Return to the Building a Home Forum | Post a Follow-Up

 o
naive and unsure about what to do...please educate me!

Posted by BSG91612 (My Page) on
Tue, Jul 10, 12 at 19:21

We are planning on beginning construction in September. We have been working our our builder for a little under a year now, designing our house. We just got funding in order and got a lawyer involved to handle the closing. This lawyer after reviewing our paperwork tells be that he thinks that we are paying too much for the house (he has not seen the specs or anything at this point) just that it is a lot of money to spend on a house. (this is my first time working with this lawyer in this firm). I was a bit thrown here and it made me second (or third or fourth) guess everything. So he offers to review our specs and contract. I send it to him and he then tells us that he just handled a home for someone that had many more things then our house includes and cost significantly less. He thinks that we are paying about $100,000 more then we should!! that is significant.

Ok, yes we are probably really stupid but we did not get any other bids for the house. we really like the work that this builder does. He also built a house for a friend of mine who couldn't say enough nice things about him. Time kind of got away from us. I don't even know what the right thing to do here is. I don't want to look back or even feel right now that we are being taken advantage of which is how the lawyer is making me feel. We have never built a house before. Is it normal to know how much the builder is making on a project? Is that something we should have asked up front? is that something I should ask now? And if so what percentage do they usually make?

Oh and I asked the lawyer who built the house that he quoted me specs on. and he said that he GC'ed it....that made me think two things (1) conflict of interest and (2) he probably knows what he is talking about price wise to some degree although I've never heard of him and therefore know nothing of his work and if he does it part time, he must not know the best subs and all of that. Oh and one last thing. The banks appraiser was right on with its valuation of the house and what we are paying for it. Please give me your thoughts.


Follow-Up Postings:

 o
RE: naive and unsure about what to do...please educate me!

GC'ing your own house can save you 20% on the overall cost. Also if that other home he handled was an existing home, they can cost less than new construction as the depressed market can lower price of existing homes below replacement cost of construction.

This is probably going to be the most expensive purchase in your life so it doesn't hurt to get 2 more bids, even if you choose to go with a more expensive builder.


 o
RE: naive and unsure about what to do...please educate me!

Two things come to my mind - he's a lawyer and run. Next thing you know he'll be offering to GC your build. I know a lot of people that build homes and none of them are lawyers on the side. I know a lot of lawyers and none of them build homes on the side.

If you had the plans, land and hired the GC to build for you, then yes you have every right to know what he will be making. We paid ours 10% for a custom build.

If they were his plans and land, and you'll be buying the house from him you wouldn't necessarily know what he was making on the project.


 o
RE: naive and unsure about what to do...please educate me!

So, I don't think that the attorney telling you that he feels you are overpaying for a house is necessarily wrong.

Where the potential issue is would be that he is basing his thoughts off of extremely limited information - quite honestly, if he doesn't have the full specs and knows what upgrades you have put into it (or if the builder uses beyond "builder grade" for his builds), then there is no way for him or anyone else to state emphatically that you are overpaying by ANY certain amount.

Might you be paying a bit additional for your builder of choice? For the one that you feel comfortable with and who was highly recommended by a friend that you trust. Sure. Is it likely that it's a $100K difference? Probably not.

I'm not positive from your post, but it doesn't sound as if the attorney offered to be your GC, so therefore, it wouldn't be a conflict of interest for him to represent you in your closing aspects. If he does decide to suggest you use him as a GC, I would probably be inclined to look elsewhere for an attorney (and of course, not use him as your GC).

As a former real-estate paralegal, I know that I had a rough idea of what a property/new build should go for based on the location and builder. But, there was a good bit of variation between one builder and another - some are just plain better than others, so you could have a house built by one on a lot that would be $50-100K less than by another builder - same square footage, etc. simply because one was using better windows, higher grade lighting, a better HVAC system, etc. That being said, higher price doesn't always reflect higher quality.

Even when you have multiple bids and you are trying to compare, you can almost never do an "apples to apples" comparison...they might all be talking apples, but some of them have better, juicier apples than others. ;-) That being said, in our house remodeling decisions, we always try to have at least three bids, preferably 1 or 2 more than that if it's for something sizable.

As far as the bank appraisal, particularly now after the market failure in housing, banks tend to be rather conservative on their appraisals and they aren't likely to inflate a number just to give you money that wouldn't be covered if you default on your loan and they have to foreclose on your house. And construction loans tend to be even a little more conservative. I assume that there is some type of clause in your paperwork with the builder that the house must appraise for the amount you are paying.


 o
RE: naive and unsure about what to do...please educate me!

This is the major drawback of a Fixed Price Design-build contract. Owners often do not want to pay a premium for an independent professional designer or the good local builders insist on a design-build approach. That leaves you with no price protection unless you hire an estimator. I would not consider the closing lawyer or the appraiser a suitable substitute for an estimator; you need someone who works for you.

