Discover Everything about Builder Buyer Agreements in Real Estate

  • April 24, 2024

Having a home, you can truly call your own? It’s like a dream come true for anyone. When it comes to buying a property, getting to choose the right one of your choice involves a relentless search. The choices and preferences about a home in one’s mind may vary from the options in real estate. From the minute details in the interior to the payment and cost involved in project completion, a buyer needs to consider all factors. Getting all these factors aligned enough to meet a buyer’s demand is always a great catch. However, when it comes to finalising the quotation and signing the sale agreement, there are certain things that one needs to keep in mind when buying a home.

What is builder buyer agreementOnce a purchase agreement is signed by the buyer with the builder, he has no choice but to adhere to all stipulations given in the agreement for sale solely. Neither the buyer nor the builder can at any point object to anything beyond what was signed in this legal document. The builder-buyer agreement, if signed by the buyer without a proper review, can put them in great jeopardy. Read on to learn all about buyer-builder agreements in the real estate sector and their essentiality.

What is a Builder Buyer Agreement?

A builder-buyer agreement is a legal document used in the real estate sector. It is a legal contract or agreement in a specific format signed between a buyer and a builder. This agreement for sale has far more intense implications than a normal contract. The agreement between the builder and buyer delineates all the legal circumstances under which the part of the property that is supposed to be delivered to the buyer is built. This document focuses on covering the aspects following aspects of the property in the sale:

  • Estimated date of delivery
  • Purchase price of the property
  • Obligations of either party
  • Specification of the property at the time of delivery.
  • Terms and conditions of payment

All these clauses included in the builder-buyer agreement are conditions that the buyer had agreed upon at the time of purchase of the property. A buyer should always properly review all the conditions, payment details, and clauses of this document or agreement for sale before signing. Once signed, the buyer can no longer initiate any further changes in the document. Reviewing the agreement for sale also helps to ensure and protect the legal rights of the buyer during the purchase or flat sale. A builder-buyer agreement finds relevance mainly in the case of ongoing projects or projects in construction.

Why is the Builder Buyer Agreement Important when Buying Property?

A builder-buyer contract highlights the responsibilities, rights, demands and boundaries of both the buyer and builder during the purchase procedure. Signing such a document is very important to protect the legal rights of either party and ensure no fallback happens by purpose in the flat sale. This agreement between builder buyer also ensures the protection of the interest and maintains transparency between either party. This agreement for sale helps to provide clarity of terms, quality assurance, timely completion, financial protection and legal credibility. This document can serve as a document of prime importance for record keeping.

Purchase agreement

What should be considered before signing a Builder-Buyer Agreement?

A buyer should consider the following factors during the purchase procedure in the real estate business.

Legal review of the agreement

Before signing any legal document or agreement for sale, it is always recommended that an individual have the document and its format reviewed by a legal professional. Similarly, a builder-buyer contract should also be reviewed by a trustable legal professional to protect the buyer’s rights and avoid any ambiguities or potential risks in the future.

Details of the builder

Do extensive background checks about the builder and all their prior  home or building projects in the real estate sector. Testimonials, feedback, and reviews can serve as evidence of the builder’s quality of work, property delivery, and reliability. The builder’s credibility is a key element when it comes to signing a builder-buyer agreement.

Approval, permissions and specifications of the project.

Perform extensive research to ensure the home project is being built with necessary approvals and permits from concerned authorities. Ensuring the permits and clearance for building a project can help avoid any future legal or regulatory issues. The buyer also has to consult with the builder regarding all the materials used in the building for construction, floor plans, amenities, and finishing standards.

Building approvalPayment schedules and their terms 

Make sure to note every detail of the payment schedule and its terms in the agreement. The document shall include a complete breakdown of all the costs involved in building flats or the property to its completion. The payment schedule for every down payment, instalment, final payment, and any interest will be detailed in this document. The buyer should always ensure that there are no hidden charges without his knowledge.

Payment scheduleThe buyer and builder should also discuss all the legal provisions of penalty in cases of untimely delivery and compensation for damage defects or deficiency. The procedures involved in resolving grievances and disputes should be discussed before signing a real estate contract.

Time of delivery

Verify the estimated date of delivery or handing over possession of the home or property. However, the buyer should also consider all possible chances of unexpected delay. This can include delays due to construction delays, buffer time, etc. The builder should be well-informed about this before signing the agreement.

Warranty claims and inspection

All the provisions of the warranty offered to the property’s maintenance that shall be delivered upon the occurrence of any damage in the future should be discussed. An approximate timing of annual inspections of the home should also be discussed beforehand the signing. Make sure that the builder is ready to offer any fixes to the damages that can occur to the home in future.

Opt-out options

The buyer can demand to keep an opt-out option from the agreement between builder buyer under certain circumstances. They should be given the choice of cancelling their purchase without being levied to pay any compensation or penalties. This option can be used by the buyer only when the builder fails to meet the promised condition or faces any legal issue relating to the builder in real estate, had arisen before signing the agreement between builder buyer.

Builder Buyer Agreement before the RERA Act

The builder-buyer agreement format currently in use for buying any property, including a home, wasn’t the one in use until the RERA Act came into action. Until the emergence of this act, builder-buyer contracts were always made in favour of the builders. This used to create massive havoc and hardship on the buyers. Since no rules or laws existed back then to protect the buyer, builders usually used to scam the buyers by all means. Builders then used to charge an additional penalty of 20% if the buyer failed to deliver the payment on time.

However, if the builder failed to stick to the demands agreed on in the document, especially failure to deliver the property, they would only be put on a penalty of 2%, which is devastatingly unfair to the buyer.

