If the finished home appraises below the contract price and the builder’s contract has no appraisal contingency, you may have to make up the difference in cash or risk your deposit. On a home priced today for a closing many months out, in a market that can move, that is a real exposure. Confirm whether an appraisal contingency exists and what happens if the number comes in low.

Arbitration and dispute clauses

Many builder contracts require binding arbitration and waive your right to a jury trial or class action for construction defects and disputes. That is not automatically bad, but it shapes your options if something goes wrong after closing, so you should know it is there and understand what it means before you agree to it, not after.

Warranty limits

The warranty is often better in the brochure than in the contract. Read what is actually covered and for how long, typically a tiered structure of about one year on workmanship, two on systems, and ten on major structural elements, along with the claim process, the exclusions, and any binding dispute terms. Pair it with an 11-month warranty inspection so first-year defects get captured while coverage still applies.

How I work it for buyers

I read the contract and every addendum with you during the option or review period, flag the clauses that put your money or timeline at risk, tell you which terms this builder will actually negotiate, and make sure your inspection rights, contingencies, and the real incentive package are written in. On Austin new construction the builder pays your representation, so having an advocate on the paper costs you nothing.

One honest caveat: contract terms vary by builder and change over time, and nothing here is legal advice. Have your specific contract reviewed by your agent, and an attorney where warranted, before you sign.