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Getting to the closing table when building custom homes

Getting to the closing table when building custom homes

On Behalf of | Sep 29, 2022 | Construction Practice

Although many people buy used homes, the demand for new homes is also consistently high. In recent years, there has been a noteworthy gap between the number of new houses coming on the market and the number of people hoping to purchase a home.

A lack of adequate supply has led to increased asking prices. However, as markets change and adjust to higher interest rates, some buyers who were previously enthusiastic about buying may start to have reservations. Some builders have starting slowing construction to protect themselves from what they view as likely market contraction in the future.

Other companies have readjusted their models to target those who can afford their services regardless of the economy. If your company model involves custom finishing new development homes for homeowners, how can you protect against buyers getting cold feet?

Require earnest money or cash up front

One of the simplest ways to protect your company from people backing out after already indicating the trims and colors they want in the house and therefore limiting your ability to resell it at a premium without more work is to request some funds up front.

The more that buyers have already had to invest and therefore the more they stand to lose, the less likely it is for them to back out before actually closing on the property. On the other hand, if you don’t want to ask for money up front, you may want to include clauses in your contract that allow you to seek damages, such as the cost to make the property neutral again for new buyers, if the original buyers back out of the transaction.

Have a final confirmation before adding finishing touches

There is often a bit of downtime between when the basic construction on a home tournament and when you complete the detail work and finishing touches. You could protect your company from investing money and Manpower in work that ultimately proves fruitless by requiring an inspection or reaffirming the contract prior to the trim work on the home. That way, you can pause the installation of trim and painting if need be.

Construction companies will find that it is easier to protect themselves early in the contract and construction stages as opposed to trying to recoup losses after buyers walk away from properties. Identifying risk factors that stem from your business model can help you maximize profits and minimize risks in the construction industry.

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