You sign with a builder, hand over a deposit, and select finishes over the following months. Somewhere in there most buyers assume their money is sitting safely in an escrow account the way an earnest money deposit would be on a resale purchase. Frequently it is not. Here is where new construction deposits actually go and what a buyer should ask before writing the check.
A builder contract is not a resale contract
On a resale purchase, the earnest money typically goes to a neutral escrow holder and stays there until closing. The mechanics are in earnest money in Virginia.
New construction runs on the builder’s own contract, drafted by the builder, and it commonly works differently. Deposits may be considerably larger, they may be paid in stages as construction progresses, and they may not be held by a neutral third party at all. In many arrangements the money goes to the builder and is used to fund the work.
Ask one question before you sign: who holds it?
Not whether it is refundable. Who physically holds the money, in what kind of account, and what happens to it if the builder does not finish. Those answers are in the contract, and they are the difference between a deposit and an unsecured loan to a construction company.
Why it matters
If the builder holds your deposit and the builder fails, you are a creditor rather than an owner of segregated funds. That is a materially worse position than holding an escrowed deposit, and it is one most buyers do not realize they occupied until something goes wrong.
Selections and upgrades compound it. Change orders during construction often require additional payments, and those are frequently non-refundable by the terms of the contract. A buyer can be several tens of thousands of dollars in before there is anything to take title to.
What to look for in the contract
Whether deposits are escrowed and with whom. What triggers forfeiture, and whether there is a cure period. What happens if the builder does not complete on time, and whether the buyer has any remedy beyond waiting. Whether the buyer can walk if the completion date slips past a stated point. And what warranty is provided after closing, which is a separate promise from the obligation to finish.
Read the completion date language particularly carefully. Many builder contracts give generous extensions for causes within the builder’s control as well as outside it, which can leave a buyer with a rate lock expiring and no contractual remedy. Delays generally are covered in what can delay your closing.
Title issues specific to new construction
Two arise regularly. The first is mechanic’s lien exposure. Subcontractors and suppliers who worked on your home and were not paid may have lien rights, and those can be perfected after the work is complete. On new construction this is not a remote possibility; it is the ordinary risk of the transaction, which is why lien waivers and the timing of the search matter.
The second is that the lot may still be subject to the developer’s construction financing when you close, and the release of your specific lot from that blanket lien has to happen correctly. That is routine work when handled and a serious problem when missed.
The builder’s preferred title company is not required
Builders frequently offer incentives to use an affiliated settlement company, and those incentives can be real. What matters is that the choice remains yours, and an independent settlement agent has no relationship with the builder to protect when a lien or a release question arises. The general picture is in buying new construction.
Before closing
The survey should confirm the house sits where it is supposed to, within the setbacks and inside the lot lines. Encroachment problems found before closing are the builder’s to fix and found after are yours. The recorded covenants for the subdivision should be reviewed against what you intend to do with the property, since new subdivisions frequently carry detailed restrictions.
How we help
We search for the developer’s blanket financing and confirm your lot is properly released, address mechanic’s lien exposure with waivers and appropriate timing, review the survey against the recorded plat and setbacks, and deliver the subdivision restrictions rather than a summary. We have no relationship with your builder, which is the point.
Buying new construction in Virginia or West Virginia?
Send us the builder contract and the lot details and we will tell you what the record shows and what to ask before your next deposit. Independent, attorney-led title and escrow across Virginia and West Virginia.
Get Your Free Quoteor call (703) 552-4155
Common questions
Is my new construction deposit held in escrow?
Often not. Builder contracts commonly provide for the deposit to go to the builder and fund the work, rather than to a neutral escrow holder. The contract states who holds it, and that is worth reading before signing.
What happens to my deposit if the builder fails?
It depends entirely on who was holding it. Funds held by a neutral escrow holder are segregated. Funds paid to the builder generally leave you as a creditor rather than the owner of protected money.
Are upgrade and selection payments refundable?
Frequently not. Change orders and finish selections often require non-refundable payments during construction, which is how buyers become significantly committed before there is anything to take title to.
Do I have to use the builder’s title company?
No. Builders often offer incentives to use an affiliated company and those incentives can be real, but the choice is yours. An independent settlement agent has no relationship with the builder to consider.
Can a subcontractor put a lien on my new home?
Subcontractors and suppliers who were not paid may have lien rights that can be perfected after work is complete. On new construction this is an ordinary risk, which is why lien waivers and the timing of the title search matter.
What should the survey confirm?
That the house sits within the setbacks and inside the lot lines as platted. An encroachment found before closing is the builder’s problem. The same encroachment found afterward is yours.
This article is general information about new construction deposits and closings in Virginia and West Virginia. It is not legal advice, and builder contracts vary widely. Have your own attorney review a builder contract before signing, since the settlement agent is a neutral party.