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Avoiding Common Problems with Your Builder

The homeowner's work begins with hiring the builder, or general contractor, which is where many projects start to go wrong. Yet, problems arise even with the best builders. Costly mistakes, lack of communication, poorly thought-out decisions, inadequate planning, failure to pay attention to the details, and inattention to budget can plague the best-intentioned home construction project.

Building a home is a complex process and a number of small mistakes will happen. On the other hand, you can avoid the biggest and costliest mistakes if you do your homework, communicate clearly, and respect the people building your home.

Avoiding the Low-Bid Dilemma

When you bid out your new home to a carefully selected list of contractors, it's awfully tempting to simply go with the lowest bid. That can be a mistake. Massachusetts general contractor, Andrew Goldstein, calls low bids "seductive," and said it's a fallacy to assume that you should "put out the bid to three or four people and then go with the low bid. The problem with all bids is comparing them once they're in. If you really trace down the nightmares, you'll find that a large part of the problem is that people go for the low-bid price."

"When somebody bids something too low, they may have done it on purpose and plan to make it up later, or they may have done it accidentally. Either way, they'll soon be in trouble because they're losing money. On some level, they may start doing things subconsciously like shaving time and cutting corners."

It's difficult for the average homeowner to know whether the low bid is really the lowest because all builders figure costs differently. "You have to get apples-to-apples bids, which is hard to do," Goldstein said. "Every builder does it differently. If you are going to put out bids, it's good to put out your own template."

Creating your own template means putting together a list of specific tasks that each contractor will have to treat similarly. "One way of creating a template is to take a look at your house. You probably won't be able to think of everything, but list things like painting, heating, foundation, roofing, framing, insulation, siding, electrical, plumbing, drywall, flooring, maybe tile. If a homeowner thinks about it for a half hour they can create this template. Say they even left out six or seven things-whatever they came up with at least gives them some basis to compare bids."

You might take this process a bit further and add more specifics to each category.
For painting, ask for costs to apply two coats of a specific brand of paint; for plumbing, ask for total costs to rough-in, connect to the municipal water supply and sewerage system, and to install all fixtures, specifying the brands and models.

Once you receive quotes from your list of potential contractors, you can do equal comparisons. You still won't know everything, but you'll have a fair understanding of each builder's costs in relation to the others.

In other words, do your homework. "You have to do your homework or else don't complain," Goldstein said. "If you do it in a casual way, you should expect poor results."

Don't Forget the Paperwork

Let's assume that you chose a reputable, reliable builder, somebody you feel you can trust to do his best building your new home. Are your worries now over? "Something you want to do now is protect yourself," Goldstein said. "Once you get a contract, make sure the builder has a license. And you should make sure they're carrying liability and workman's compensation insurance."

In most states, the homeowner will be liable for any damages or injuries occurring on the job if the contractor isn't insured or is under-insured. Goldstein recommends that homeowners get certificates of insurance on both liability and workman's compensation, as well as on the builder's automobile insurance policy.

To further protect yourself, ask the builder for a lien waiver, which releases you from responsibility if the builder fails to pay subcontractors and suppliers.
"I can't speak for every state, but in Massachusetts, if you pay your builder and he does not pay his subcontractors, they can come after you. The same goes for the suppliers. You want to do as much as possible to make sure that once you pay him, he pays them."

The lien waiver is important for a number of reasons. Your contractor will have subcontracts with a lot of different companies and people, including roofers, excavators, mechanical contractors, painters, and all the other trades that most contractors hire for a job. The contractor also buys materials from several different supply firms, where he likely has accounts. If they're not paid, every subcontractor and every supplier will have a right to file a "mechanic's lien" against your property if you're not protected by a lien waiver. If such a lien is filed against your property, you can't sell or refinance the property until the lien is removed. Be wary of a builder who won't supply lien waivers.

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