Advice needed; considering having a house built

[M6erfan]

Hey guys,

We've been looking at buying a house in another state due to work circumstances. As most are aware, the housing mkt is TIGHT right now. We've been looking for months and not having much luck, many properties are sold before we can write an offer. It's nuts.

Anyway, we have found a property in a great location with a floorplan that we love, in our price range. Two things, this is a new build, spec with choices for finishes, and the builder is new.

I've never had a house built so am ignorant about the process. I'm the guy who could get screwed with shoddy overpriced work. Also, with materials and labor shortages there seems to be more risk than normal. Builder wants 20% of the construction costs upfront before starting.

We have an agent and a lender and a lawyer. Just beginning the process.

What advice can you all give? Appreciate it!

 

[65ranchero]

I don't know where you are going to live but........

1st question is, what does your lawyer say?
2nd question is, have you been able to tour some of his started work and any that have been finished and how is is it being insulated?
I would also think of a way to incorporate a secondary heating system IE, stove pellet or wood
and of course garage/ work shop space

 

[M6erfan]

I don't know where you are going to live but........

1st question is, what does your lawyer say?
2nd question is, have you been able to tour some of his started work and any that have been finished and how is is it being insulated?
I would also think of a way to incorporate a secondary heating system IE, stove pellet or wood
and of course garage/ work shop space

Our lawyer just started a contract, we haven't seen the initial draft yet. But our lender will be doing due diligence on the builder (financials).

House plan includes a 3 car garage, the single bay will be my new shop space.

 

[mepstein]

Retired realtor here. I used to always advise the buyer hire a home inspector or at least talk with one. It's not a guarantee of good work but having a (professional) set of eyes looking things over never hurts.

 

[vavet]

How will the financing be handled? Is the builder going to ask for draws at certain milestones? Or does he carry it until it's done and then sells it to you as a whole thing?
If you already have a banker, it seems like this will be a construction loan. You're playing interest on it as soon as you start taking money. Find some way to keep the builder interested in finishing the project in a timely way - either carrot or stick. Give him a bonus if he finishes early. He refunds part of the price if it goes past a certain date, etc.
Take nothing for granted. How does this builder handle unexpected things - what if he hits rock and has to blast when digging for the foundation? That's a big expense, but that's just one example. What happens if lumber costs continue to rise? Does he absorb it or you? How do you spec plumbing and electrical? Do you buy the toilets and sinks and he provides the plumber?
What happens if you find something you spec-ed and agreed to pay extra for it, but he used the basic unit? Is there a penalty for that other than just him saying"oops...I'll get the plumber back out there."
How are repairs handled after closing? If your hardwood floors start buckling, you'll basically have to move out for a few days. Where does your stuff go? Do you have to pay for a PODS? Movers? Hotel? Who pays for all that? What if the house is uninhabitable because the heat stopped working? (this happened to me because the HVAC guy was incompetent).
How will the yard grading be handled? Gutters - what size? Downspouts? Any buried drain pipes? How will the builder leave the landscaping? Seed and straw? Sod? Shrubs around the house? How many and where?
Outdoor spigots? If you want them in a particular place - tell him you want some input. Don't rely on the plumber judgement. They might go where it's conventient for him.
Do you want to write your initials in the garage floor while the concrete is wet or have your kids make their handprint? Spell it out in the contract.
Will the kitchen have a backsplash? Do you get to pick the actual slab of granite to be used? Will you have a media closet for your AV components with a remote sensor? Where will the HVAC ducts be located? Don't let them intrude on a closet that you want for something else because the HVAC guy didn't plan ahead, but he found a convenient spot when he arrived that day. Where will the indoor unit be located? Attic? Crawlspace? Basement? What size and brand will the HVAC be? Why is it that size? Don't accept a guess based on the guy's experience. He should be able to show calculations.
Work with the electrician to figure out where switches will go. For me, no more than 4 switches in any given box. More than that and you feel like you're launching the space shuttle when all you want to do is turn on a light.
How many outdoor lights do you get? Where will they be placed? Jelly jar lamps? Flood lights? motion sensors?
If you don't make the decisions on these things, the subs will...and they'll choose cheap. We have timers on all of our bathroom exhaust fans and dimmers for the bathroom and kitchen lights. LOVE THEM!

