What If the Builder is Slow or Stops Construction

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You can’t make a builder go faster, or put up a home when he or she stops work. Usually, tardiness or a halt in construction is caused by circumstances beyond the builder’s control, such as problems with financing, labor troubles, or problems with the local building department

The “Coming-Soon” Syndrome Another friend of mine wanted to buy a new home in a development in Orange County, south of Los Angeles. Jill loved the location and fell in love with one of the models. There were several homes already constructed and ready for sale, but not the model she wanted. The builder told Jill that her model would be available in the “next phase.” He took a $500 refundable deposit from her and signed an agreement, explaining that she would be required to fill out a sales agreement as soon as the house was built. The $500 merely reserved the house for her. He guessed that it would be ready in four months. Four months later the builder hadn’t even broken ground. Jill, and a number of others, were haunting his offices trying to find out what the problem was. All she could get were vague answers.

She was told that the lenders would not agree to the financing because of some title problems. Or there was a permit difficulty with the city. Or the builder was waiting until materials costs came down. Or something else. Finally, five months after Jill paid her deposit, work began. It took another eight months to finish her home. During the building period, she visited the home whenever she could, sometimes several visits a week. She didn’t notice any problems until the house was almost completed and the wallboards put up. Then she realized that the floor plan was not exactly the same as the model. The windows of the living room didn’t face the hills, the one feature she admired most about the plan. She confronted the builder. Yes, he explained, the plans were changed. Building costs had changed and he was just adjusting to them. A few corners had been cut here and there so that he could deliver the property at the agreed-upon price. What could she do? She continued to wait. Finally, the building was completed. It wasn’t at all what Jill hoped it would be. But after all the waiting (nearly 11 months), she was glad she would be able to move in. When she went to sign the sales agreement, however, she found that the price had gone up by $40,000! How could that be, she wanted to know? She had agreed upon a price with the builder. He pointed out that the price he agreed upon was the price of 11 months earlier. Costs had gone up since then, both building materials and labor. And housing prices had likewise increased. She didn’t expect him to sell for yesterday’s price, did she? He pointed to a clause in their agreement that clearly stated he could adjust the price. In the end, it wasn’t the house Jill wanted at the price she wanted to pay. She got her $500 deposit back and began to look elsewhere. However, she had lost nearly a year, not to mention all the hassle. Yes, this is a true story. No, it doesn’t happen all the time. It probably doesn’t happen most of the time (although price and plan changes are legendary in construction). But it does happen enough that you should be aware of it and at least plan on the possibility.

Don’t Forget the Upgrades You’ll quickly discover that when you buy a new home, there are plenty of upgrades available. Here’s a list of some of the upgrades you can typically expect to pay more for:

Common Upgrades  Larger or view lot  Any changes in the basic construction plan  Landscaped yard  Better roof  Better carpeting or tile  Air conditioning (now standard on many homes)  Additional mirrors or windows  Better appliances (stove, oven, dishwasher, refrigerator)  Better fixtures (toilets, sinks, tubs)  Larger water heater What’s interesting is that while you may have your choice of a variety of upgrades, chances are you’ll only be able to choose from the builder’s list at the builder’s price. For example, you may have your choice of three grades of carpet and that’s it. Or you can choose from six tile patterns, three of which cost extra; no other changes may be allowed.

So, you don’t like what the builder offers? And chances are you don’t like the upgrade prices? So what do you do? The most logical thing is to tell the builder no thanks and that you’d like an allowance for his cost of materials. You’ll go out and buy your own. Not a chance (in most cases)! Most builders will not give you an allowance against standard items.

There are several reasons that builders limit the changes and upgrades you can make. One is cost. They get guaranteed estimates from a few distributors and they know what it’s going to cost to purchase a particular product. That makes it easy for them to stick with that product. Also, there’s the cost of labor as well as materials. Some materials require extra labor costs. For example, some Mexican tiles are irregular (when compared with American or European tiles), and there may be an extra labor charge for installing them. To avoid hassles here, the builder may simply limit the selection to half a dozen patterns, all because he knows he can control the labor costs. Finally, there’s the matter of lender and building department approval. The builder usually has lenders who have guaranteed approval of financing, provided the house is built a certain way with certain features. Change the features and a new appraisal might be necessary. Similarly, the plans may call for specific features. Change those features and the builder may have to submit new plans to the building department.

TRAP MUST HAVE CARPETS Did you know that many building departments will not give final approval to a home until all the carpeting, appliances, and fixtures are in? Thus, even if you want to buy your own carpeting, for example, the builder can’t agree to it and still “final” the home. The real question you should ask yourself is: Which upgrades and extras are worthwhile and which are not? Here are some clues.

Is a Larger or View Lot Worth it? If the price isn’t that much more, go for it. For example, a lot with a view or a larger lot may cost 3 percent more than a standard lot. Usually this will pay in the long run. On the other hand, back off if the price is excessive. Keep in mind that if you buy a view lot, it may be the best money you can spend. If you’re in an area where view lots are prized, you could get it back several times over when you sell.

Usually new homes come with wall-to-wall carpet, tile, and/or finished wood. But the quality of these often leaves much to be desired. The difference is most obvious with carpets and tiles. The model home may have luxurious, thick carpeting, whereas the actual carpeting that comes with your home may be short and skimpy. The model may have colorful Italian tiles while the standard home comes with ordinary white tiles. I’ve found that it usually doesn’t pay to upgrade floor coverings IF the builder is charging a hefty price for the privilege. In too many cases you can go out and buy the same upgraded floor covering for a fraction of the builder’s price. Better to just live with the standard grade and then, after a year or two, replace it. On the other hand, if money is no object and you want better floors, go for it!

