Get It In Writing

Let me start with a true story. I met a lady selling a lot and she started to share her story. Their plan was to subdivide, build a custom home on the one side and sell the other lot to pay for the cost of building their dream home. They would be mortgage free and could coast into retirement. A wonderful plan; one we would all like.

They found a contractor who had solid references and had many years in the industry. He was the kind of man who was a man of his word and his word was his bond.

To the homeowners, he was a remarkable find. He charged less than other contractors. In addition, they could save additional money since he was willing to do cash deals, and was willing to deceptively build the home under the owner builder exemption and save the 2/5/10 warranty fees. By hiring this experienced, character contractor, they would receive a quality house for less money. Who wouldn’t like that.

Sadly, the story did not end well. When I met her, the house was 85% complete and they had moved into the home. They had fired the contractor and were finishing it themselves. They had given him several hundred thousand dollars but he could account for a little over one hundred thousand dollars. There was no record of cash purchases. Sub trades and suppliers were knocking on their door and asking to be paid. Explaining that they paid the builder did not sit well and they received numerous liens. Lawyers fees were quickly climbing. In the end, they didn’t save any money, they had no warranty, hated the build and they didn’t sleep at night.

Is the risk worth the cost savings? We all look for value and want the most quality for the least amount of money. Price is important.

What competitive advantage does a professional builder have when they have already lost on price?

There is good news.

Protect yourself from inexperienced or unscrupulous contractors by getting it in writing. Demand to see the following seven items: budget, contract, permits, schedule, specifications, warranty and insurance.

A quality builder will build your home in such a way to protect you by providing those seven required items. Let’s look at each of those areas in a little more detail.

1.Budget
Whether it be a fixed price contract or a cost plus contract, keeping track of costs and change orders is critical. An experienced builder with solid business systems will be able to track costs and change orders so that you always know where you stand financially.

2.Contracts
The contract sets the parameters for the build and details your agreement. In the event the relationship goes sour, lawyers can quickly assess responsibility making it less expensive to resolve. And who doesn’t want to save money.

3.Permits
Your work will be done under city permit and inspections. In the event you sell your home, you will need to declare any improvements. If not done with a permit, it will not only hurt your selling price but you may be liable if something goes wrong.

4.Schedule
An experienced builder will give you a schedule so that you know when to make decisions. You can track the progress of the build and plan your move in date.

5.Specifications
There should be no question about the specifications for your home. You will not enter a build and start to notice inferior materials on your home.

6.Warranty
When you have your home built you will receive a 2/5/10 warranty. One year on everything; That will cover nail pops, floor squeaks, smells, and the like. You will receive 2 years on mechanical, 5 years on the building envelope or water ingress and 10 years on structural.

7.Insurance
A professional builder will have commercial general liability insurance, course of construction insurance and Worksafe insurance. In addition, he will make sure his sub-trades have the appropriate insurance. You could be liable if there is an injury on site and the builder or sub-trade does not have insurance.

Before I close, I would like to share a story.

Farmer Fred was looking for a farmhand to help with the chores. He interviewed several young men. He asked them why he should hire them. One of the young men replied, “You should hire me because I can sleep at night.” Farmer Fred ended up hiring this young man and was always stuck by his answer, “I can sleep at night”

Several months later Farmer Fred was woken up by thunder and lightning and a gale force wind. He ran to the barn to check on the animals. The cows were securely tied up in their stalls. The chickens were calmly perched on their roost. The tractor was parked in the barn. The pasture fence was securely fastened as was the barn door. Lastly, the farmer checked in on his helper who was fast asleep and it was then the farmer understood what the young man meant when he said that he could sleep at night.

Let me finish with a second couple who also built a house. They found a builder who was a member of their local home builder association. The builder presented a budget, contract, permits, schedule, specifications, warranty and insurance. They also received weekly financial reports, daily updates on the progress of the build and a warranty.

The couple went shopping every day, loved the build process and slept every night.