We built a house 5 years ago. Some things turned out great. There are some things I wish we could change and other things the builder totally screwed up because they had horrible communication with their subs.

Make sure you bathroom/kitchen/dryer exhaust ductwork is actually connected to the outlet where it protrudes through the side of your house or soffit.

Good luck...and have fun.

 

[logical]

If the next time you pay is when everything is done and you are taking possession then yes, a down payment up front is not a red flag and typical at least where I live.

The builder will make his money on upgrades and any changes you make after he starts. If you want this particular $200 toilet instead of the standard $199 toilet he specs you will pay $300 to get it. Get as much of what you want priced and agreed to in the original contract before you sign and make the up front payment and he starts.

 

[M6erfan]

Retired realtor here. I used to always advise the buyer hire a home inspector or at least talk with one. It's not a guarantee of good work but having a (professional) set of eyes looking things over never hurts.

Great advice, thanks!

How will the financing be handled? Is the builder going to ask for draws at certain milestones? Or does he carry it until it's done and then sells it to you as a whole thing?
If you already have a banker, it seems like this will be a construction loan. You're playing interest on it as soon as you start taking money. Find some way to keep the builder interested in finishing the project in a timely way - either carrot or stick. Give him a bonus if he finishes early. He refunds part of the price if it goes past a certain date, etc.
Take nothing for granted. How does this builder handle unexpected things - what if he hits rock and has to blast when digging for the foundation? That's a big expense, but that's just one example. What happens if lumber costs continue to rise? Does he absorb it or you? How do you spec plumbing and electrical? Do you buy the toilets and sinks and he provides the plumber?
What happens if you find something you spec-ed and agreed to pay extra for it, but he used the basic unit? Is there a penalty for that other than just him saying"oops...I'll get the plumber back out there."
How are repairs handled after closing? If your hardwood floors start buckling, you'll basically have to move out for a few days. Where does your stuff go? Do you have to pay for a PODS? Movers? Hotel? Who pays for all that? What if the house is uninhabitable because the heat stopped working? (this happened to me because the HVAC guy was incompetent).
How will the yard grading be handled? Gutters - what size? Downspouts? Any buried drain pipes? How will the builder leave the landscaping? Seed and straw? Sod? Shrubs around the house? How many and where?
Outdoor spigots? If you want them in a particular place - tell him you want some input. Don't rely on the plumber judgement. They might go where it's conventient for him.
Do you want to write your initials in the garage floor while the concrete is wet or have your kids make their handprint? Spell it out in the contract.
Will the kitchen have a backsplash? Do you get to pick the actual slab of granite to be used? Will you have a media closet for your AV components with a remote sensor? Where will the HVAC ducts be located? Don't let them intrude on a closet that you want for something else because the HVAC guy didn't plan ahead, but he found a convenient spot when he arrived that day. Where will the indoor unit be located? Attic? Crawlspace? Basement? What size and brand will the HVAC be? Why is it that size? Don't accept a guess based on the guy's experience. He should be able to show calculations.
Work with the electrician to figure out where switches will go. For me, no more than 4 switches in any given box. More than that and you feel like you're launching the space shuttle when all you want to do is turn on a light.
How many outdoor lights do you get? Where will they be placed? Jelly jar lamps? Flood lights? motion sensors?
If you don't make the decisions on these things, the subs will...and they'll choose cheap. We have timers on all of our bathroom exhaust fans and dimmers for the bathroom and kitchen lights. LOVE THEM!

We built a house 5 years ago. Some things turned out great. There are some things I wish we could change and other things the builder totally screwed up because they had horrible communication with their subs.

Make sure you bathroom/kitchen/dryer exhaust ductwork is actually connected to the outlet where it protrudes through the side of your house or soffit.

Good luck...and have fun.

Some really good stuff here^ Thanks

If the next time you pay is when everything is done and you are taking possession then yes, a down payment up front is not a red flag and typical at least where I live.

The builder will make his money on upgrades and any changes you make after he starts. If you want this particular $200 toilet instead of the standard $199 toilet he specs you will pay $300 to get it. Get as much of what you want priced and agreed to in the original contract before you sign and make the up front payment and he starts.

