County must inspect new construction before settlement

Business,Patrick Crowley

 Closing on a newly built house is similar to settlement on a resale property but with a few added twists.
David Thurston, a lawyer and president of Crown Title Corp. in Baltimore, said a new-construction closing cannot take place until a local government inspector checks the property and deems it safe to be occupied.
“Buyers typically close at some predetermined time after the occupancy permit has been issued,” he said.
Settlements also are contingent on the appraisal. When the real estate market was falling, it was not uncommon to see resale home contracts fall through at the last minute because the appraisal came back lower than the sales price and the mortgage lender refused to fund the loan.
Thurston said the loan also can be denied for a newly constructed property if the appraisal comes back too low. He said the contract may be voided and renegotiated, or the seller may end up putting the house back on the market.

The appraisal is done subject to the home being completed properly and to certain standards, and the appraiser must make sure before the deal closes that this was accomplished, according to Thurston.
As with resale properties, new-construction settlements require providing a buyer with clear title to the property. Building a house on a lot owned by the builder can offer a buyer more assurances that subcontractors will get paid and there are no issues that delay closing.
“If a buyer owns a lot, and the buyer gives the builder money to build the house, and the builder does not pay the [subcontractors], the subs can file a lien against the buyer,” Thurston said.
In Washington, Maryland and Virginia, state and local laws require builders to provide a warranty on the house for at least a year, said Joe Himali of Best Address Real Estate in Washington and the president of the Greater Capital Area Association of Realtors.
“However, with so many builders going out of business these days, the warranty may not be worth the paper it’s printed on,” Himali cautioned.
“The best course of action is to find an agent who understands the intricacies of your particular local jurisdiction and have that agent help you navigate the transaction with you,” he added. “Always assume that the worst can happen and if, after considering that, you buy the home you won’t have any nasty surprises after you move in.”   
Thurston said consumers can also purchase warranties that last longer than one year that cover most major construction problems, but he advised buyers to read the warranty language carefully to be sure about what is covered.
“Most reputable builders are going to offer warranties, but if they don’t, remember that they are covered by statute,” he said.
Himali also suggests buyers have their own inspector check out the house. Not doing so is a “big mistake,” he said.
“I had one buyer who had the home inspection a couple of days before settlement and discovered there was no grounding wire and the positive and neutral terminals were reversed,” he said. “This was a very serious error, and it was missed by the electrical inspector. How this happened is anyone’s guess, but without a home inspection the buyer would have had a serious problem.”

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