Across the nation, builder confidence in new single-family home sales had been trending downward for months, though builder sentiment has begun to rise, and those in Texas fare better than much of the rest of the United States. However, consumers are still wary, largely due to economic concerns.
The major metropolitan areas in Texas, including Dallas and Houston, consistently rank among the top markets for new home sales despite uncertain economic conditions and are expected to continue to dominate the market for years to come.
Buyer hesitancy has put pressure on Texas builders to find ways to sell backlogged homes. With thinning profit margins, builders need to be especially diligent about protecting themselves against further loss. The business and commercial litigation attorneys at Fee, Smith & Sharp LLP would like to remind builders how to limit liability exposures and avoid costly litigation.
National Association of Home Builders (NAHB) Housing Market Index February Report
The Housing Market Index (HMI) is a measure of builder confidence in the housing market. Each month, NAHB members rate the following three conditions to arrive at a monthly overall index figure between 0 and 100.
- present sales
- expected sales in the next 6 months
- prospective buyer traffic
A score of 50 or more indicates overall confidence in current market conditions and optimism about the near future. The February 2026 HMI overall index fell one point to 36, marking the 22nd consecutive rating below 50. Expected future sales showed the largest downward trend in confidence.
At the beginning of 2026, builders were asked about the most significant sales barriers they faced in 2025 and which they anticipated would be most concerning in 2026. High interest rates and buyer expectations topped the list both years, but the outlook for 2026 was slightly more optimistic. Of greater concern in 2026 were government policies and regulatory requirements, fees, increasing material costs, and labor shortages.
As builders and developers make strategic decisions about how best to navigate the current and anticipated housing sales market and move forward, careful management of legal and financial risks will minimize loss exposures, decrease business interruptions, and improve operational stability.
What Building Construction Contracts Should Include to Limit Builder Liability
With building construction comes both legal and financial risk. Building contracts can and should seek to limit builders’ risks as much as possible. Including clauses that specify maximums for liability and damages and limit the window of liability exposure enables builders to conduct business with greater certainty and avoid unnecessary losses.
The following provisions are fairly standard in construction contracts but may need to be tailored to specific circumstances.
Limitation of Liability (LOL)
A limitation of liability clause caps a builder’s financial liability for damages to a specific dollar amount, usually tied to the contract. To be enforceable, these clauses must be bold and obvious. They must clearly state what liability will be limited. Liability for negligent or intentional conduct cannot be limited.
Liability limitation provisions should coordinate with insurance coverage and be consistent with insurance contract requirements.
Mutual Waiver of Consequential Damages
Both parties typically waive the right to make claims against each other for damages arising incident to the performance of the contract, such as lost profits, business interruptions, or loss of use.
No Damages for Delays
These clauses seek to shift potential losses arising from project delays to one of the parties. Owners may attempt to shift the responsibility to contractors. Contractors may want to shift the responsibility to subcontractors. These clauses are generally enforced in Texas unless one of the following exceptions applies:
- The parties did not contemplate the damage
- The damage resulted from fraud, misrepresentation, or bad faith
- The delay was long enough to breach the contract
- One party’s active interference caused the delay
If such clauses are enforceable, the recoverable remedy is most often limited to a time extension. Builders want flexibility in due dates, especially when unforeseen or excusable circumstances cause delays.
Indemnification
Indemnification clauses typically protect an innocent party from liability arising from another party’s conduct. Sometimes these clauses are written broadly so that one contributing party indemnifies other contributing parties. Indemnification clauses should be narrowly drafted to minimize liability exposure.
Strict Notice
Strict notice provisions require that formal notice of particular kinds of claims be provided within a limited time window – often 7 to 14 days – or a builder will be able to waive liability for any resulting damage. These clauses allow builders to manage potential losses and avoid larger liability claims.
Warranty
Builders in Texas are not required to warranty their work, but those who do will shorten the period during which they can be held liable for construction defect claims. Homeowners generally have 10 years from the date of substantial completion to bring construction defect claims (though only 2 years from the date harm is discovered).
A law passed in 2023 limits homeowners to 6 years to bring construction defect claims when builders provide the following warranties:
- 1 year for workmanship and materials
- 2 years for plumbing, heating, electrical, and AC
- 6 years for major structural components
Builders who do not provide the suggested warranties are still subject to the 10-year statute of repose.
Dispute Resolution
Dispute resolution provisions specify the method for resolving contract disputes. Alternatives to litigation, such as arbitration and mediation, allow disputes to be resolved more quickly and at lower cost, keeping projects on track and avoiding lengthy delays.
Texas’s Residential Construction Liability Act Limits Builders’ Liability for Construction Defect Claims
The Residential Construction Liability Act (RCLA) governs disputes arising out of residential construction. Found in Chapter 27 of the Property Code, the RCLA sets out the process homeowners must follow to bring construction defect claims against contractors.
The statute defines a construction defect as “a deficiency in the design, construction, or repair” of a new or existing residence. A contractor is liable only to the extent a construction defect proximately causes:
- Actual physical damage to the residence
- Failure or lack of capability of a building component to perform its intended function
- A verifiable danger to the safety of the occupants of the residence
A homeowner is required to give a contractor 60 days’ written notice of intent to file a lawsuit. The notice or demand must describe the claimed defects, include supporting evidence, and be sent by certified mail.
After receiving the demand, a contractor has 35 days to inspect the construction defect and must make a written settlement offer within 60 days. Settlement offers are typically to repair, to replace, or to compensate financially.
The homeowner then has 25 days to accept or reject the offer. If the offer is rejected, the contractor has 10 days to submit another settlement offer.
If the homeowner rejects a reasonable settlement offer and proceeds to file a lawsuit, recovery will be limited to the fair market value of the contractor’s last offer. The RCLA limits contractor liability by facilitating fair and efficient resolution of residential construction disputes outside the court.
The Spearin Doctrine Limits Liability for Design Defects
The Texas Business and Commerce Code added Chapter 59 in 2021. The law limits a contractor’s liability for the consequences of design defects when the design documents were provided by a person other than the contractor’s agents, contractors, fabricators, suppliers, or consultants.
A contractor is required to use ordinary diligence to discover design defects and must report any known defects in writing to the person providing the design documents within a reasonable time. A contractor who fails to disclose a defect can be liable for the consequences.
Smart Legal Strategies Help Builders Weather Economic Uncertainties
Despite meager confidence ratings, there are some signs that new home sales will improve in 2026. Whether times are abundant or lean, construction companies in Texas need to comply with legal requirements and use all available means to limit liability exposure and financial losses.
The construction defect and injury lawyers at Fee, Smith & Sharp LLP work with construction companies to ensure legal compliance and minimize loss exposure. If you’re concerned about potential liability or facing a construction defect claim, call the experienced business litigators at Fee, Smith & Sharp LLC.
