You Love the Lot, but You're Not Sure About the Builder

It happens a lot in new subdivisions. You find the lot: the view, the trees, the walk to the trail. Then you learn it comes with a builder. You can buy it, but only if that builder builds your house.

Sometimes that's fine. Sometimes it's a great builder, and the arrangement saves you a search. But it changes the usual process in one big way. You don't get to compare builders, and the builder knows you want the lot. That's worth thinking through before the deposit, not after.

Know which arrangement you're looking at

"Captive lot" covers a few different setups, and they're not equally restrictive.

The builder owns the lot. The builder bought lots in the subdivision and sells each one only with a construction contract. This is the tightest version. The lot and the house are effectively one purchase.

An approved builder list. The developer or the HOA requires you to use a builder from a short list. You're limited, but you may still have two or three builders to choose between. Ask for the list.

A restriction in the lot documents. Some lots carry a deed restriction, a right of first refusal, or a requirement to start building within a set time with a particular builder. Read the lot purchase agreement and the recorded documents, and have a real estate attorney explain what's actually binding.

Each one leaves you a different amount of room. Find out which you have before you fall any further for the view.

The leverage you have is before you sign

Once you've put down a deposit on the lot, the builder knows you're committed. Before that, you're a buyer they'd like to have. Use that window.

Get the construction contract first. Ask for the builder's standard construction contract, a specification of what's included, and their allowances before you commit to the lot. If they won't share them until the lot is under contract, that tells you something.

Separate the two prices. Get the lot price and the construction price in writing as separate numbers. A bundled number makes it impossible to tell what you're paying for either one.

Ask what happens if you can't agree. If the lot goes under contract and you and the builder can't agree on a price for the house, is your lot deposit refundable? Can you walk away? Can you buy the lot alone and wait? The answer should be in writing.

Negotiate the terms, not just the price. When there's no competition, terms are often easier to move than the total. Realistic allowances, the change order markup, the payment schedule, the warranty, and who controls the contingency all matter as much as the number.

How to check a builder you can't swap out

You can't run a bid against another builder, but you can still learn a lot.

Look at their houses in this subdivision. If they've been building there, there are finished homes and homes under construction. Walk an active jobsite: is it organized, is the work protected, are crews on site?

Talk to the people living in them. Not the references the builder hands you, or not only those. Knock on a door or ask through the HOA. Ask how the schedule held, how change orders were handled, how the builder responded to warranty calls, and whether they'd build with them again.

Read the contract closely. A builder with a captive lot program often has a standard contract built around those lots. It may be fine. It may also lean hard in their direction, since buyers don't have much room to push. Have an attorney review it.

Get the price checked. Without a competing bid, a review of the construction price is the only outside check you'll get on what the allowances buy, what's excluded, and what the assumptions are.

When to walk away

Loving a lot makes it easy to talk yourself past warning signs. A builder who won't share the contract or specs before you commit, references who wouldn't build with them again, or a bundled price nobody will break apart are all reasons to pause. There will be other lots. A house built by the wrong builder is harder to fix.

And if everything checks out, good. A captive lot with a solid builder can be a straightforward way to build. You just want to get there with your eyes open.

Questions worth asking

• Is the builder requirement on this lot the builder's own, the developer's, or in the recorded documents?
• Is there more than one approved builder?
• Can I see the construction contract, specifications, and allowances before I commit to the lot?
• What are the lot price and the construction price, separately?
• If we can't agree on the construction price, what happens to my lot deposit?
• Which homes have you built here, and can I talk to the people living in them?

None of this is legal advice. Have a real estate attorney review the lot documents and a construction attorney review the build contract.