I've heard both on the down payment. That is, anything over 10% is a red flag to even 30%+ is reasonable on a new build.

Yes, it's a const to perm loan, so the land and construction down payment first, then the balance transfers to a mortgage at closing.

I'm lost on your toilet example. Why would a toilette that costs $1 more than spec'd actually cost me $100?

Great stuff gents, thank you!

 

[logical]

Great advice, thanks!



Some really good stuff here^ Thanks



I've heard both on the down payment. That is, anything over 10% is a red flag to even 30%+ is reasonable on a new build.

Yes, it's a const to perm loan, so the land and construction down payment first, then the balance transfers to a mortgage at closing.

I'm lost on your toilet example. Why would a toilette that costs $1 more than spec'd actually cost me $100?

Great stuff gents, thank you!

I was suggesting it would cost $300 more. My point is that if the guy is building 30 houses he wants to buy 90 toilets, all the same or better yet get them free where he buys $50,000 worth of PEX. If you want a different one, he has to now go shopping.

I'm not suggesting it makes sense...I'm warning you of how it will work.

 

[M6erfan]

I was suggesting it would cost $300 more. My point is that if the guy is building 30 houses he wants to buy 90 toilets, all the same or better yet get them free where he buys $50,000 worth of PEX. If you want a different one, he has to now go shopping.

I'm not suggesting it makes sense...I'm warning you of how it will work.

Oh wow, lol, good to know!

 

[manwithtools]

A few points to think about:

Is your marriage strong? People might laugh at this question, but it's pertinent, this is one of the most stressful things you as a couple will go through.

Can you both make quick agreeable decisions on important things. Plumbing fixtures, lighting, finishes, roofing grade, siding, etc. Many times your builder will want answers to these questions in a couple of days, maybe less. Can you both take time off work to look at the aforementioned items? Have you already spent time looking and thinking about options?

Be prepared for change orders, it will easily be $100 - 200 just to request a change and then it goes up from there. That's why the change from the $199 to $200 toilet costs an extra $300.

Be sure you have a clearly worded contract about what allowances there are for fixtures, flooring, etc. There are vast cost differences between builder grade and a level or two above that. If you are staying in the house for long, you may want a step up in finishes, appliances, fixtures.

Can both of you see things in three dimensions when looking at house plans? Many people can't and it becomes a challenge latter on when one of you says "I thought that room was going to be much bigger".

Go look at the builders work and then start looking at other homes that are similar. Spend as much time looking, talking, researching, investigating as you can before signing a contract. Treat it like a job! It could cost thousands if you are not on course.

You likely won't get any builder to agree to performance or penalty clauses. They will simply put in wording in regards to weather or conditions beyond their control in the contract that will protect them from any penalty. If they have plenty of work (which they all do right now), there is no reason to finish early for a few dollars, they are making the real money by optimizing the use of subs in the development they are working in. You are a single fish in the pond.

And be prepared for this: It will take longer than they tell you, how much longer is anyone's guess. Be there for every step, don't be afraid to question, it's your money after all.

 

[Zevo]

Trust no one. Be careful... I’ve custom built a home and things can go south. It happened for two people I know. Add 20% to what they say, because thats more realistic. It may go well, but there are a million land mines

 

[CraigStu]

For our build 2 yrs ago we had a contract w/ most of the details spelled out. Fortunately I am retired and had time to deal w/ it. I started w/ one of his standard designs, bought a design program and changed nearly everything. Lots of emails w/ pics attached-can this be done? We had allowances built in for plumbing, flooring, electrical, siding and roofing, landscape etc. So we spent time at each of his suppliers making choices. For instance we were fine w/ the grade kitchen cabinets he uses but wanted engineered quartz counter tops and ended up $5k over budget. oops, so we down graded to a corian like material which we really didn't mind. Electrical was a ton of fun working w/ the supplier for about 3 hrs at their store. And then 6-8 emails finalizing all of it. It was even more fun walking through the framed house w/ the electrician deciding where lights, outlets etc would be placed and how they would be switched and from where. I would make the decision up front that you won't be taking a vacation while the home is being built. Having the time to meet w/ the builder or supplier makes it fun. We were 4 hours from the new house so I made many, many day runs to be able to do these meets w/ the suppliers. leave the house at 630am to meet someone at 11am, spend 1-4 hours there and get home at 5-8pm was normal. It was worth every minute in the end. My wife was still working so there were many texts w/ pics attached so she could help w/ the decisions. But I also had 100% approval to make decisions on my own if needed. We would do it again in a heartbeat.

