Home Building and Finding A Contractor

If you are building a home in this area, this is a critical issue — especially if you are from outside the area. My family moved here from the Detroit area in 1998 and we needed a builder. We were frankly surprised that some of the builders here didn’t seem to have cell phones, brochures, or business cards. It seemed a bit odd, to say the least. Fortunately, things have changed a lot, and this is no longer the case for the most part. However, some home builders still manage their operations like a dropout from life looking for something to do, while other builders operate professionally. Choose the latter.

I had a builder tell me once that all buyers are liars. He was referring to the allegation that all clients speak badly of builders after the construction is complete. He said there were so many factors that go wrong in the building of a new home that this was inevitable. Another builder told me that all of his clients are angry with him for the last part of the building process when the final details and costs are being ironed out. I don’t believe it must be this way and I have assisted many clients who have a much more positive experience. Even so, many homeowners are unhappy with their builders and describe the construction process as a nightmare. I don’t want this to happen to you, and it doesn’t need to.

It is common to get sweet-talked into using the first builder you speak with. This is easy to do since some of the initial conversations with builders take a lot of your valuable time, especially if you don’t live in the area. This might work out OK, but take a few more simple steps first.

First, talk in detail to your REALTOR® and others from the area. Ask them to provide the names of their top builders and ask why they recommend them. Make sure they are not just recommending a friend, neighbor, or a few names from the phone book. If you are buying a lot in a newer neighborhood, you may be able to speak with neighbors who have recently had a home built. (You will be amazed at how friendly the folks are here. You can just walk up to their door or catch them taking a walk). Ask them who they dealt with and take good notes if you hear a name that is spoken of positively. If you find a few neighbors who loved one builder and recommend him, you’ll have a good candidate to interview.

Second, interview the builder face-to-face. You will learn a lot about a builder this way. How does he manage his personal life? Was he on time for the meeting? What is the condition of his vehicle? Ask him for a list of homes he has built and take a drive-by. Ask him what his relationship with past clients is like, and then ask for a list of references. Call the references and ask detailed questions such as the cost and timing of the finished project compared with what was estimated or promised. Ask the builder where most of his supplies are purchased. Go into that store and ask the contractor staff or manager whether the bills are paid on time and if the builder’s business seems to be run professionally. Even if the employee feels compelled to speak positively about their customer (the builder), you can often read a lot in their responses. Ask the builder for addresses where building is in process. Check out the job site after hours or on a weekend. Does it look sloppy and carelessly managed or neat?

Third, if all of the above checks out, talk to the top two builders about their approach to pricing and cost. I recommend narrowing the builder down to your top choice or two before asking for a detailed bid. This will be fairer to the contractor and provide you with a more accurate estimate. It would be good at this point to know which cost approach the builder prefers and why. There are two main approaches: contract-bid or cost-plus. You need to think through the differences in using each approach.

In a contract-bid approach, the builder should provide an extremely detailed breakdown of the finished items included in the bid and the factors that would cause the cost to go up or down. Note the cost of expensive, highly variable items such as cabinets, flooring, and lighting. A great builder should be able to anticipate the level of quality and cost of items in his bid based on his experience, conversations with you, and the final value of the home on the lot. If he is honest, he will not have bid these at a low level just to get your business. (This will take some homework on your part to anticipate the price range to expect for these items). There are builders out there who can provide a bid per square foot, but once you have chosen a long list of upgrades midstream the cost ends up 50% higher. They may try to make it sound like it was all your fault for choosing “so many upgrades,” but the truth is they are responsible for submitting a more honest bid upfront. This issue should be discussed with the builder and his references in advance. A contract bid builder must add some cushion for contingencies such as weather problems or increases in the cost of materials. This cushion can turn into extra profit for the builder if things go well, and on the surface, it seems like this approach may result in a higher price for you.

Enter the cost-plus approach! Home builders using this methodology argue that you, the customer, should not have to pay for that extra cushion if things don’t go wrong. At the same time, they don’t want to bear the financial liability if things go awry. So they give you their best guess on how much the home will cost based again on their experience, conversations with you, and the final value of the home on the lot. Then they provide you with detailed invoices along the way showing their costs of labor and materials. Their profit is simply a matter of adding a set percentage to the cost (the “plus” in cost-plus). A typical profit range is 15% to 20%. (The builder may argue that he would figure in 30% if doing a contract bid to account for unexpected problems). It seems like this open-book approach would be less costly to the client and fair to everyone.

I am not willing to say that there is one correct approach in all circumstances. It is highly dependent on the builder, your level of knowledge and involvement, the weather, the type of lot, and much more. I will say, however, that most of the problems and dissatisfied clients I encounter are in the cost-plus arena. The cost-plus approach puts the risk of all problems on you, the buyer. It would be great if there were no significant problems, but you need to know something right upfront: THERE WILL BE PROBLEMS!

