Most of our homeowners only embark on a custom homebuilding journey once – maybe twice – in their lives. It is a highly personal and meaningful endeavor and often the largest financial investment they will ever make. Because of this, they take their time selecting a qualified custom builder in order to ensure the process is as enjoyable and successful as possible. We’ve written before about how to choose the right custom builder for you, but today’s article shares some of the warning signs and red flags to look out for when evaluating custom builders.
LACK OF RELEVANT EXPERIENCE
You want to feel confident that your builder has the experience and know-how necessary to tackle all of the unique challenges that your home’s construction will present. This confidence often comes from knowing your builder won’t be trying something new on your project, but instead will be applying a vast catalog of knowledge and lessons learned from similar homes they’ve built in the past. The builders you’re evaluating should be able to clearly demonstrate their past portfolio of projects along with a successful track record of high-quality luxury homes. If their past projects are of lesser quality, significantly smaller size, different style, or located far from where your home will be, then their lack of relevant experience might be a red flag.
POOR COMMUNICATION
Building your custom home is a massive undertaking, so you will want to be sure that your builder will keep you in the loop every step of the way. A custom builder who has poor responsiveness or communication that is not thorough, accurate, or professional from the beginning will likely take that same approach throughout your project. An organized builder who communicates well will be able to properly collaborate with your architect and interior designer, manage subcontractors and suppliers effectively, resolve problems proactively, and keep you informed regularly. The best way to put this warning sign to the test is to simply call or email your prospective builders and see how long it takes them to respond. If you can’t get in contact with them for a matter of days, then you’ll want to move on. This lack of responsiveness means they won’t be there when you need them or that they are involved in too many other projects to devote the necessary time and attention to yours.
NO LIST OF REFERENCES OR TESTIMONIALS
A reputable custom builder who has been in business for a long time will be able to give you a list of references or testimonials from happy clients and established industry partners. Conversations with a past homeowner or two can give you valuable insight into how the builder operates and whether or not you will likely be satisfied with them. If your builder cannot supply you with a few people you can call, consider this a strong red flag.
LACK OF COMMUNITY CONNECTIONS OR PARTNERSHIPS
Similarly, you’ll want to make sure the builder you want to hire has strong relationships with industry partners and organizations in your area and beyond. If other businesses want to work with them, it is likely safe for you to collaborate with them as well. In addition, local builders rely on their reputation to stay in business, so if they’re not connected in their community then there’s a chance they won’t feel as accountable if their homeowners are left unsatisfied. An easy place to start is to make sure your builder is a registered member of your local affiliate of the National Association of Home Builders. Our local chapter, the Greater Houston Builders Association, is one of the largest in the country and provides us members with helpful resources, expert-led courses and seminars, as well as easy access to industry trades and craftsmen. Membership in local, state, and/or national builder organizations suggests that your builder prioritizes staying connected, accountable, and improvement-focused at all times.
BID THAT IS SUBSTANTIALLY LOWER THAN COMPETITORS’
If you obtain construction budgets from multiple custom builders, it’s not unheard of that one may come in significantly lower than others. If this is the case, there is a good chance that the low bidder has prepared a budget that is not fully comprehensive or comparable to the others. There are a number of assumptions that must be made to build a truly comprehensive construction budget for a complex, high-end custom home. You’ll want to make sure that all builder candidates have made the same assumptions and that all of them have accounted for the same unknowns. It’s a good idea to eliminate a builder candidate that has produced a bid that is significantly lower than the others. If they have left holes in their budget or made many incorrect assumptions, then they will likely not approach your project with the careful consideration and attention to detail that custom home construction requires. This is a red flag. We strongly suggest taking time to review a construction budget IN PERSON with your potential builder. During this meeting, assumptions can be clarified, value-engineering options can be discussed, and a greater level of budget certainty can be achieved.
ASKING FOR TOO MUCH PAYMENT UP FRONT
A good rule of thumb is to never pay more than 10-15% of the total cost of your construction up front. Your builder requesting anything over that threshold should be considered a red flag. If the builder is well capitalized, you should be able to make a reasonable deposit up front, then pay for the construction as it goes along as opposed to paying for the majority of project costs before breaking ground.
LACK OF KNOWLEDGE OR CARE FOR PROPER PERMITS
Experienced builders won’t have a problem getting the permits they need for your project. They will be knowledgeable about what permits are needed and how to obtain them. They should also be able to explain clearly why certain permits are needed in your given municipality/county/neighborhood and when inspections are required. Some municipalities aren’t particularly easy to work with, but qualified custom builders will be able to work cooperatively with officials and inspectors to get past hurdles and roadblocks. Having a positive solutions-oriented mindset and approach is critical in custom home construction, especially when it comes to working through the permitting process. In addition, if your builder suggests avoiding permitting altogether or proceeding without proper permits, consider this a red flag. They may cut corners on your construction as well.
INADEQUATE INSURANCE COVERAGE
As you can imagine, there are a lot of risks inherent to taking on a custom home construction project. Not having general liability coverage, or not having enough of it, is a definite red flag. A custom builder without sufficient coverage won’t be able to provide you with a reasonable remedy if an accident occurs. Don’t be afraid to ask your builder candidates to produce a current certificate of insurance in order to confirm they are adequately insured. It is a good idea to incorporate a clause about coverage into your construction contract with the builder as well.
Hopefully this list has given you an idea of what warning signs and red flags to look out for when choosing your custom builder. Finding the right partner is key to the success of your project as well as the quality and longevity of your dream home.
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