If you're talking to references that are previous CLIENTS of the builder:

1. "If you HAD to build another custom home for some reason, would you automatically hire Builder X to build it or would you seek bids from other builders?" Rationale: Most homeowners are all too well aware of the potential for horrible problems with an unknown builder - no matter how well vetted. If a builder is really great, previous clients who find themselves needing to build again WILL choose the "great builder" with whom they already have an established relationship over an unknown builder, even if going with the latter might save them a few bucks.

2) For previous clients who say the builder is good, but who indicate that they would nevertheless get bids from other builders if they had to build again, ask: "Suppose Builder X and some other builder both bid your next project and the new builder came in a few thousand dollars less than Builder X; suppose further that the new builder, whom you don't personally know, has an EXCELLENT reputation in the community and a friend whom you do know and trust tells you he is both honest and a great builder. Which one would you hire, your original builder or the new guy?" Rationale: some people will want to get additional bids just to see if they could get a better deal. But, if they were REALLY happy with their initial builder, they'll remain loyal even if it costs them a few thousand dollars to do so. But, if they were only mildly satisfied with their original builder, they're much more likely to jump ship thinking that they MIGHT have fewer headaches another builder who an excellent reputation and, since they can save a few thousand, they might as well take a chance. You could even test the level of loyalty to the original builder by upping the dollar differential between the two builders to 5% to 10% of the overall cost of the build (enough to be significant but not enough to raise the spectre that the new builder might be low-balling the bid.

Ask previous clients just how much more (on a percentage basis) they wound up paying for their home than the builder's bid price. Follow that up by asking what THEY attribute the overages to. Did they actually upgrade any items from what they originally intended/envisioned? Or were there things that they had originally understood would be included in the price that the builder later insisted were upgrades or which turned out not to be included in the contract as the builder wrote it?

Ask if the build progressed in a reasonably timely manner.

Ask if the builder kept the site reasonably clean... without having to be hounded to do so.

Ask if they KNOW whether the builder made certain that materials (such as Tyvek, windows/doors, roofing shingles, etc.) were actually installed as recommended/required by the manufacturer to avoid waiving manufacturer's material's warranties. You'ld be surprised how often they are NOT and then, when there is a problem, the builder is long gone and the manufacturer disclaims any responsibility because the materials were not installed properly.

Ask how often the homeowner visited the build site during the course of the build. A homeowner who only shows up to ooh and aaah at the progress, pick paint colors, and do the final walk-thru doesn't really know diddly squat about how well or how poorly the house may have been built. They only know how pretty it looks... that is, until problems start cropping up 5 or 10 years after the closing.

You should also talk to each and every SUBCONTRACTOR that your builder will use on your house. Ask each one how many houses they have worked on for your builder. Ask whether your builder pays them on time. Ask whether he pays them by cash or check. (Subs that are paid in cash seldom have a clue which project they are being paid for. So if your builder winds up going belly up and the sub thinks he is still owed money, the sub may wind up picking your house, at random, as the one to file a lien against. To clear up such a lien, you may wind up having to pay a second time for work that you've already paid the builder for once!) If your builder pays subcontractors by check, with each and every check clearly indicating which project the sub is being paid for, there is less liklihood of that happening. Besides, builders who keep good financial records are less likely to go belly up anyway! Ask subs who are paid by check whether the builder has EVER given them an insufficient funds check - even if the builder later redeemed the check. Passing insufficient funds checks is a sign of a builder who is robbing Peter to pay Paul and likely to go under when there are no more Peters in line to rob.

BTW, Additionally, your contract should stipulate that your builder MAY NOT use any subcontractor to work on your house unless he has provided you with the name, phone number, and contact info of that sub at least 5 days IN ADVANCE. Further, it needs to stipulate that if your builder breeches this requirement at any time, he will fully indemnifies you against any and all lien claims by such subcontractors, including your attorney fees and court costs to clear such leins, regardless of whether or not he provides you with a lien release from such subcontractors. Then, when your builder asks for draws, check that the list of subs that he claims to have paid ONLY includes subs that you know about and from whom the builder has provided SIGNED, NOTARIZED, M&M lien release for all work done through the date of that draw request. Together these steps will help to protect you from, for example, paying your builder a draw for painting work in reliance on a lien release signed by Painter A only to later get hit with a lien from Painter B and discover that Painter A worked on some other house entirely and didn't pay any attention to the address on the lien release he was signing. Meanwhile, Painter B, who actually worked on your house but whom you had never heard of before, hasn't been paid and files a lien!

