Hiring a Contractor
Home Builder FAQ
Over the years I've worked with many clients on home construction projects large and small. The following questions are those I consider the most important ones to ask when building a new home or planning a home renovation or addition. The answers represent my own advice about the best approach a consumer can take to a home construction project. - Andrew Goldstein
During the course of construction you will have a series of homework assignments. Selecting a builder is one of your most important tasks. The problem is there is no foolproof way of making the right choice. Ultimately, it comes down to trust. Do not get involved with a home builder you do not trust, regardless of how attractive the price. Trust alone is not enough, but it is the starting point. You also want experience, competence, service, and value for your money. Referrals are good, but they can be misleading. Some people just don't know a good job from a bad one, and every builder, even a poor one, usually has at least a couple of decent jobs for referrals. It is best to visit some previous projects, to see the workmanship first hand. Ask questions of past clients. Don't be shy. This is your hard earned money at stake. Ask your potential builder tough questions. You are turning over a lot of money to a strangerÚno information should be withheld.
There is no right way. I prefer negotiating with a builder whom I have researched thoroughly and believe to be reputable and trustworthy. Obviously, the danger with this method is that if your judgment is wrong, you could end up paying way too much for your project. Your home builder might be a great craftsman but overpriced. Your home builder might be very fair on pricing but incredibly inefficient, which could end up costing you more than dishonesty.
Let's say you have three bids for $90,000, $100,000, and $110,000. The first thing you want to do is make sure the bids are as close to apples to apples as possible. The problem is that every home builder has his own way of estimating and may use different categories than his competitors. When the plans are given out to bid, an outline should be given to each builder, breaking down the job the same way. Each builder is then required to fill out the outline with his bid. Now you can compare the electrical price and the plumbing, etc. It is also helpful if you can get information from each builder as to how much overhead and profit or any other markups there might be in the bid. Choosing a home builder should never be based on price alone, but the more clear information you can obtain about how the bid prices were reached, the better chance you have of making the right decision.
Both systems are flawed. A cost plus contract with an unethical or inefficient builder can be tragically costly, but even with a fixed price, the cost can go up dramatically. Latent conditions (ledge underground, termites in the wood, etc.) are usually not covered in a fixed price, nor are changes and extras. Another major problem with a fixed price is that it puts you and the home builder on opposite sides of the table. Every quality decision the builder makes costs more or less money, so while the price is fixed, the house is not, and the builder could be compromising the quality of the home. A cost plus job creates more of a team atmosphere. In general, a cost plus contract will cost you more money, but you will have a better quality job. Either way, be careful.
For most people, a major home addition or renovation or the building of a new house represents one of the largest purchases of their life. However, you cannot approach construction the way you would approach buying an oven or car or television. First of all we are talking about much more money. Secondly, it is an entirely different type of purchase. You pay for most of it before it is finished. Unlike a product you can buy and touch or test drive, your construction project is built after you decide to purchase, not before. If it is a custom home design, then in all likelihood, the product has never been built before. In other industries when they build a new product, they make samples, models, and prototypes which they test, debug and discard. In construction, your custom designed house is the prototype.
Even when you are involved with a good home builder, there often are numerous problems. The reasons are many. Quite often there are mistakes on the construction plans. Most builders sub out the various trades. Each one of the subcontractors is a separate business that the builder does directly control. Many of the subs are good mechanics, but they don't necessarily know how to run a business. Many of the materials used in construction are continually changing because of competition or new technology or environmental issues. Many of these changes are not fully tested in the real world before they come on the market. A new rubber gasket or window caulking or water base paint may not work properly or fail entirely when the weather changes. The more custom your project is, the more vulnerable you become to the unknown and the vicissitudes of the construction world. A good builder can shield you from a lot of problems, but construction is inherently problematic. The good news is that almost every problem has a solution.
The first step is to understand that all construction problems can be reduced to issues of money or communication. Money. Either your money or the builder's. Either the builder's or his subcontractor's. The $3 tile or the $10 tile. The $10,000 paint job or the $20,000 paint job. Money. If money was not an issue there would be no problems, because you would simply buy your way out of any mistakes, compromises or misunderstandings. Money is an issue regardless of your wealth or budget.
Overruns are the amounts spent building your custom home or renovating your house that go beyond the original budget. This might include changes, additional work, low estimates, or unforeseen conditions. It is always good to start a construction project with a contingency. It is rare that a residential construction project doesn't go over budget. Changes and additional work can be kept to a minimum by fully understanding what you are building before you start. If you can't read plans, then have the architect or builder explain to you everything that is on the plans. Once you have accepted the design then you have to maintain the discipline to enforce the budget. You can always make the house nicer and nicer; but that costs money.
Changes are inherently inefficient, so even if your builder is honest you pay a premium for changes because they disrupt the flow of work. They create inefficiency. Some builders bid jobs low, planning to make up the money on their change orders. Once you are captive to a builder or subcontractor who sees changes as a gold mine, you've got a problem. Obviously, the best strategy is to keep changes to a minimum. It is important to explain in the contract how changes are going to be handled. What type of markups and overhead and profit is your builder going to charge you. If you can get an estimate of the entire project that is broken down into very detailed categories before the construction starts, that is very helpful. Then you will know what each item costs. This forces the builder to give you proper credit for items you already had in the project. Some builders may not have this information or may not want to share it with you. A good, honest, efficient home builder should have this information and be willing to share it with you. The more information a builder doesn't want to reveal to you, the more you should be wary of getting involved with that builder.
There is a language spoken by many people in the construction world that I call "Vaguese." It is an interesting language where words and phrases are combined to create vague impressions. Sentences are constructed to avoid any personal responsibility. It is a defensive language used to shield individuals and companies from financial liability. Since almost every problem in construction comes down to who is going to pay for it, and often times there are gray areas and several entities to blame, many people in the industry learn to speak Vaguese or risk owning the repair bill. As a consumer, you should try to find a home builder who doesn't speak this language, a home builder who is direct and honest. You should also consciously make sure that all of your communications are direct. If you make a mistake, admit it. Set the tone. Create a climate where you expect total honesty and you live by total honesty.
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