  • Schedules of construction and property delivery:

    Builders often trick the buyer regarding construction schedules and may lie about property delivery dates. They sometimes claim that the agreement is valid only from the moment construction starts; however, the agreement’s validity begins from the moment of property reservation.

  • Unnotified price hikes and hidden charges:

    Builders often impose previously unnotified charges at the time of final payment. Some may even demand additional charges, claiming price hikes, although these were also considered in the initial cost proposal. Sometimes, the builder even demands a preferential location charge for payment from the buyer, which they don’t usually notify earlier.

  • Unnecessary penalties for buyers:

    Builders often impose unnecessary penalty payments on buyers for missed home instalments. Some even demand 25-30% of the additional amount as a penalty.

  • Dimension or area changes:

    Some builders tend to violate the agreement of area and dimension demanded by the buyer according to their own will. Most builder-buyer contracts provide provisions for the builder to alter the area of flats or villas by themselves.

  • Transfer charges: 

    Builders often charge payment on buyers an additional fee if they later sell the property to another party before possession. They often call this charge a transfer charge.  In 2016, the parliament of India introduced a landmark legislation to safeguard and protect buyers’ needs. The Real Estate (Regulation and Development) Act, 2016 (RERA) was introduced to protect buyers, especially home buyers. The act also significantly aimed to expand and boost investment opportunities in the real estate sector.

Builder Buyer Agreement after the RERA Act

The introduction of the RERA Act or the Real Estate (Regulation and Development) Act, 2016, influenced a pan-India standardised system of selling and purchasing properties in the real estate sector. The builder-buyer agreements or agreements for sale were standardised and made legal to protect the buyer’s finances as well. The RERA Act established clear-cut guidelines for designing and implementing buyer-builder agreements. The agreement of sale between the builder-buyer became a contract of legal influence with the introduction of the RERA Act.

  • Pro forma of the agreement:

    The RERA Act stipulates that builders should submit a pro forma of the sale agreement to the authorities before the signing event. Along with this sample, copies of the allotment letter and conveyance deed should also be submitted by the RERA builder. The format was provided as a guideline.

  • Earnest money clause:

    Upon signing the builder-buyer agreement or the builder-buyer contract for the property or home, the builder can ask for an earnest deposit payment not exceeding 10% of the property’s value. Both parties are bound to register or record the agreement as legal.

  • Governing document:

    As per the RERA Act, the builder-buyer contract shall serve as the legal governing document if any future disputes or issues about the property arise between the buyer and builder.

  • Builder-buyer agreement registration charges:

    The registration fees for a builder-buyer agreement or contract include the lawyer’s fee, the cost of documenting the agreement with relevant government bodies, and the payments or fees associated with submitting the agreement to them. Both parties, including the RERA builder and the buyer, are mutually bound to deal with these legal expenses during the registration process.

Builder Buyer Agreement Format

The introduction of the RERA Act stipulated that all builders should format the builder-buyer contract or agreement according to the legal guidelines provided. According to the RERA Act, the builder-buyer contract or agreement for sale should strictly contain all the deliverables and facilities being made available to the buyer by the RERA builder.

The format details that should be included in the builder-buyer contract or Builder buyer agreement, as per Section 13(2) of the RERA Act, are,

  • Buyer or purchaser name and home address
  • RERA builder names and addresses
  • Property address
  • Building  and project development
  • Construction details of building and apartments
  • Specifications of area (built area and floor area), facilities and internal-external development works
  • Completion of building and possession dates
  • Payment method
  • Payment dates and payment schedule
  • Rate of interest in case of default
  • Cancellation charges
  • RERA registration details
  • Force majeure clause
  • Refund policy and terms and conditions
  • Buyer’s right to cancel/assign the property
  • The RERA builder takes the grace period
  • Consideration for the building  or property, inclusions and exclusions ( maintenance, parking, electrification charges, etc.)
  • Property particulars like fixtures, clear title, jurisdiction/arbitration clause
  • Warranty and inspection terms, if any, are provided by the RERA builder.

Frequently asked questions

  • What is the purpose of a builder-buyer agreement?

A builder-buyer agreement or builder-buyer contract is a legal document signed by both the builder and buyer at the time of the property’s sale. The parliament of India introduced the RERA Act 2016, which provides guidelines for the agreement’s registration and format. This agreement safeguards the buyer’s or purchaser’s interests and creates legal transparency between the buyer and builder.

  • Do all kinds of properties require a builder-buyer agreement?

This legal agreement or agreement for sale applies to any property that is under construction, an ongoing project, or an upcoming project that requires time to complete its construction and related works before it is handed over to the buyer. Builder-buyer contract applies to flats, apartments, or villa projects.

  • Can any of the parties, the buyer or builder, back off from a builder-buyer agreement, according to RERA?

Yes. Either party has the right to withdraw from the legal agreement if the other fails to meet the terms and conditions of the builder-buyer contract, according to the RERA Act. For example, a buyer can withdraw if the RERA builder fails to fulfil his duties on building the property or home, and the RERA builder can withdraw if the buyer skips the payment schedule multiple times, unnotified.

Bottom Line

Protecting the interest and providing transparency between the buyer and builder is key when it comes to purchasing a property in real estate. The lack of proper agreement for sale, builder-buyer contracts and legal documentation procedures created a very hard time for home buyers up until the introduction of the RERA Act. The RERA Act focused on building terms for safer spaces for buyers. It eased the process of building a transparent and reliable procedure for property registration and payment, irrespective of its type and regard, by promoting formatted builder-buyer contracts.

By asmitarealty
By asmitarealty
By asmitarealty

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