Building Your Own Home: Perils to Watch Out For

Written by: Christy Rakoczy

No process is as exciting or as nerve-wracking as building your own home.  When you build a house of your own, you get to make all of the decisions and completely customize the construction to meet your needs.  While the build process can be fun, it can also quickly become a nightmare if you do not do your research or are not adequately prepared for the process.  To make sure all goes well, lookout for a few specific pitfalls.

Bad Builders

The biggest potential problem is a bad builder or subcontractor.  Some in the building trade are not entirely honest or forthcoming or do not do the work as promised.  Some builders are under financial pressure or who may not have a financially solvent company.

To avoid getting a builder who does shoddy work, or who doesn’t do the work you pay for, check the builder’s background and reputation.  Visit houses he has built whenever possible and talk to the owners of those homes to find out if they had any problems during the build process.  You should also consider speaking to some suppliers if you are provided with the names of any in order to find out if the builder has a tendency to pay on time (good) or a tendency to be late (bad).

By speaking to vendors and past customers, you should get a good idea of whether the builder will be a pleasure to work with.  Doing a public records search for past lawsuits, making sure the contractor is licensed and bonded, and checking online for reviews of the builder can also help you avoid problems.

Inadequate Allowances

Many homeowners find that the allowances provided by their builder are not sufficient.  An allowance is the amount of money you are allotted in your construction contract to buy certain items.  For instance, if you have not picked out your appliances or your tiles and floors prior to starting the build, your construction contract might give you a $5,000 allowance for appliances and a $20,000 allowance for tile and floors.  Your mortgage is based on this amount and it is the amount that you are supposed to spend.

However, it might not actually be possible to get appliances or tile floors for the amounts that you were allotted in the allowance.   You could easily have to pay for any cost overruns out-of-pocket (or try to get added to your financing when the mortgage closes).

An inadequate allowance can make the price of a home appear cheaper than it really is and make it hard to compare bids among builders.

To avoid this issue, try to determine what you are going to be putting into the home before you create a final construction contract and then to base your allowances and pricing on those actual items, putting the details on specific items into the contract. Price out your cabinets and floors and allowances and then specify the exact price and brand in your contract.

Cost Over-Runs

Cost overruns occur when you spend more than the construction contract originally called for.  Unexpected expenses will come up.  For example, you might need to drill a well deeper than you thought or you make additions and changes as the house is going up.

Most experts recommend that you set aside at least 10 percent of the total cost of your home for these cost overruns and unexpected expenses. This best practice allows you the leeway to get the home you want without pushing you over what is comfortable for you to afford.


Building Your Own Home: Perils to Watch Out For

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