Building Your Own Home – Get the Skinny Up Front

Purchasing a to-be-built home is completely different from buying an existing home. When building your own home, whether it’s customizing a spec home or creating a custom home from scratch, you can avoid expensive misunderstandings by asking your contractor some key questions up front.

Building a custom home on land you’ve purchased is a big undertaking, but so is purchasing a home in a new subdivision. When building a totally custom home, there are no templates or specifications to adhere to, so while open communication is critical, a developer is not trying to squeeze your dream home into a ready-made template.

When purchasing a to-be-built home in a new subdivision, you’ll be faced with choices within the confines of pre-approved plans. Limits on square footage, house color, and backyard fence height may surprise you. The fact that you are not allowed to park your RV where it can be seen from the street may change where the house goes on the property.

Before you get into the details, check out the builder. Ask for a list of previous clients. Ask your lender and, as always, your Realtor, what they know about him. Don’t go in blind.

Once you know you’re dealing with a reputable builder, here are some questions to ask before you jump in with both feet.

  1. Is earnest money refundable?
    Typically, in the resale market, if the purchase of a home falls through based on a loan contingency, you get the deposit back. This may not be the case if a contractor has modified a standard floor plan to suit your needs.
  2. How long will it take to complete the home?
    If you have already sold your home, are you living in a rental, or worse, with your in-laws? This may be a significant point of negotiation as you determine whether to buy a to-be-built home or find one that’s ready to move into.
  3. What is “complete”?
    If your contractor says, “Don’t worry about those six things on the punch list, we’ll take care of them after escrow closes.” Your response should be, “That’s fine, we’ll release the final ten percent hold-back funds right after that punch list is complete.”
  4. How much do you want me to stick to the program?
    Incentives are often available to encourage folks purchase a model that’s already been built. Ask about them.
  5. What’s the upgrade allowance?
    Frequently, when you inspect a model home, it has granite countertops and tile floors. When you review the contract, you may discover that it includes Formica/laminate, with linoleum in the bathroom. Each area of the home has an allowance, say $500 for kitchen countertops. If you want granite, you have to pay the difference between $500 and the additional cost of the nicer material. It’s like buying a car: the base model may be $18,000, but if you want leather seats, that’s extra.

    Review allowances to be sure they are sufficient to build the quality of amenities you want for flooring, lighting, plumbing, countertops, and more. If you want to upgrade, decide up front, because change orders are expensive. Changing your mind after you’ve settled on a contract can double the price of nicer amenities.

  6. Who’s on the hook to pay whom?
    Be sure your contractor is on the hook to pay any subcontractors, not you. You’ll want lien waivers and/or releases in writing: you don’t want to find out the subcontractors weren’t paid and you’re responsible for paying them.
  7. What happens when workmanship falls short of expectations or the move-in date is postponed for the fourth time? What happens when the Internet lender can’t close escrow on your agreed-upon date?
    Brainstorm “what ifs” and get answers up front.

If you have questions about real estate or property management, please contact me at rselzer@selzerrealty.com or visit www.realtyworldselzer.com. If I use your suggestion in a column, I’ll send you’re a $5.00 gift card to Schat’s Bakery. If you’d like to read previous articles, visit my blog at www.richardselzer.com. Dick Selzer is a real estate broker who has been in the business for more than 35 years.