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An Open Letter To Every Homeowner Who Has Been Ripped Off By A Home Builder

ripped off by a home builder

Ripped off by a home builder?

The builder who offers the biggest house for the lowest cost has most likely compromised quality at every step of the construction process.

The problems manifest later. Faulty foundations, moisture intrusion, and shoddy framing are often at the root of problems, which show themselves as gaping cracks, rotting walls, and windows and doors that don’t close right. Often, though, they show up months or even years after the buyer has moved in and the builder has moved on.

A builder can use their experience and expertise to work for you or against you!

You, indirectly, get to choose only one or the other. A very good builder can only produce very good projects. It goes against his grain to use low bids from subcontractors or suppliers. His bid will feel high.

A bad builder, on the other hand, doesn’t have the ability to produce a good job. He just doesn’t know how. He uses the lowest priced subcontractors and suppliers because he doesn’t know the difference between GOOD and BAD work. He never will. His goal is the low bid. And your search for a “bargain,” so engrained in us as Canadians (it’s like winning!), makes you his target prey.

With over 50 materials suppliers and subcontractors involved in any given project, and at least 10 of each to select from locally, a builder has 500 subcontractors and vendors to choose from. He can pick either the ones that can do the best job on time or the lowest bids that will get it done sometime.

Believe me, marriages have gone on the rocks due to subs who do not show up, do not show up on time, do not do the work correctly and according to specs, and then do not stand behind their work. So if you are looking for the lowest bid, there is no magic to producing one.

There is, however, a lot of magic if a low bid project is pulled off without a lot of delays and cost overruns. In home building, you truly do get exactly what you pay for.

It cannot be repeated too often: When the builder has nothing to lose, the homeowner stands to lose everything.

When you finally get a builder, and you enter into a contract, you should treat your association like a partnership. Your builder shouldn’t try to shortchange you, and you shouldn’t shortchange him. The first one who tries to nail the other will provoke the other to do the same. Then you have an adversarial relationship you didn’t want or expect, and from there on things go downhill very quickly.

A good builder always wants to make a good first impression.

The up front attention the builder gives you before signing the contract is the best, and most you will ever get from him. If he makes you wait and wait for the design and estimate, then just imagine how well he runs the subsequent construction process.

Don’t wait for bids from some time-warped builder who can’t get out of bed in the morning. Building a home is a careful, complex job that requires constant communication and a mountain of attention to detail. Builders who make clients wait are always, always, always late.

If a builder won’t give you good up front service, it’s merely a preview of the way he works and will work on your job. Call someone else.

Remember: You are buying the process, not the project

Nearly everybody treats the contracting for a building project as if it’s already built! It isn’t, and it won’t be for a very long time. It’s that l-o-n-g-s-p-a-c-e  between the signing of the contract and the completed projected that you really bought.

If you can think of your builder as if they were a travel agent, then the PROCESS ahead of you is like the taking of the trip. If you book a trip from the Toronto to Calgary, wouldn’t you like to know if you will be traveling by bus, truck, pack mule or airplane?

Most travelers know the difference. But in home building our brains turn to jello. We end up with bad trips and feel every bump, dip, delay and stoppage. Minds feel like lost baggage. We’re not sure when, how, or if the trip will get us safely to our destination.

Again, the part of the building project that you bought is the process (trip). It should be a foregone conclusion that you’re going to get a good job done eventually.

Who is taking out the building permit?

Just when every precaution has been taken, along comes a homeowner who’s gullible enough to take out the building permit for the builder.

Now the homeowner is responsible for the entire project – all the inspections, all insurances and future problems or warranties. The builder has no liabilities and has deftly shifted all of them to the homeowner!

It’s o.k if the homeowner or his subcontractors build a majority of the house, but if the builder is building the whole house, do not take out the permit.

Banks don’t protect your interests while you are building

Everyone thinks they’re so smart because they bought an expensive home without a hitch. Never mind that the lawyers did all the legal work, and if anything gets missed, the title insurance saves the day and the home. This gives the homeowner a false sense of security when building. They think others are watching out for them.

Nobody is watching! If you lose $50,000 on a building project gone bad, you STILL owe the bank for the next 15 years. The Bank loaned you 80% of your equity in your house, so they’re NICELY covered. They can easily get their money out of you even without the improvement.

There are few branches in Ontario who deal exclusively with reputable builders. When a homeowner comes to one of these more selective banks for building financing, but their builder isn’t on the bank’s A-list, the loan is turned down without explanation.

The homeowner thinks they weren’t approved when it was the builder who wasn’t approved. Banks are in the business of renting money. They are not in the business of providing information on the ever-changing circle of home builders.

What to do when the builder doesn’t honour his price after starting your project

This is a serious problem, a recurring one, and NEVER easy to deal with. Sometimes the builder has made an honest mistake, but sometimes it’s a calculated mistake. Either way, he wants more money or he won’t proceed any further.

You have a signed contract that will hold up in court (after you have paid an attorney thousands of extra dollars). You also have a home that’s in shambles for the duration. What to do? If you do pay the extra, how do you know it won’t happen again? And again? You don’t know the exact price of your project until it’s completed and all of your lien waivers are in hand.

However, you now understand why this builder’s bid was lower then the others. Many builders regard the bid as a starting point of what it takes to get a signed contract and down payment. The real profits come in the future, through the add-ons and change orders.

What role should a lawyer play?

It depends on if you are on the offense or the defense. Either way it will cost you a lot to gain a little. Unfortunately, people usually hire an attorney AFTER they have been nailed. But being in the right and winning a lawsuit doesn’t do much good if the builder you’re suing is flat broke and owes everyone in town.

Should you hire an architect to oversee your building project?

This gets back to an earlier warning: “Don’t consider an architect that hasn’t designed at least fifty projects that got built”. Why pay for someone else’s learning curve? But once you get through the laborious task of having plans drawn your real work has just begun.

Your architect will send off the five-pound set of plans (that you paid $10,000 for) to various building contractors to bid on. Typically the plans will be sent to half a dozen builders. Some will be sent to the builders that the homeowner selected, and for insurance the architect will send some sets to contractors he has worked with in the past.

Most builders selected by the homeowner won’t respond because the architect has officially signed off responsibility for the total outcome of the project and the architect does not have Errors and Omissions Insurance. The contractors selected by the architect WILL respond because they have a cozy relationship with the architect. The architect examines the bids (for an extra fee) and advises the client on what to do.

The “what to do” part is where the homeowner now gets let in on a new idea. The architect is privy to the builder’s price ranges and if they are high enough the new idea is (news flash) that the architect will offer to build the job for the client, and the client will not have to pay his fifteen percent fee for overseeing the project.

An architect does have limitations: his primary training is not in project management and his plans still should be checked and re-specified by a structural engineer, so the project doesn’t drift in the wind. Homeowners get nailed by architects, too – it’s just that it’s not as often, but it’s usually for much more money.

Custom Home Builder in Toronto

 

2 Comments
  1. I found your article very interesting and have a question. We had a custom home designed and built by a team. They liked the plans that we developed together so much, that they used them to build a spec home a couple of miles from here. Now we find that the spec home is being referred to as the custom home and ours the spec home. We have been told that this could devalue. We don’t want to see versions of our house popping up all over the area. Can the custom design be used in this way?

    • Unfortunately, unless you wrote it specifically in your building agreement, you have no recourse.

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