I Heard That My Builder Will Be Handling My Escrow. How Can I Protect Myself?

It may be common for you to hear that the builder of the new home you will be buying will be handling the escrow for you. The builder may also be helping you with the mortgage to finance your new home. Are there certain safeguards you should look for? Who will be protecting your interest at the time of closing?

In many areas of the country, there are numerous new home construction projects underway. In Las Vegas, Nevada, for example, there are over 330 new home builders. It is typical for agents working for the builder to handle the closing. These agents will prepare all the necessary paperwork and help you find a lender. Often times, the builder may have an arrangement with a lender to help prequalify you for a loan. There is no problem with this arrangement and you will receive title insurance protection as if you were purchasing an existing home. If you are a first-time home buyer or feel that you would like someone working “for you” in your purchase, there are several things you can do.

You can work with a realtor who is independent of the builder. The real estate associate will be working for you, looking out for your best interests, and can help you negotiate price and terms with the builder. The associate can help you find legal counsel, if you want to have a legal opinion on your purchase agreement with the builder. Although buying directly from a new home builder can work just fine, there may be instances where you might want your own realtor involved in the transaction.

Upon completion of the home, you will want to walk thru the property, perform a final inspection, and perhaps have the house looked at by a building inspection company of your choice. There are many things to look for when buying new construction, such as wiring and plumbing and other systems being installed to code, proper installation of appliances, being certain that everything works as it should, including outside garden systems, such as sprinklers, pool heaters, garage door openers, and the like. You will want to be clear as to the warranties given on areas of the home such as the roof, appliances, heating and plumbing systems, pool and electrical systems. You may feel that you are confident to perform these inspections yourself, but with or without a real estate agent, a licensed outside building inspection company is typically well worth the cost to help you with your final inspection. A reputable inspection company will look at such specific structural issues as joists, roof trusses, radon vents, adequate sealed electrical outlets, adequate slope on plumbing drains, heating and cooling filter slots, any ductwork, and so on.

Certain items may not be installed by the time your closing is ready to take place. The trees in the front of the house may not be planted, the deck may not be fully painted or installed, or other items may not be finished. The builder may have a specified period of time in which to finish these items, but it is important that you have a signed agreement between yourselves and the builder as to what is agreed and who is to do what and by which date. It may be advisable to hold some money “in escrow” from the sales proceeds until the work is completed to your satisfaction.

It is important to be clear at your closing what your builder will be agreeing to do after the closing. There always seem to be some items which need to be repaired or replaced in a new home, perhaps a pipe that was not installed correctly, or an electrical outlet not wired to your specifications, but typically the builder allows for these contingencies, and will fix these problems without any question. Any defects which are found are probably not due to any intentional cost cutting by the builder, but rather a result of a lack of attention to detail or supervision. In some states, builders are required to offer a one-year warranty on any building code violations which are discovered. Many purchase agreements may state that the builder must construct the home according to good construction practice or industry standards, which may cover items which are not code related.

Check over your title insurance policy, checking boundary lines or any new fence lines. Check for any outstanding judgments or liens on the property. You may want to walk the property boundaries, checking for any easements which may have been created. Often in a new home community, easements and right-of-ways may be created for access purposes, and it is important that you understand where these easements and access pathways are located. There may be common shared areas in the development. Be sure to ask if you will be responsible for any monthly or annual charges to maintain these common areas. If your new home is in a gated community, ask to review the documents which govern the maintenance of the common areas.

You might ask if a discounted title insurance rate is available, as the builder may have recently purchased title insurance on the land and you may qualify for the lower rate. This discounted rate may be called a “binder or a re-issue” rate. Typically in a title insurance policy there will be a list of ‘Standard Exceptions.” Ask to have these exceptions deleted from the policy. The builder may need to sign an affidavit stating that there are no judgments or liens on the property. A Notice of Completion will typically be recorded concurrently with your deed and mortgage documents. When negotiating the purchase with the builder, get a copy of an estimate of possible closing costs from the agent who will be handling the closing. Look over the escrow and title fees carefully. Some of these fees may be a negotiable with the builder.

This column may not be resold, reprinted, resyndicated or redistributed without the written permission from Escrow Publishing Company.

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