How & what to negotiate in new construction?

thisishishouseOctober 6, 2009

My wife and I recently learned of a new development to be built in an area that we like. The builder is still in the approvals process and has only just begun to cut in roads. We met with him, like his plans for the neighborhood, and like what he's said about the style & quality of house he intends to build. We're definitely intrigued.

How do we proceed from here?

If we negotiate down in price, does that just mean he'll cut corners? I don't want to end up with cardboard cabinets and plastic windows. What should we get "in writing"? Beyond basic construction specs, do contracts specify brands/models/etc of every component in the house to be built?

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cmarlin20

Yes, contracts can mention any detail that is important to you.
I'm wondering about the builder, how many houses are being built, what is the completion date?
I'd be leary of committing to early in the process.
Even if you are successful in getting all your important details in the contract, will the other houses be quality, if not, what will this do to your value?
Are you secure in what price you should be paying down the road in this housing market?

    Bookmark   October 6, 2009 at 3:20PM
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lyfia

Will the development have deed restrictions that serves to protect the value of your home. Ie certain construction requirements etc. so that if the builder doesn't sell all the lots and another builder comes in that they are required to follow those rules too?

    Bookmark   October 6, 2009 at 3:48PM
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mariend

Also find out how stable this builder is. Many start projects.and run out of money. Is he builing a large area, promising alot Make sure all permits are pulled and county/city inspectors do the proper inspections. Check with your local building dept first. Get everything is writing no verbal contracts or promises. Does he promise a park, area for a school, walking paths. We have seen lots of promises and lots of contractors run out of money, declare bankruptcy and the people who bought the house, have to pay for other things. Are the subcontractors paid? Supplies paid? My DH was in inspections for Los Angeles County and had to deal with this problem. My son also worked for a large plumbing company and there were times he could NOT unload the materials until he had cash in hand. It happens alot more that the public realizes.
Like I said get EVERYTHING is writing. And make sure their is a competion date in writing.

    Bookmark   October 6, 2009 at 4:50PM
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creek_side

The first thing you should do is to check into this guy. Find out about his prior project(s), and go knock on some of those doors he built. If there were issues, you will get an earfull.

Ask the building inspectors where this guy has built before. If he hasn't built locally, consider it a red flag.

    Bookmark   October 7, 2009 at 8:29AM
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ncrealestateguy

I am advising my clients to custom build at your own risk... I do not think I have met a builder in the last year that is financially stable. I know many, personally, people that have been left standing with a half built home, yet thier builder used thier funds for other debts. And there are not a lot of protections out there for the homeowner. Especially if the builder goes bankrupt.
I also advise my clients to be wary of subdivisions where the pool, clubhouse, or any other amenity is promised, but not yet finished.
Definately, be upfront with this guy, and ask him, "how have you managed to stay afloat while most others are broke?" Make him give you a real answer.
Good Luck.

    Bookmark   October 9, 2009 at 8:55AM
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sylviatexas1

"builder used thier funds for other debts. And there are not a lot of protections out there for the homeowner. Especially if the builder goes bankrupt.
I also advise my clients to be wary of subdivisions where the pool, clubhouse, or any other amenity is promised, but not yet finished."

I've seen this over & over.

Be careful.

    Bookmark   October 9, 2009 at 1:54PM
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adellabedella_usa

In our contract, we required our builder to carry and submit proof of insurance in the amount of our house. We've also included an out for ourselves in the event that our builder doesn't have the house completed in eight months from slab pour.

    Bookmark   October 9, 2009 at 3:13PM
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creek_side

In our contract, we required our builder to carry and submit proof of insurance in the amount of our house. We've also included an out for ourselves in the event that our builder doesn't have the house completed in eight months from slab pour.

Just curious, but what happens to the progress payments (draws) that you have already made if you walk? Most people don't have that option since exercising it would leave them with a partially built house and all that entails.

    Bookmark   October 10, 2009 at 10:37PM
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FatHen

The posts cautioning you to beware of financially unstable builders are good ones. You can track at least some info about builder bankruptcies here: http://builder-implode.com/

Besides making sure the builder is financially sound, beware of one-sided builders' contracts. Avoid an arbitration clause with the builder AND in any warranty policy. (Warranties from 3rd party companies are pretty illusory anyway.) Get your own experts to inspect during construction before serious, expensive mistakes are covered up. Get your own good attorney, and if the builder won't agree to a fair contract, etc, don't buy from him.

Two consumer sites concerning building are www.hadd.com and www.hobb.org. They have much more info/cautions.

When I hear someone's about to buy from a builder I have to cringe a little. I have owned three new houses and one of them was a dud. It took 5 years out of my and my husband's life to fight the builder and warranty company, and the damages exceeded $100,000. We eventually did settle but if we'd found the two consumer sites above before we bought, we MIGHT have been able to avoid the problem in the first place. The usual info out there for consumers is totally insufficient in comparison. Good luck, I hope you've found one of the builders who's doing things right and has a stable business. There are a lot of builders now, good or bad, who aren't going to survive and they leave home buyers in a lurch and out a lot of money.

    Bookmark   October 11, 2009 at 2:25AM
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adellabedella_usa

"'In our contract, we required our builder to carry and submit proof of insurance in the amount of our house. We've also included an out for ourselves in the event that our builder doesn't have the house completed in eight months from slab pour.'

Just curious, but what happens to the progress payments (draws) that you have already made if you walk? Most people don't have that option since exercising it would leave them with a partially built house and all that entails."

You're never going to have a 100% guarantee. The insurance requirement should give us reimbursement if our builder defaults somewhere in the middle of the process. In the event the builder goes bankrupt or for whatever reason isn't getting the house finished, we don't want to be stuck in a contract on an unfinished house. The 'out' will at least give us the ability to bring another builder to get the work done. Not all of our money would be tied up the original builder. Yes, it might cost more in the end, but the highest cost would be us paying to live somewhere else and also making mortgage payments on a place that is uninhabitable and tied up in red tape.

Also, we are making our builder give us proof that he paid his contractors.

My dh and I are driving by and checking on the house on a daily basis. The bank has an inspector going out every two weeks to check on the work.

It's not perfect, but then, nothing is.

    Bookmark   October 11, 2009 at 12:18PM
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Virgin_Home_Buyer

Has anyone had success in opting out of a forced arbitration clause, building a new home with one of the "Big Builders" in Texas?

    Bookmark   July 4, 2011 at 4:35AM
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brickeyee

Negotiating additional upgrades usually works better.

If the builder offers a discount they may have problems with later houses appraising.

Upgrades do not tend to have this affect.

    Bookmark   July 7, 2011 at 9:53AM
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