I know this is the most common way a house is built but it seems like a poor one to me. Why should an owner give complete control of a project to a contractor? I suspect what is saved by not using an architect is often paid to the contractor. At the very least an owner should interview contractors and ask for their OH&P and design fees before making a selection not that that would be any guarantee of a fair price.


 o
RE: naive and unsure about what to do...please educate me!

Nothing wrong with attorney advising you that you are overpaying for the house.

You are may be paying extra for a good builder and good quality materials and finishes.

No one can advise you w/o knowing price vs location, house size, foundation, finishes.

However is you are paying something like 500k for 2500 sq ft house .... yeah I would tell that you massively overpaying.


 o
RE: naive and unsure about what to do...please educate me!

I'm a lawyer, and would certainly raise this concern with the client if I recognized it. All advice lawyers give is not necessarily legal. As such, I would not distrust the lawyer simply because he brought this up. Now, as others mentioned, he is probably not in a position to be giving a terribly accurate estimate for the actual price of the house, so you shouldn't take his word for it. Take some of the steps others mentioned to verify that you are paying an appropriate amount. I wouldn't regard this as a legal issue, and so the lawyer's opinion isn't worth any more than anyone else's. Notably, I doubt you could sue him for legal malpractice if he turns out to be wrong (that's always my litmus test for whether you can truly rely on an attorney's advice).


 o
RE: naive and unsure about what to do...please educate me!

I would not even consider suing the lawyer. I think he means well. He just came across as very degrading and even mentioned that I should use the "extra" money that I'm spending on my house for my children's education!! He has no idea what we are doing for my children's education. I add this just to demonstrate the way he is discussing this with me. I think that I'm going to insist on a different lawyer from the firm. I really liked the other person I had worked with there.

Thank you for the advice. We do own the land but the builder worked with us to draw up the plans. We can leave and take them with us but there is a charge for them in that case. I'm just not sure at this point if we have time to get other bids. I'm not sure how that works. I do believe that he builds a far better then average quality house, that is why we chose him. perhaps I can get an estimator like renovator8 advises and ask for the OH&P (what is that?) I'm guessing overhead and something? I really appreciate all of your thoughts on this. thanks. oh and it is about 700K for 4000 sq. ft. in the northeast.


 o
RE: naive and unsure about what to do...please educate me!

He just came across as very degrading and even mentioned that I should use the "extra" money that I'm spending on my house for my children's education!!

Okay, I would NOT have done that... good idea to find an attorney in the firm you're more comfortable with. And you get some resistance trying to work with another attorney in the firm, find another firm entirely.


 o
RE: naive and unsure about what to do...please educate me!

Regarding the cost how do you feel about it? Have you compared the house value once completed to the value of other homes in the area? Do you feel like it is a reasonable cost? And has the bank done an appraisal yet?

At the cost you mentioned, it works out to around $175/sq ft, which seems reasonable given the costs I have seen discussed here. Our build will be a similar amount, though we are in California.


 o
RE: naive and unsure about what to do...please educate me!

How did he initially know you were paying too much without having specs? That sounds very off.


 o
RE: naive and unsure about what to do...please educate me!

Sounds like the attorney is the problem here. Find someone you feel comfortable with. He cannot possibly know if you are over or under paying. You could be using totally different materials than the person he helped used, thus driving your cost way up.


 o
RE: naive and unsure about what to do...please educate me!

Thank you everyone. I did find a new lawyer in a different firm and feel much better about it. I too found it strange that he was able to state that I was over paying only knowing the price without the specs. What put it over the top was him telling me that I should be spending the money I could save by not going with this builder on my children's education....oh I'm still furious about this. He has no idea what I'm saving for my children's education nor is it any of his business!!!!I will take the advice to get it appraised on my own to for the piece of mind. At least he pushed me to do that and I think we will feel better about this whole thing having done that.


 o
RE: naive and unsure about what to do...please educate me!

yeah, I would be fuming over that thing he said about saving for your children's education. I probably would have had to fight hard to hold back by saying, "Well, if you're so worried about it, why don't you go ahead and volunteer your services - the amount we would pay you, we'll put directly into the education fund." Or I may have wound up saying, "Well, it seems that we may be using better quality items and higher end products than you opted to use for your home."

I'm sure you will be much happier with a different attorney rather than a different builder! It never hurts to get some additional quotes from people of comparable quality. In general, they should come in close.


 o Post a Follow-Up

Please Note: Only registered members are able to post messages to this forum.

    If you are a member, please log in.

    If you aren't yet a member, join now!


Return to the Building a Home Forum

Information about Posting

  • You must be logged in to post a message. Once you are logged in, a posting window will appear at the bottom of the messages. If you are not a member, please register for an account.
  • Please review our Rules of Play before posting.
  • Posting is a two-step process. Once you have composed your message, you will be taken to the preview page. You will then have a chance to review your post, make changes and upload photos.
  • After posting your message, you may need to refresh the forum page in order to see it.
  • Before posting copyrighted material, please read about Copyright and Fair Use.
  • We have a strict no-advertising policy!
  • If you would like to practice posting or uploading photos, please visit our Test forum.
  • If you need assistance, please Contact Us and we will be happy to help.


Learn more about in-text links on this page here