Have you heard all the things that can go wrong when building a new home?
My brother bought a newly built house in a big development tract. After living in the house for less than six months he noticed some discoloration on the wall of his daughters bedroom. He found out that a slow leak had been soaking the interior of the wall for months and now it was full of mold.
He had to put his daughter in the same bedroom with her two brothers while the leak was fixed, the mold removed, and the wall repaired. His children were sharing the same room for months before her room was livable again.
A friend of mine bought a new 3 bedroom condominium. He found it was hard to afford the $175 to $250 electric bill to keep it cool because it was so poorly insulated.
Whenever you have a new home built, there are certain problems you can expect to encounter. What you don’t expect is a developer taking shortcuts or using substandard materials that endanger your family.
It happens more often than you think. You don’t generally know what to watch out for. How often do you build a new home, after all? And builders are always looking for ways to increase their profits.
Here are some things you can do to protect yourself when contracting a home construction and purchase:
- Always verify validity of the contractor’s license, bond and insurance.
- Get references from recent clients and review the past work in person.
- Make sure all project expectations are written in the contract.
- Check with the county if any liens have been filed against the general contractor by subcontractors for lack of payment.
- Have your attorney review all aspects of the contract with you.
- Have a “springing provision” added to the contract that let’s you back out of the deal if the builder files for bankruptcy.
In today’s economy many builders are having financial troubles, so it is only prudent to be careful and do your due diligence when choosing a builder. Always verify that he has paid all subcontractors on previous projects and there are no liens against the builder for unpaid subcontracts.
Most states allow you to check the contractor’s license status online and even give you status on the contractor’s bond and insurance. A bond is issued by a surety company to protect the consumer against defective work and to ensure subcontractor’s payment.
The contractor should also maintain valid workman’s compensation insurance in case any employee or subcontractor is injured on the job.
Don’t blindly accept references provided by the builder. Knock on doors in a tract the builder has recently developed and ask the home owners about their satisfaction with the builder and the workmanship of their home.
If you are expecting a certain brand or type of appliances installed, or special window treatments, or landscaping, be sure to get it in writing. Never assume the builder will do anything not specified in the contract.
Make sure you understand all the clauses in the contract before signing. usually it is best to have an attorney review it with you. Never sign a contract that has blank spaces. Cross out any open areas in the contract. Be sure the contract protects you in case the builder goes bankrupt or fails to pay subcontractors.
For more information on how to protect yourself when buying new construction, check out the e-book The Con in Construction by Tom Olson.
Allen Davis
Founder, RealEstateSearchDirect.com
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My old man has recently built on a block that was referred to him as being cheap and a bargain by his mate – he trusted his mates judgement and purchased the block before a personal inspection – turns out he built a set of three units on it … the down side – seems that the block was built over an old gold mine and the block is starting to sink.
Just goes to show, it pays to do your research. Vacant land can be especially tricky. There can be easements that legally prevent any construction or permit utility companies to build there at any time in the future.
You should have a real estate attorney check it over before purchasing land for construction.
Goes to show the importance of having professional and qualified builders working on a project. Having a good solid contract is the key as mentioned in one of the points above.
As a rule don’t trust builders or trades people. Verify everything. I know of one woman that got taken for $200,000 another one for $45,000, another one for $450,000. Be very weary of making advances and deposits.
I’ve had my shares of nightmares on this. But mine was a home reconstruction. It really pays a lot to trust your home into someone who’s professional. I ended up exceeding my budget.
Actually, this is not a new story. The fact is there are many brokers and agents promise you that the home you’re gonna buy is definitely strong, built in a very good condition, etc. I also had the same sentiment, I thought I bought a very reliable house but when the rain comes, the water moist in the paint inside our house.
I would be so pissed if I found out that a contractor did something like to a house I paid for. I might even sue, as there has to be some grounds for it.
There is always more then think you have to do when purchasing a new home. You should always allocate extra money for these expenses so you are ready for them when they arise.
Aside from discussing the price and getting it in writing, make sure to finalize timeline. Once they get a deposit, many contractors would shift labor from your project to other projects which they might see as being more profitable.
It is really important that you first do your home work in purchasing a new house or land. This task could be tiring but it will pay off your efforts.
Very nice article. I enjoyed it and I’ve learned a lot.
Thanks
Well this is a common story for all because most of times it happens. I think it’s our fault because we should check out all those thing before taking that kind of homes.
Anyways keep it up and keep sharing, your story was really similar to my story.
Thanks!