 

[matt_i]

I watch various building shows and they all

a) take longer than planned
b) exceed the highest budget range
c) have some sort of stop-work pitfall that introduces a significant change or work-around from the original plan or scope of work.

And the disadvantage of having to double-pay for housing, essentially money is flowing on a construction loan while you are still renting (etc) before you can finally wrap up the long-term fixed mortgage. The rules may have changed but typically you have to own the land free & clear before you can start a construction loan, iow must have one fixed asset before it can be used as collateral for another loan. If there were two loans for land and property and the owner gets cold feet and walks away one bank/one loan is going to take a total loss.

 

[Jinks]

If at all possible own the land & be in the area during the build. Owning the land gives you access to the property at any time. Being in the area lets you inspect the build as it progresses. Make sure the builder knows you are going to do this. Include it in the contract if you need to.

Don't abuse the ability to access the site & don't interfere with the workers. Handle all problems through the builder or site foreman unless asked by a sub. I had a builder that tried to cut so many corners he tried to refuse me access. It was a remodel that I wholly owned so I told him to try & have me removed. We'd see which of us got to stay. He quit trying to keep me away after that. I also have some friends that lived out of state, had a "custom" home built in an "upscale" H.O.A. Nearly three years later they're still fighting with the builder over serious problems. If you're not there to see it as it goes up it gets covered up.

Document *EVERYTHING*! Keep a calendar & a log. Log the weather each day & any significant events. Both will be useful in any disagreement. Be sure your contract requires *written* change orders & keep copies.

Building is a business agreement. It can be friendly, but it's still a business agreement. Don't try to take advantage of your builder, & don't tolerate any attempt to take advantage of you. Don't expect zero problems, too many people involved, but try not to create problems yourself.

 

[glentre]

Vavet in post 5 is correct in that you need to think about everything in advance, understand what you are getting and have it in writing. In order to do what he is talking about, though, you have to be dealing with a custom builder and not a development or tract builder. With a custom guy, you are in control and the home is built to your plans and written specifications like what Vavet is describing. With a development builder, he is in control and you get whatever he is accustomed to building and basically the same house he has built many times before. There are pros and cons to each type of builder.

If you are dealing with a development builder and think you are in control you will be sadly mistaken. His business plan is to build the same few models, all the same so he can get them done and turned over as quickly as possible with secondary importance on quality or pleasing the buyer. He hates change orders and often will not even allow them because they screw up his time schedule except for his "standard" modifications he offers in his home packages. Many of them don't even want you on the job.

The good custom builders will work with you on your plans and specs through the build and be willing to make changes. They often make a good portion of their profit on change orders because they will do anything you want if you are willing to pay for it, often at unreasonably high prices.

Best advice I can give is to know who you are dealing with and to make absolutely sure you completely understand what you are getting into and to have EVERYTHING in writing before you start. Your statement "spec with choices for finishes" sounds like you are dealing with a development builder and you will get whatever he is offering with limited opportunity for any significant changes or specials. And usually, everything will be "builder grade", meaning the lowest quality HVAC system, toilets, fixtures, concrete work, grading etc. But, the finished house will be done quickly and less costly to you than building a custom home.

Glen

Glen

 

[Bert_]

I always chuckle at these threads. They use the word "custom" when all you get to do is pick from a list of choices. Someone mentioned when custom was was a low end trim level in pickups. I think ford and chevy used a similar name for what was a set above base options. In that sense I guess the term applies pretty well.

Where i live there isn't enough market so there are no spec homes. If you want a new house you buy the land and hire a carpenter. The lumber yard and carpenter can help with design. There are no options to choose from you build whatever you want. Most of the time you get an estimate but it's built time and material. There are no issues with change orders.

 

[Will Allen]

Someone mentioned when custom was was a low end trim level in pickups. I think ford and chevy used a similar name for what was a set above base options.

The lowest was a C/10. Then came the Custom/10. Then Cheyenne and Cheyenne Super.

