What to do when a builder wants to charge more for a house and lot after you sign a contract?
Can a home builder increase the contract price?
We sometimes get questions from people who have agreed to purchase a home from a builder using a home construction contract, but the builder now wants to charge more for the home. In such situations, the Stow Firm can help you safeguard your legal rights.
Breach of Contract Claim?
In simple terms, if the builder is refusing to build the home in accordance with your agreement, you may have a breach of contract claim against the builder. See La. C.C. Art. 1983 (“Contracts must be performed in good faith.”). So the most important first step is to thoroughly analyze your contract with the builder. Key points to consider include:
- Fixed-Price vs Cost-Plus Contract
Is your contract a fixed-price contract or a cost-plus contract? In a fixed-price contract, the builder agrees to build you a home for a set price, subject to exceptions and conditions. Home buyers generally prefer these types of contracts because they provide certainty on price. In a cost-plus contract, you pay the builder for all the costs of materials, labor, and/or subs, plus a certain amount to cover the builder’s overhead and profit. There may be other pricing variations that could impact the cost, so a full review of the contract is important.
- Material Escalation Clause
Many builders are insisting that their contracts contain material escalation clauses since the pandemic, when the cost of lumber soared. Additionally, builders are worried about the risk that inflation poses in the future. However, keep in mind that unexpected material purchases due to jobsite errors aren't typically covered by a material escalation clause. Be sure to carefully check your contract and keep records of the construction progress as shown in jobsite photos and written communication with the builder. - Change Orders
Builders often argue that increases in price are due changes demanded by home buyer. Here are three key strategies to avoid such disputes. - Clear Contracts
First, to the greatest extent possible, ensure your contract is clear on what work will be performed and what material selections will be installed at the construction project. - Allowances
Second, where particular selections are not set out in the original contract, set out budgets, i.e. allowances, for each category of selections the home buyers will make, e.g. finished electrical and finished plumbing. - Written Change Orders
Third, ensure your contract provides that changes to the contract can only be made by written change orders signed by both parties. The change order should both specify the change to be made as well as any additional cost to implement this change.
Delay Damages
If the contractor refuses to continue work without an additional payment, you might end up incurring more damages than the extra amount requested. These types of damages are often referred to as construction delay damages. In this rapidly changing market, the cost of delay could be substantial. Consider whether any of the following apply to your situation:
- Are you renting a home that you otherwise wouldn’t have to rent if your new home was ready?
- Are you making interest payments on a lot loan or a construction loan?
- How are the real estate and mortgage markets changing during the course of construction?
What can you do if the price change is more than you can afford?
A contractor’s extra charges after a contract can impact whether you can afford to buy the home. In recent years, this hasn’t been much of a problem because banks had looser lending standards. With recent interest rate increases and flat home prices, banks have tightened their standards. If a builder demands a price increase, a lawyer can help you push back and assert your rights under the contract. This is especially important if you own the land and have a construction loan to pay the builder.
Next Steps
Assess
Every claim is unique, and it’s crucial to consult with a construction attorney to assess the validity of your case when a contractor demands more money. If you schedule a consultation with the Stow Firm, we’ll start by reviewing
- the contract,
- any change orders or other changes you made to the contract, and
- copies of all communications with the builder.
More importantly, we’ll discuss how your priorities affect the strategy you should pursue.
Set the Strategy
With your priorities as the North Star, the Stow Firm can bring its construction law experience to implement a strategy that meets your needs. While negotiation and attempts at alternative dispute resolution are almost always the best first step, the Stow Firm will be prepared to pursue all your legal options.
Contact an Construction Attorney Today to Preserve Your Rights
Regardless of what new home construction attorney you choose, it’s important to contact the lawyer sooner rather than later to avoid letting your rights expire or even an argument by the builder that you were the cause of any delay. If you're facing a potential price increase in your home construction contract and need expert legal help, don't hesitate to contact the Stow Firm today.