Insist that your potential builder give you with the names of all suppliers from whom he anticipates obtaining more than a few thousand dollars worth of materials. (concrete supplier, framing materials supplier, roofing materials supplier, siding/brick supplier, septic system supplier, plumbing materials supplier, electrical materials supplier, door and window package supplier, decking materials supplier, hardwood flooring supplier, tile supplier, etc.) Contact each of these suppliers and ask how long the builder has had a business account with them. Red flag if they've not done business with him before or if he only recently set up his business account with them even though he's been in the building business for years. If you find any of these, go back to builder and ask what supplier he used to get those supplies for previous houses.
A raft of new suppliers probably means builder is jumping from one supplier to another because of unpaid bills. Ask each supplier whether builder has paid his materials bills on a timely basis. Ask if the supplier has ever had to threaten builder that they will lien the property in order to get paid.

If you can possibly get it, you also need to get your potential builders to give you the names of their banker as a reference and agree to co-sign a letter to their banker asking for answers to a couple of questions. An honest builder should be willing to agree to allow their banker to answer the following questions:
1) How long has builder been banking with you?
2) Has builder written any "insufficient funds checks" on any of his accounts in the past year? If so, how often has he done so? (Once or twice might be understandable, more often that would be a huge red flag.)

No doubt some builders on this board will come back and tell you that I'm recommending you ask questions that are way too nosy. NONSENSE. You are going to be trusting your builder with YOUR money to pay other people for doing work on your home. If he is dishonest (or even just "robbing Peter to pay Paul" since apparently many builders don't consider that to be dishonest), he can soak you for thousands and thousands of dollars by pocketing your money or using it to pay off debts owed on previous builds rather than paying the people who are working on YOUR house. The slimey builders seem to think that, so long as they can get enough money out of the next job to pay off the workers on the last job, it doesn't matter if they're less than honest about where the dollars are flowing. You as the homeowner have little of no recourse if you wind up being the last Peter in line.

I, unfortunately, am speaking from very sad experience. The questions above are all things that I NOW wish I had thought to ask before we hired our builder. They might have saved me the nearly $60,000 he appears to have stolen from me by dint of phoney documents (lien releases from subs and suppliers who didn't supply anything to me house combined with liens I had to pay off from subs and suppliers who could prove that they did do work on my house and hadn't been paid!), the nearly $30,000 I've had to put into my build after firing him just to FIX some of the crappy work he did... and then covered over even after I pointed the mistakes out to him, and the nearly $20,000 worth of attorney bills I have now accumulated trying to get ex-builder to release his lien against my house. The court case is on-going and he refuses to release the lien in order to attempt to force me to drop my claims for fraud and breach of contract against him!

I called all my builder's references and they each and everyone said they were satisfied. I later learned that at least one of his references actually used providing a reference to me as leverage to get the builder to come back and finish the punch list items on his home...two YEARS after the closing. That homeowner now has a suit against builder for construction defects that became apparent only after I filed my suit against the builder!

Oh, and call you county land records office and find out whether they have records online where you can search them or if you have to go down to the courthouse. Either way, do a records search for M&M lien affidavits filed against your potential builder or against the address of any house that you know he built. The county clerk can tell you how to do the searches. If you find a plethora of liens from suppliers or subcontractors, RUN!

I know this is long but you cannot be too careful. I know there are wonderful builders out there and I sincerely hope you find one. I would not ever want anyone else to go thru the nightmare I have been living with for the past 18 months.

Two things I forgot....
Make sure the contract states they will put their company sign out front. This way they will not get away with being anonymous but rather have a name to keep up.

And require a financial penalty in the contract if timeline (etc) is not kept up.

Thanks bevangel and dirtslinger. Some of these are things we wouldn't have thought to ask. I'm sorry to hear of your trouble, bevangel. One of our builders actually offered the name of his banker in our preliminary discussion. He's working up a proposal based on basic info from us regarding what we want in a home (size, outside materials, basic inside materials, # of baths and bedrooms, type of heat). We should have proposals from two builders this week. Once we receive them we will call their references (probably this weekend). We'd appreciate any other thoughts on questions to ask the references each builder gave us.