My 1972 Custom/10 had vinyl seats and floors, three on the tree and no power steering. I'm not sure which of those luxuries were removed to drop down to a C/10.

 

[jkuro]

A construction loan is what you need, most lenders have their way of doing this They will usually set up a draw after a certain amount of work is completed. I guessing but around 6 draws is the usual. The bank will then inspect the work completed before a check is issued. Make sure the check is issued to you and not the builder. Builders have been known to keep all the money and not pay the subs. Now you will then pay the builder and his subs. Make sure you get Lein Wavers signed, by everyone involved, when you pay them. This is your receipt for work preformed.

 

[sleek98]

Tell him you want a completion date in writing and a penalty for each day past that date. He won’t agree to it but he will move the date to a more realistic date. My house took an extra 5 months due to the builder letting his son “run” the job and finally after demanding our deposit back after the closing date with no drywall done he got his **** together.

Also there needs to be an allowance for everything. Cabinet/drawer pulls were “forgotten” on ours. Make sure if you do any major upgrades like have you have specs in the contract. Like 16 seer dual stage ac and 96% dual stage furnace vs upgraded hvac. That mistake cost our builder 16k since he priced the wrong unit, but we had specs listed.

Sent from my iPhone using Garage Journal

 

[infinkc]

We built a custom home recently. I tried to find a home with a nice size garage or land to build a shop but couldn’t find anything.

Landed up finding a piece of land and decided to build a full custom on it.

We came up with a floor plan we liked and interviewed a few builders. This was 2 years ago and the number of custom home builders really had dropped off since the big housing drop. We had a hard time to find a bank also to do a construction loan.

Finally got everything situated with the loan, it is based on how much of the house is completed for what we pay each month, then it converted to a conventional when the home was done.

Overall the process was pretty painless. You have to choose everything, it’s amazing the things you never think of when just buying a track home.

Love how things turned out, I would do it again over a track house. Just need to stay on top of the contractor so you keep on schedule.

Cost can run from $1.50 up per sqft for just the house, not the land.

It’s still uncommon where we live to have a full custom home, our area is mostly track houses.

In the end it’s everything I could have wanted in a home. My build thread in my sig has some pictures of the process.

 

[03ranger]

We had our house built (2350 sq ft) in Arizona about 6 years ago, on a hand shake, no contract. Would I do it again, YES. Why; we own the land outright, the architect plans were completed and building permit in hand. Building the house was a pay as we build. Builder got payed upon each passed inspection. We could stop construction at any time if we felt that there were any issues. One other thing, we visited the building site everyday during the build. I always had questions, but the builder usually answered my questions before I could even ask them when we toured the site each day.


Don’t take the first contractor that you find /available or go for the cheapest price. Do your home working finding a good, dependable, reliable contractor. Yes there are good, dependable, reliable contractors, they’re not cheap but you get what you pay for. Our house was built in six months, from the first shovel of dirt being moved to final inspection. Today that same contractor is so busy; he’ll scheduling construction six to eight months out. Permits are taking somewhere between 4 to 6 months to get.

 

[CVPIJoe]

My wife and I are building as we speak. Supposed to move in end of April. Was end of January but that's part of the game. As others have said, plan for more. We went way over budget but a lot of it was upgrades that were cheaper for us to do now rather than later.

It is very stressful with all the unknowns and extras we have come across and new suprises daily. In the end I sure believe it will be worth it and I will finally have my garage at home !!

<a href="https://ibb.co/FB2GG65"><img src="https://i.ibb.co/GVygg7W/IMG-0186.jpg" alt="IMG-0186" border="0"></a>

 

[rockcrawler]

We finished building a custom home on 2 acres back in May of 2020. Worst experience of my life. We spent 9 months drawing the house to be exactly what we wanted. Architects were fantastic and very patient. The builder was horrible. Took over a year to build. Tons of delays and we caught them doing things wrong on multiple occasions. We fought with them many times. They claimed to be a custom home builder, but they were really a track home builder at best. They did have some good subs though. Also, be prepared to be stressed out daily. Hopefully your build will go smooth, but just be prepared to deal with builders and contractors. It will have you puling your hair out.