As an inexperienced home buyer, do you want to bear this risk or do you want to allow it to be borne by the person who deals with these types of issues daily, and has for years? Another criticism of the cost-plus approach is that it is like giving your builder your checkbook. Do you trust him that much? What motivation will he have to get several detailed bids for a component of the job? Will he fight to get the lowest price for the electrical work, for example? Will he tell you about a wholesale outlet where you can save 25% on the lighting and plumbing fixtures? Or, due to the cost-plus profit arrangement, might he even be hoping that the costs will come in higher? Do the math. Twenty percent of a bigger number is a bigger number! If you go with a cost-plus approach, you better know your builder extremely well. And if he is that close of a friend, you better realize that he may not be a friend after the process is complete.

Is it obvious that I generally favor the contract-bid approach? You need to make your own decision on this, but whatever you decide, you can see that you should be willing to spend a significant amount of due diligence upfront before choosing a builder. Ask a lot of questions. Call all references. Find other homes the builder has constructed and talk with those owners. Much of this process can be shortened by looking for word-of-mouth references. If you start your search in the phone book or Chamber of Commerce directory, you will greatly lengthen the process and set yourself up for possible frustration. Bottom line: Seek counsel! Proverbs 15:22 says Without counsel plans fail, but with many advisers, they succeed.

Fourth, before you get started on your home, talk through with your builder what items are included and not included in the bid or pricing estimate. A simple example is landscaping and sidewalks. I have known of many clients who didn’t think about this item and had a picture of a beautifully manicured new lawn to go with their beautiful new home. But when moving day came, they were faced with trying to figure out how to keep the mud off the new carpets. These folks often spend many thousands of dollars to finish what they assumed was part of the package. I am not suggesting that this is the fault of the builder, but that these types of things need to be discussed in advance. I know of many builders here in the lake area who appear to be competent and honest. In case I have discouraged or frightened you away from the building, I want to highlight a bit of what I know about two local builders so you will know that there is hope! They are very different, yet both have a long list of extremely happy clients and are proud of the homes they have constructed around the lake area.

The first builder moved here from metro Washington, D.C. He has a background managing a commercial and residential construction company and runs his company like a well-oiled machine. He works out of a nice office and has a professional staff. After he gets an idea of your scope and project, he can tell you the date that he will break ground as well as the scheduled completion date. (He averages about 10 days early on his completion estimates). He will provide you with a beautiful folder with a detailed list of past clients including their phone numbers. Think about that. You can call any one of them and ask them to verify what you are hearing from him. His presentation folder also details promised versus actual completion dates of all the homes he has built in the past decade, as well as the percentage over or under his original bid from the final total cost of the home. He prides himself on getting to know his clients in advance and bidding on their homes in such a range as to minimize upgrade change orders along the way. The average upgrades for his buyers are a few percent or less. He is not only a builder, but an artist and an architect, and he provides helpful design and money-saving ideas to his clients. Once you choose him, it will take at least a few months to get underway since he spends considerable time in the design and bid process and typically has a backlog of clients. (As a side note, this builder believes that the cost-plus approach is akin to robbery. He works only under fixed-bid arrangements). He is not the cheapest builder in town, but his clients say his services are worth every penny.

A second builder I wish to highlight seems different in many ways. He was born and raised here in the sticks and has the accent to prove it. He started building around the lake as a young man in the mid-1960s. You may not be impressed with him when you first speak to him on the phone, but you will be impressed when you see any of the homes he has built. The attention to detail and quality is unsurpassed in anything I have seen here at the lake. Many of his standard features would be considered upgrades for other builders. He has a long list of satisfied clients. I talked to one family that hired him to build their last two homes, and they say they hope he will build their third. They would never use anyone else. (This is very rare in this business). Real estate agents are happy to highlight his name in listings in which he was the builder. He has people waiting for him to start their homes, even in a slow market. You would likely not go wrong if you chose him as your builder.

These are just two brief profiles to give you hope that you can find a great builder here at Smith Mountain Lake. This should also highlight something else. Out of the many builder ads in the local phone books or Smith Mountain Lake Chamber of Commerce, you would probably not have chosen one of these two to interview. You may have ended up spending a lot of time, energy, and a year or so of frustration that could have been avoided if you sought professional advice and carefully checked builder references. I didn’t come up with these (and several other great) builders shining profiles overnight. You shouldn’t expect to either. You may choose the wrong REALTOR®, the wrong closing attorney, or the wrong mortgage loan officer, but whatever you do, do not choose the wrong builder.

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