Southwest Florida is known for rain in the month of August. The heat brings in monstrous clouds producing lightning, thunder, and copious amounts of rain. Unfortunately, the weather didn’t steal the “black cloud” spotlight this year.
The local construction industry has been experiencing turmoil. Several builders have either filed for bankruptcy or are holding on by a thread. There’s a black cloud resting over the industry right now, shouldering the weight of more than 400 construction contracts that weren’t completed by their builders. Tumultuous times are here, but there are ways to protect yourself going forward.
Watching the situation unfold prompted me to make this list of items to look for in your custom home contract.
– Price – I’m going to say something controversial here… Don’t go with the lowest price when building your custom home. That situation comes with a plethora of problems. For example, when something goes wrong on the build (and it will), your builder won’t have enough money in the project to do the right thing and fix what didn’t go right. Not having a margin puts people in desperate situations.
– Escalation Clause – This is the hottest topic in construction. The escalation clause allows a builder to raise the contract price of the home due to unforeseen changes in the cost of materials or labor. I’m going to make two points here and one of them might make you uncomfortable. First of all, the industry standard is to not show what the expected material and labor cost will be at the time of contract. That’s understandable. But the problem is… they can supply whatever numbers they want in the event that they need to escalate the price. This situation introduces the potential for manipulation on the price discrepancy. So, we want a builder with no escalation clause in their contract then, right? Wrong. Here’s an example… Let’s say that there is a builder with 43 homes under contract. 30 of them are currently under construction. Four of them are nearing the finish line and finalizing punchout work when the realize a big problem… a septic located under the driveway failed and needs to be torn out and replaced. The bill for these and other final repairs puts the company in a tight spot. They’re now upside down on the homes and the businesses working capital is strained. The company is about to fail. If there was no escalation clause in the contract, 39 clients wouldn’t receive their homes because of the 4 builds going over budget! That’s completely unacceptable for the 39 families whose homes were on schedule and going according to budget. Unfortunately, escalation clauses are a necessary evil. Conquest Builders Corp has a limited escalation clause in their contract. It’s a clause that removes the opportunity for dishonesty and greed. Ask us about it!
– Timeline – Does your builder guarantee a timeline to finish your home in? During the rush of 2020-2022 locally, some builders were taking 3 years to finish their homes. There’s a huge problem with that. Some construction mortgages only allow for a build time of 12 months or 18 months. If the home isn’t finished by then, the client may have to refinance, lose their rate, and requalify for the mortgage. During that time period, we saw a substantial increase in interest rates. Dozens of families were never able to move into their dream homes because they could no longer qualify for the amount contracted when the rates doubled. Imagine that?
Above all, please do research on your builder. There are plenty of reputable companies building spectacular homes with a solid track record. Things to consider in your research: Have they owned other companies before? What happened to them? Do they have a criminal history?
Building a custom home is still one of the greatest accomplishments in life. Don’t let the current situation deter you from realizing that dream. We could name a dozen builders locally that would absolutely give their best to each client and do everything in their power to provide the most positive experience.
– Andrew