1. I highly recommend having a clause in the contract stating that if the build is not complete by a certain date, the builder will owe you money for each day it goes over. This keeps them on the ball and minimizes delays.

2. Visit the build site almost daily if possible. Make sure they are doing what you want, it’s your money, your house.

3. Pre-wire if they will let you. I pre-wired during framing for security cameras, surround sound, and whole home audio. Run conduit as well and keep a spare pull line inside for future pulls. Cat6 to every room for TVs.

4. The build will take a long time. Take your time to buy your appliances and other house items. Wait and find good deals and then just store them. Buy things for the house on a credit card that gives you money back. You will potentially spend a lot of money, might as well get some back.

5. Take notes on all in-person meetings. Communicate via email or text as much as possible so you have everything in writing. The builder will most likely forget to do some things and this gives you proof of conversations and decisions.

6. Have lots of lights. Most builders skimp on this and you end up with a dark house.

7. If you do Christmas lights, have outlets put in the eaves and a switch or two in the garage to run them. Preferably smart switches so you can run them on a schedule.

8. Spray foam insulation everywhere in the house, and even the garage. And insulated garage doors. The temp difference this stuff makes is amazing. Keeps the garage from being a furnace in the summer and a freezer in the winter.

9. Have a marriage counselor on standby. It’s going to be super stressful. Make sure you’re both on the same page about all decisions and clearly communicate with each other. This experience is going to put your relationship to the test.

I’m sure there are a lot more, but this is what I came up with quickly.

 

[nadogail]

If you give your contractor a large deposit, don’t be surprised if he shows with a brand new pickup on the day the job starts.

The low bid on the contract price was just the starting point; most contractors make their money from the inevitable Change Orders. If your contact is specific enough, the anticipated change orders will be reduced and at a pre agreed price.

 

[nadogail]

Avoid all verbal orders, by putting every thing in writing you not only avoid misunderstandings, there will be no “He Said/She Said” problems.

 

[AP514]

Yes , All written down...Contract, Changes, everything..and Signed by Both
Also on your Construction LOAN add six months time frame to it.
My bank fined me 3K for them having to carry the construction loan six more months.
I thought 1 year would be ample time for the house to be finished but Problems came up and I got screwed a bit.
I was my own contractor so things were a bit different.
Just remember that if some thing is not correct and the builder wants a DRAW and says he will FIX that LATER you tell him you will PAY him LATER.
It will be fixed very fast.....
And Hold back a good % for Final Inspection (20-30%) Because once you sign off on the House Final Inspection and he is paid. It may take months for them come back and fix some thing. There is no Money in it for him.

 

[paulsomlo]

Retired realtor here. I used to always advise the buyer hire a home inspector or at least talk with one. It's not a guarantee of good work but having a (professional) set of eyes looking things over never hurts.

My GF had one inspect a rental house she bought - he found all kinds of ridiculously minor stuff, plus stuff that didn't exist - but he missed the 1/4" wide foot long crack in the 4" cast iron drain pipe in the crawlspace.

 

[joe--h]

Where are you now and what state are you going to? Makes a big difference on a lot of things.

Joe H

 

[red61cj5]

Hi,

I would recommend working with a real estate agent.

They will help you throughout the home buying process.

Thanks!

Did you read the thread at all?

 

[yeldogt]

What do you mean by "the builder is new" ?

Also -- when you say "floor-plan" ... is this something where you want to buy the lot and the builder will build a stock house ... or is this a development where you found a lot and picked a model?

Buying in a development is much different VS doing a one off house that an independent contractor is building?

With a development .... you pick the house and model and the standard pack of upgrades. You don't buy a Chevy and try and make a Cadillac out of it ... the changes will kill you in price. That's what people are talking about with a toilet. A toilet comes in bathroom -- but ... do you want that one? The upgraded toilet will be expensive ...


There are many models when building ..... I build with full plans and the builder bids the plans with real estimates attached. That becomes the allowance ... Some builders guess and if they guess wrong as to the quality you want ....you pay. It's the same with electric ...and all the other subs.

Contracts .... good luck. It's as good as the builder/ contractor.

It's a lot of work ...

Lot of things on this tread that don't make sense?

 

[M6erfan]

Wow, lots of good advice here.

We received the first draft of the contract and are considering our position. Thanks for all the input so far!