Selecting a Builder

Building homes has become a very competitive industry within the current economic times. Builders have felt the crunch and some have gone out of business. Be cautious of the lowest bidder.  If some contractors are not making a profit,  if you consider price alone, be sure to understand who’s making the sacrifice, you or them? Do they have the means to make it to the completion of the job

Ask the bidder to explain the process of a Change Request; what is considered and what is the typical cost for a change? The lowest bidder will often set themselves up to capture their profit on planned change requests. Empire Research’s survey shows that the lowest bidder typically runs over budget by 20% and runs over time by 30%. The majority of times, the owner is picking up the expense with little ability to negotiate.

Ask the builder to detail out the allowances for each element of the house as well as the grade of the products being used; for example, the grade of the trim package covered that can be accommodated by the allowance. Some builders will have allowances built around the lowest grade products possible so they can win the bid.

The lowest bidder is usually coming in the lowest because they have cash flow issues; they need to keep operations running, buying time by bringing in more work. The sorry truth is that they are simply putting off the inevitable. You may be paying your invoices to the builder, but those payments are going towards expenses from the last job, not necessarily yours. Ask the builder for a list of trades he commonly works with along with their direct contact information. Ask the subcontractors if they are consistently being paid within 45 days of completing the work. If the answer is “no”, it may be time to rethink your cost-cutting plans.

Make sure you can trust your builder to be paying your bills.  Even if you have paid a builder in full, a sub trade can still file a lien against your home. What you might not realize is that you may not be able to get permanent financing. The average length of time for an arbitration claim is 13 months for settlement. The risk is great, so don’t take their word for it. Do the research yourself. Respect is earned.

For your own safety, make sure the builder meets all the legal requirements. There are many who claim they are builders, but many don’t even qualify legally. It may help if you ask the builder to show you proof that they are licensed with the Homeowner Protection Office (HPO).  You can check online at hpo.bc.ca.

Is the builder a member of a New Home Warranty group?   2 / 5 /10 New Home Warranty Program  (Which covers any deficiencies that show up in the next few years.) Without a warranty, your home isn’t protected should something significant happen structurally – and you’ll have to cough up the dough to fix it.

Does the builder have Commercial Liability Insurance and WCB coverage in case someone gets hurt on site? Does your builder have a safety program in place?  You certainly don’t want an accident claim filed against the property that you are now responsible for because your builder wasn’t properly protected.

Typically, the biggest fear people have when considering building is going over budget. Most people go over budget by 10-20%. Why is that?

More often than not, it’s a failure in quoting the project in the first place with the builder either making a mistake in the bid or knowing they are undercutting to win the project. The latter is covered off in the section titled “Would you want to fly a rocket built by the lowest bidder” above.

But aside from that, what is even the highest priced builder doing to set realistic expectations and keep you on budget? Ask the builder how they keep track of the budget. Do they conduct weekly meetings covering the fluctuations in budget projections and actuals? Is everything in one sheet for immediate reference when something goes wrong?

Ask to see a budget plan for a handful of jobs including the starting budget and where things ended up. Do the examples include budget targets vs. actuals? Is each line item marked with a percentage to indicate being above or below target?

Ask them at which steps homeowners typically make bad decisions that take them over budget and what can be done in the beginning to build some contingencies to compensate. Often times, what seems like a small change in structure may result in a big bill later for finishing.

If you are building a house based on the cost plus model, be sure to ask the builder if they can provide you every invoice for your records. Be wary of a builder that summarizes the costs in their own books without the invoices to back it up.

Collaboration is key - and effective communication will make all the difference in differentiating a fun, successful process, versus one that turns into a complete disaster.

Every builder should reference the three P’s for a given project – planning, procedures and policies. The success of your project is dependent on all the right things being done, the proper way and the first time.

Planning is absolutely key for your sanity. Ask the builder to describe their building process in detail. If they don’t talk at length about the upfront planning, it’s probably best to run for the hills. The planning process described should include many elements and here are just a few to listen for to keep peace of mind that things will be covered:

• They should describe a planning session (possibly multiple) between you, the architect/designer and builder to determine the plans for the house. Listen for how budget will guide the plan and how allowances and grade of materials are determined.
• And finally, they should describe how they put a project plan together to include all building milestones, financial responsibilities and the critical path for the project. Critical path must be established upfront, and the agreed upon milestone steps cannot be missed or the quality, schedule and/or budget will be impacted; for example, you can’t start a project without a permit, therefore something must be sacrificed in order to hit a deadline that was set should the permit be delayed. Ask your prospective builder what their plan of action is for these issues that arise during the building process. Probe them to provide specific examples, and have them outline the solutions that were used.

Building a house is supposed to be fun. Ask the builder how they keep you informed of every step you need to be involved in. Do they have an online collaboration environment that will allow you to see every aspect of your project at any time by simply logging into a Web site? The environment should include every document required for your project posted for common discussion and commenting. An online environment provides a record of progress and paperwork, while keeping all stakeholders in the loop in real time.

Does the builder have a checklist for you to follow that outlines the priorities and timing for each item you need to pick? With little or no notice, you remove the ability to shop around and think about your purchases. It also takes away your ability to compare and negotiate price. There’s nothing worse than making rash decisions that you paid top dollar for and have to live with later.

Make sure you are dealing with a professional that has “been there, done that”. Ask the builder how many projects they’ve completed and that you want to have a look at their last five projects.

In most cases, you should be able to look at one or more projects in progress. Ask them for the owners’ contact information so that you can have a few words with each. If it has been a good experience for the homeowner, they should be more than happy spreading the good word and in most cases will even offer to show off their pride and joy first hand.

Recent stats show that if the recommendation rate of a builder is less than 4 out of 5, that builder is 10 times more likely to go out of business.

Ask the locals if they’ve ever heard of the builder. Check with architects, mortgage brokers, realtors, bankers and other trades if they’ve ever worked with or heard of the builder you’re looking at. The community is smaller than you think and if something has gone bad, you’ll most likely hear about it.

Anytime you build a custom home there are always a few kinks to work out over time. A good experienced builder has reduced the risk for these little surprises having been in the business for so long. They can’t catch everything, but they certainly know the major ones that have enormous implications if done incorrectly.

Regardless, even the smallest of issues can be a major thorn in your side; a leaky faucet, a cracked tile or a missing light fixture. By the time you move in and the house is complete, you just want to be done and back to living. These small deficiencies can drive you mad.

Here’s an easy way to determine if you’ll be left in voicemail jail when the final bill is paid and the builder is gone to the next job. Note the responsiveness of your meetings and questions when interviewing the builder. If they are not responsive when they’re in the sales process, you can guarantee you won’t be able to depend on them to fix any final issues after the final bill has been paid and there is nothing else to gain.

Ask the builder how deficiencies are dealt with. A good builder will have an online system allowing you to submit deficiencies including a guaranteed response time.

A proud builder takes responsibility for their projects, even after they have turned over the keys.