New Home Builder: Pros and Cons

A new home builder could be the solution to your home building project or the problem. There are pros and cons.

To determine if using a new home builder is right for you, we will itemise the advantages and disadvantages.

Advantages

  • New Home Builder ProsCustom home builders can eliminate a great deal of the stress involved in the construction of your new home by managing the subcontractors and suppliers and scheduling the work and inspections. They will also be responsible for obtaining all of the necessary permits.
  • A new home builder will use his own subcontractors and suppliers which should make the process go much easier. He has a team that is used to his methods and procedures and they know in advance what is expected of them.
  • You can use your own house plans and specifications if you use custom home builders. A tract builder usually has his own plans and will not vary from them.
  • Custom home builders should be members of the NAHB, the National Association of Home Builders, which gives them some credibility. Check with the local chapter for references.
  • Custom home builders are responsible for paying all of their subcontractors in a timely manner. You and your lender will be approving the draw requests necessary to provide the funds to the new home builder.
  • A well-respected new home builder is able to make suggestions as to any changes in your house plans that will enhance your new home. If he has been in the business for a long time, he should have a wealth of knowledge to share with you.
  • If you are considering modular homes, your new home builder will be pre-qualified by the manufacturer and must meet their strict requirements. The builder should have substantial knowledge and experience in this form of alternative construction.
  • You do not have to worry about obtaining an appraisal, soils analysis, if necessary, insurance or licenses. You will not have to create a checklist of items to monitor during the construction.
  • The new home builder, if you employ him early in the process, can advise you on the selection of the site and any situations that you should avoid.
  • Custom home builders usually offer a minimum of a one-year warranty on all workmanship. This is a form of insurance for you.

Disadvantages

  • The size of your new home could be smaller because there is less money available to build the house after the new home builder deducts his profit. This profit could be as much as 25% – 30% of the construction cost.
  • Sometimes, the new home builder does not assign a competent superintendent to manage your job. This can cause severe problems because no one is inspecting the workmanship on a regular basis.
  • Your new home builder may be adverse to any changes during the course of construction. Many custom home builders despise changes because they are costly and they tend to slow down the progress of construction.
  • The difference between a new home builder and a custom home consultant (or Building Consultant) is that with the builder there is a tendency for an adversarial relationship between the parties. With a custom home consultant, he is working with you to achieve everything that you want in the house because his one-time fee is based on square footage of construction.
  • A new home builder reaps all of the savings on material purchases if he finds a sale on these items. Many suppliers have sales on products and/or discounts on volume purchases which he keeps. This is in addition to his profit.

Due Diligence

If you decide to use a new home builder to build your new home, there are certain things that you must do BEFORE you execute a formal home building contract. This is called doing your “due diligence” and it is imperative that you do all of these things to avoid problems later.

  • Ride around new home subdivisions that have houses that you like. Inspect these houses thoroughly for quality of workmanship. Check the design layout to see if it makes sense. Does it look like every other house on the street? Zero in on the houses that meet your criteria and note the builder’s name.

    When inspecting the houses of the custom home builders, there are several areas to check for quality of workmanship. First, inspect the mitered joints on the casing surrounding the doors and windows. If there are gaps, you know that they will be filled with DAP caulking and that means that the carpenter did a poor job.

    Second, check the backslash on the kitchen counter tops. If it does not hug the wall; thereby, leaving gaps, you know that the framer did a poor job.

    Third, check the finish on the drywall. The cracks and nail holes should be covered and sanded properly so that they are smooth. If they’re not, the paint will highlight the imperfections significantly.

    Learn more about other areas to inspect by clicking on the link above.

    Some custom home builders are reluctant to spend a few pennies on sill sealer foam insulation that is nailed to the bottom of the base plate on the foundation. The insulation is so inexpensive and it is easy to staple on the bottom plate as the framer is building the walls, but contractor’s greed and laziness prevail.

    Go downstairs in the basement of these homes that you are inspecting and look at the top of the foundation wall. Can you see the outside air because of the gap between the bottom plate and the top of the foundation wall? If so, guess where the bugs come in? Also, what about the cold air that comes in during the winter and the hot air during the summer?

