Purchasing a new home would be a lot simpler if buyers could simply turn to a consumer magazine to get a rundown on prospective builders, as is possible when shopping for cars, appliances or even investments.
But when it comes to making the largest, most expensive purchase of your life, one fraught with variables, both financial and aesthetic, there’s no one place to look for guidance in choosing a builder. To chose wisely, you must become a self-made “house detective.”
Legal and industry officials offer similar advice to people setting out on their detection. Armed with a telephone, a car and a list of questions, you have all the tools you need to determine if a builder is reliable, legitimate and free of legal entanglements.
The key, experts say, is knowing what questions to ask-and of whom.
The Illinois attorney general’s office and industry officials overwhelmingly recommend that you talk to people who bought homes from the builder you’re considering.
Start by taking a drive through what may become your new neighborhood, and begin knocking on doors.
“If you’re dealing with builders of a subdivision, rather than a custom-built house, ask the builder what homes they’ve built recently,” suggested William Young, director of consumer affairs for the National Association of Home Builders. “The more recent the better. Some Saturday morning, drive around the subdivision and ask a few people what the experience has been like.”
“If I’m happy with my home, I’m going to talk about it,” said Bob Johnston, executive vice president of the Home Builder’s Association of Greater Chicago. “If I’m unhappy about my home, I’m going to talk about it, too.”
In visiting the subdivision, not only are you looking for answers about the home’s construction, said Young, but you want to see how the finished community looks.
“You want to see, `Would I want to live in a community that looks like this?’ ” he explained.
New homes invariably need some follow-up work, according to Johnston. A door may not close properly when weather turns warm, or a corner may be missing a piece of molding.
The question isn’t whether there were problems, he said, but how those problems were handled.
How difficult was it for the owner to get the builder back to make the repairs? Were the repairs satisfactory? Were there any problems that required significant work?
It’s a good time to ask owners other questions about the builder, Johnston said: What kind of warranty protection did the builder offer? Did the closing go smoothly? Was the home completed on time?
“If you (visit) two or three, you’ll get a good feel” for the work the builder does, he said.
Builders in Illinois are not required to be licensed, insured or bonded, said Gil Fergus, chief of the state’s Consumer Protection Division.
He recommends that prospective buyers make sure the builder has some kind of insurance.
Moreover, he suggests getting an attorney involved with the project early on to guarantee that the contract between the builder and the buyer isn’t one-sided.
Between 40 to 50 percent of home builders carry some form of insurance, said Johnston, often something like Home Owner Warranty insurance, a 10-year plan that covers problems that may develop after the second year. Though he doesn’t rule out builders who don’t carry insurance, Johnston said at the very least, a one-year warranty is fairly standard.
Asking a builder about insurance and warranty coverage is a “very legitimate question,” said Johnston. “You don’t go out and buy a mixer without buying a warranty.”
OK, so you’ve made the rounds of the neighborhood, talked to the builder about the warranty and the call-back repairs. Everything seems fine. Can you sign the dotted line?
Sure, if that’s all you need to be satisfied. But the questions you’ve asked so far don’t address the builder’s financial solvency or record of legal complaints.
How do you learn about those?
“References, references, references,” said Fergus.
Check with the local building department to find out if there have been any complaints about the builder. Talk to the building inspectors about their experiences with houses that builder put up.
Ask the home builder for the name of his materials suppliers and check with those companies.
“Are those people being paid promptly?” asked Fergus. If not, there might be a problem. At the least, it’s a red flag to you.
Ask for bank references. While a bank is unlikely to detail financing agreements made with a builder, it should confirm that financing exists, legal experts say.
Finally, consumers can call the state attorney general’s office to learn if the builder has been the subject of any complaints.
However, the attorney general’s office won’t know if any private legal action was pending. For that, consumers need to visit the county courthouse and check if any lawsuits have been filed.
While the existence of a lawsuit isn’t proof the builder did anything wrong-the builder well may have won the suit-many suits should be a red flag. How were the cases resolved? If they were settled in court, the official record will lay out the resolution. If there was an out-of-court agreement, ask the builder-and the buyers who sued (their names will be on the suit papers).
The value of making a few inquiries about a builder, whether it’s a new-home builder or a remodeler, can’t be underestimated.
A recent case in Indiana illustrates why taking the extra steps of checking out a builder’s financial and legal history is important:
Indiana’s attorney general’s office received complaints about a builder who required a 50 percent deposit, payment of another 25 percent when construction began, and the final 25 percent when the job was completed.
The trouble was, the jobs never were finished, according to the state. According to Indiana officials, builder Gary Freeman, of West Virginia, took out ads in local newspapers and worked out of a nearby hotel. Freeman lead buyers to believe they were purchasing structures made and warranted by a reputable firm in Louisville.
Not so; the structures were inferior, said Julie Slaymaker, communications director for Indiana State Attorney Pamala Carter. Once Freeman got the customer’s deposit money, he’d order construction supplies from a local material supplier on the customer’s credit, according to the Indiana Attorney General’s office. He’d do just enough work to get 75 percent of the money, then disappear-never finishing the project, and never paying the material supplier, who in turn would place a lien on the consumer’s residential property.
Freeman intended to finish the jobs, but the state’s investigation scared away customers, said Michael Reed, Freeman’s attorney in Indianapolis. Freeman has been charged with theft in three counties, said Reed. Freeman plans to fight the three theft charges in the state, said Reed, but has signed an agreement with the attorney general’s office not to do any more business in Indiana.
Most complaints never get to this stage because it’s in the interest of the builders and the buyers to care about quality.
More and more, new-home builders market their skills and their product by stressing quality, said Johnston.
“If they don’t come up to quality,” he said, “sales drop off.”
