Choosing a Small Home Builder

Chapter 9: Choosing a Small Home Builder

In this chapter, we discuss what to look for in a contractor to build your small home. Choosing the right expertise could make or break your project costs or put you in a situation which increases your liability. So it is imperative that you do your due diligence. You want someone with the right skills to get the job done, without overcharging for the project. But there are other things to look for, too.

How busy is the contractor - Beware the contractors who already have their plates full. If it is a hot real estate market, most contractors are busy or have enough projects to keep their crews busy. If the contractor is sufficiently busy, you will receive an estimate that is very much overpriced. It could be better to wait until the market cools off. Or just plan on paying as much as a 10-30% premium.
How many jobs at one time - Always ask the contractor how many jobs they currently have or how many they will typically take on at the same time. If they only have a crew of 3-4 guys but they are taking on several projects at a time, you could end up with a project that drags on or paying a higher price to get it done quickly.
Referrals and Past Clients – Try to find a licensed and fully insured contractor via referral. If a trusted friend has worked with the contractor recently and refers the contractor to you, make sure to interview and find out how satisfied they were. Ask as many questions as you can think up. Were they late to the job site? Did the contractor do what they said they would do? Did the contractor come in under or over budget? Would they work with the contractor again? etc. Ask if they will share their project costs with you.
Use a Fixed Price Contract – This helps avoid any issues and unexpected cost overruns. The contractor is responsible for getting the job done at his quoted price. This requires a contractor who is stable financially and has been in business for a while.
Make sure to find out how long they’ve been in Business - Most contractors will go out of business within 1-5 years. You want a contractor who will be around to honor their warranty of all work performed.
Don’t Hire the Guy with a brand new F-350 – You will get gouged! Generally, it’s been our experience that you will get very high bids from contractor who can afford a $90,000 truck. Also, some of the highest bids we’ve ever seen have come from www.homeadvisor.com. Referrals seem to be the best way to locate contractors.
Make sure they are following the rules - I like to find the contractor who is fully licensed and insured and paying his guys W2. It is a red flag if he’s paying them 1099 or under the table. You want someone who is financially stable enough to not be asking you for project money every 4-5 days. You should have an agreed upon project timeline where the contractor gets paid only when he finishes certain pre-set criteria (i.e. foundation is poured and signed off on by inspector, framing is inspected and signed off on etc.). If you are using a renovation loan, the lender will have your back with a HUD consultant who inspects the work before the construction draws. The contractor can’t get paid unless his work is signed off on by a professional.

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