Should I Pay for an Upgraded Yard? Many homes these days come with a landscaped front yard. Almost none come with landscaped side and back yards. However, your builder will usually put these in for you, for a price. This is usually an expensive trap. Putting in yards can be very costly. On the other hand, if you do some of the work yourself and hire out only the difficult tasks like installing the watering system and planting large trees, you can do it for significantly less.

Most new houses in the southern part of the country offer this as standard. If air conditioning is offered as an upgrade (instead of a standard feature), I would get it. The climate appears to be growing warmer in most parts of the country. Today, just as in automobiles, air conditioning is considered to be a necessary feature. You may find that you have trouble selling your house later on if it doesn’t have air conditioning.

What About Other Upgrades? It all depends on what they cost, how much better they make the house look, and how much more livability they add. My own rule-ofthumb is to go for upgrades whenever they are inexpensive and leave them off whenever the price is exorbitant.

How Can I Watch Out for Shoddy Construction? One of the advantages of buying a resale is that you pretty well know what you’re getting. If the home has been standing for 5, 10, or more years, chances are it will stand another 30 or 40. On the other hand, when you purchase a new home, you’re buying something that is as yet untried. If there are defects, they could show up in the first few years of usage. But, I hear many readers saying, aren’t new homes fully inspected by city or county building departments? Don’t they have to meet strict health and safety guidelines? Yes . . . and no. All modern buildings are inspected at numerous times during their construction. In most cases, the inspector catches problems and forces their correction before a “certificate of occupancy” is granted. (You can’t occupy the home without this certificate in most areas you can’t even connect to water, power, or gas without it.) However, there may be only one or two building inspectors and hundreds of houses to inspect. Further, while in most cases the inspectors are well trained and experienced, they often are not expert in every area of construction. And in a few cases they simply are not very well qualified. The upshot of all this is that regardless of the area of the country, shoddy construction goes on all the time right next to excellent construction. For example, a few years ago the builder of a housing tract in Southern California decided to use a Spanish tile roof. This consists of red, curved tiles interlaced to form a very attractive roofline.

The trouble with the tiles is that they aren’t very good at holding out water. In a wind-driven storm, the water sweeps up under the edges of the tiles and through the roofs. In the old days (the 1700s), Spanish tile roofs were used extensively in California. However, in those days a kind of mortar was applied to the roof and the tiles were carefully set into it. This effectively waterproofed them. Today the use of this mortar would be unattractive and expensive. So instead, roofers lay down layers of heavy, waterproof tar paper called “felt” before placing the tiles. It acts as an effective water barrier. However, in this particular tract the roofer had never before laid Spanish tiles. No felt was placed beneath them. The building inspector, also unfamiliar with the need for felt, didn’t catch it. You’re right. With the first rain the roofs leaked every roof in a tract of over 60 houses! About two-thirds had been sold and the water damage forced the occupants out. Needless to say, they were furious and everyone looked to the builder for repairs. The builder was an honorable person, but not particularly wealthy. All the tiles on the roofs had to be removed and felt placed underneath. It meant reroofing over 60 homes a very, very costly thing to do. The builder simply couldn’t handle it and declared bankruptcy. Note, this was shoddy construction. But no one was really trying to cut corners. It was just a case of a builder working in an area of unfamiliarity and a building inspector likewise being in the dark Of course, this is a dramatic exception. Most buyers of new homes have no problems at all (or small problems which the builder quickly fixes). But that doesn’t mean that major structural problems in workmanship or even materials couldn’t occur. In a way it’s like buying a car. Chances are the one you get will be wonderful. On the other hand, you could get a lemon. All of which is a great recommendation for getting your building thoroughly inspected (during construction, if possible) by a professional inspector.

What About Builder Warranities? Most builders back their construction with warranties. Even a builder who does not give you a written warranty may be offering you an

“implied” warranty, depending upon the state in which you live. Today many states have strong consumer protection laws that allow you to take the builder to court for shoddy construction and win a settlement. (Of course, that’s of dubious value if the builder has gone broke.) Often the warranties run for 10 years or more, although specific types of repairs or replacements may be limited to only 1 year. Of that vast majority of builders who offer warranties, there are two groups: Those who self-warrant and those who buy insurance.

Self-Warranted Homes A builder who self-warrants a home will normally give you a certificate of warranty, which states what is covered and what is not covered. Typically such a warranty says that if it’s not specifically noted, it’s not covered. The Magnuson-Moss Act (1975) is a disclosure law that is handled by the Federal Trade Commission (FTC). Under Magnuson-Moss, you may be entitled to specific protections. They should include the following:

What to Look For in a Builder’s Warranty  The name of the person who is warranted (you) and a specific statement of whether the warranty is transferable if you sell the property.  Precise information on what is covered and what is excluded.  Exact language detailing what a builder will do to correct a problem that arises.  The length of the warranty.  The procedure, in detail, for filing a claim.  Any limitations on consequential damages. (Consequential damages result as a consequence of covered problems. The most common example is a water pipe bursting, causing damage to furniture. The pipe may be covered, but is the furniture?)  A clear statement of any reduction of implied warranties.

As part of the warranty, some builders have the buyers sign a statement that they waive all implied warranties. In the states that permit this, if you sign such a statement, you may give up more rights than you get, since the implied warranties may be stronger than the builder’s specific warranties. If a builder insists you sign a waiver statement, you may want to consider a different builder and house. At least check it over with your attorney. Under a builder’s warranty, you have to go back to the builder to get satisfaction if a problem arises. It’s to your advantage, therefore, to find a builder who is big enough to sustain the losses involved with any likely problems.