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New-construction pitfalls
lead to money pit
Dear Steve:
What are the major pitfalls to avoid when
having a new home constructed?
Kathy in a Quandary
Dear Kathy:
The bad news is the pitfalls are plenty and there's not
quite enough space here to chronicle them all. The good news is
I can give you a few of the major ones, and assure you that your
own diligence can help keep you from dangling over the precipice
of a potential money pit.
Let's first assume you don't want to be your own
general contractor in building your new home and that you'll leave
that up to a pro. Even industry veterans have regretted the decision
to be their own GCs because there are so many moving parts in the
process and so much can go wrong.
Depending on the custom features you want, you might
opt for a home in a subdivision controlled by a volume builder.
Many of the major builders are now offering a wider variety of floor
plans with customization options for doors, cabinets, energy features
and building materials, but generally within the constraints of
their standard lot sizes.
Regular custom lots are a little more costly, but
give greater flexibility. (If you want to build on a vacant lot
in a mature neighborhood, you'll probably have to deal with a seller's
agent and may want to get an agent of your own for negotiating power.)
Also know that the more built-out your new neighborhood is, the
less clatter and construction you'll have to endure. Find out if
your home builder will include closing costs as part of the price.
It's worth asking.
Before you start, though, research builders thoroughly.
Check with the Better
Business Bureau and scroll the Internet. See how your builder
has resolved problems and has stuck to completion dates. There are
numerous sites on the Web initiated by angry consumers who feel
they were cheated or mistreated, even by some of the higher-profile
builders. You'll also want to visit some of the houses these companies
have built.
Warning: Some builders set up limited liability corporations
to buffer themselves from claims. Make certain you are dealing directly
with a builder who has a substantial net worth and is not set up
as some no-asset subsidiary. Ask questions.
And Kathy, avoid giving builders upfront money, particularly
less-established ones. If they sink into oblivion, so will your
down payment. A good real estate attorney will walk you through
the details and perils of the home-building process -- at a price,
of course. And an agent can help you coordinate financing, payment
and construction scheduling, although you and your lender can usually
work these details out yourselves.
New homes generally come with at least a one-year
warranty for repair of some problems that develop as it settles
into its foundation. But know what your warranty covers beforehand
and ask questions about it. Some warranty wording can be intentionally
deceptive.
When construction starts, visit the site frequently.
Contractors will be less apt to cut corners or bury their blunders
if they know you will be inspecting the place during major phases
of construction. Make sure everything you paid for is being installed,
that all the outlets are located where they're supposed to be and
that the cabinetry, flooring, custom wiring and appliances you specified
(and paid extra for) are going in as planned.
If you're selling a house before moving to your new
one, make the closing date on the old house contingent on completion
of the new one, if possible. How many people do you know have regaled
you with tales of how their new homes were finished well ahead of
time? Probably not many. Bad weather, contractor delays, overly
optimistic completion projections from aggressive sales people,
material shortages -- the excuses are endless.
Finally, several contemporary books on the subject
are available, including Everything
You Need to Know About Building the Custom Home: How to Be Your
Own General Contractor by John Folds and Roy Hoopes, The
Brand-New House Book by Katherine Salant, Houses
are Designed by Geniuses and Built by Gorillas by Bob Johnson
and The
Complete Idiot's Guide to Building Your Own Home by Dan
Ramsey.
Good luck.
-- Posted: Dec. 20, 2003
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