    If the windows and doors are not flashed properly, they will leak both air and water. You can expect the drywall to become water-stained if this situation occurs. Flashing is inexpensive but costly to you if the new home builder fails to use it wisely.

  • After you have reviewed several builders’ work, make a list of those custom home builders that you need to check out further. Call the builders and tell them that you are interested in their work and would they provide references for you. Then check out these references thoroughly. Word-of-mouth advertising is the best judge of character and credibility.
  • Call the local chapter of the National Association of Home Builders, www.nahb.org,to see if the custom home builders on your list are members. This will weed out those “one-day wonders with a magnetic sign, a hammer and a pickup truck.” Remember, those signs can come off just as easily and be replaced with a new sign when trouble comes.
  • Interview the builders on your list to determine how customer service friendly they are and what their policies are regarding changes. This is a good indicator of how the relationship will work.
  • Ask about the supervision that the new home builder plans to put on your job site. If his superintendent is going to handle numerous projects, you can bet that your house will not receive the attention that it deserves. One of the biggest faults that I see with new home builders is the lack of supervision on the job.
  • Check with the Better Business Bureau, www.bbb.org, to see if there are any complaints filed against the custom home builders on your list. What were the reasons for the complaints? Was it the fault of the builder?
  • What type of insurance do the custom home builders carry? Are they licensed and bonded? This will weed out some of them if they are not strong and reliable contractors.
  • Ask about any warranties offered in addition to the standard one-year warranty. Some custom home builders offer the 10-Year HOW (Home Owner’s Warranty) which is very good.
  • Do the custom home builders on your list complete the construction in a timely manner or does the project drag on forever? Time is money and you are paying the interest on the construction loan.
  • One of the most critical items to check while you are inspecting the builders’ job sites is JOB CLEANLINESS. If that site looks like a pig pen, you can bet that the quality of work will be on the same level as the surrounding environment. I have inspected job sites where the drywall and lumber debris was so intense that you could not get to the front door. What kind of message is that sending to the subcontractors and suppliers?

When I was building houses and apartments, I personally cleaned up the debris on a daily basis because you never knew who was going to visit the job-site, especially the owner. I am going to take some time here to further emphasise the importance of cleaning up the debris.

I was employed sometime ago to rectify a troubled apartment complex being built in North Carolina by a new home builder from the Atlanta area. When I arrived on the scene, I was flabbergasted by all of the debris around each of the 28 apartment buildings. It was no wonder why the quality of work by the trades was so bad. You could not enter the front doors on the main level because the debris was piled some 8 feet high.

One of the first steps that I took was to call the temporary employment agency to have them send 9 labourers to clean up the site. I also called the local waste management company to send multiple dumpsters to the site. After three weeks of cleanup, the quality of work improved dramatically. Following some additional organisational strategies that were employed, the project began to turn around to allow for occupancy of the apartment units.

Cleanliness is very important, not only for the mindset of the workers, but for the people who drive by every day looking at the project. Be sure to check this out with your list of custom home builders.

Selecting the Right Builder

You should be able to narrow down your list and make your selection of the new home builder that you want to work with based on your house plans and the criteria listed above. The next step is to obtain a comprehensive proposal from the new home builder of your choice, negotiating the terms and conditions and executing a formal contract.

Do not accept a bid from the new home builder based on a $ per square foot amount. This is a strong indication that he never studied your house plans to consider all of the unique features incorporated into them. A good builder will have the software or forms to prepare a comprehensive bid based on bids from suppliers and subcontractors.

You will also want to include language regarding waivers of lien, if applicable in your area, from the suppliers and subcontractors indicating that all of the bills have been paid. You do not want to pay the new home builder and then have to pay again to the supplier or subcontractor because he failed to pay them.

You do not want mechanic’s liens filed against your property because you will not be able to obtain the occupancy permit at the completion of the project. That happens quite frequently in the home building business. So be forewarned.

It is critical that you protect your consumer rights in this venture. I know that you probably think that this will never happen to you, but it could. You need to be protected. Consult your attorney for guidance.

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