Buyers Beware When Looking at New Home Construction

By
Real Estate Broker/Owner with Kirby Fine Homes

In light of recent experiences I have had with local Twin Cities new construction home builders, I make it a point to tell buyers that they should thouroghly research any builder they might contract to build their new home. Some builders are barely keeping their business above water, and others are slowly sinking, but if you spoke with these builders, most likely they would tell you they are doing" a lot" of business. Don't believe them. Here are some tips to consider when building a new home:

  • Ask the builder how long they have been in business under the current company name.If it is a short period of time, ask them if they, or anyone involved with company, has been a builder/contractor under a different name. Believe it or not, there are some fairly sizable builders in the Twin Cities who have declared bankruptcy, gotten in trouble with the state, etc, and closed their doors, only to open up under a brand new entity name. Of course, they don't disclose this to potential buyers.
  • Ask the builder if their company name is the same as their legal corporation name. Sometimes builders "Do Business As" (DBA) a different name. You can research both names with the Minnesota Secretary of State and find out if they are in good standing.
  • Ask for the Builder's License Number. They should be able to give it to you on the spot. If they don't, consider this a red flag. Once you have the number, research the builder with the Department of Labor and make sure their license number corresponds with what you were given. Believe it or not, some builders have been using another builders license number to pull permits, illegally of course.
  • Find out who owns the company. Go to the Judicial website and see if there are any active judgments against the owner and/or the company. Pending cases brought against the builder by clients or trade professions could be a red flag.
  • Ask for References. Don't just get the good, but also ask to speak with someone who was not happy to see how the builder resolved the issue. It could give you a clue on how the builder professionally handles complaints.
  • Don't just take the builder's word for it. I can't tell you how many times I have been lied to by a builder as an agent, and it just makes me more mad when I meet buyers who were lied to as well. If you have contracted with a builder, make sure all permits are pulled for the work being done. Once again, some builders are doing work without a permit, and when the city finds out, and the project shuts down, the buyer is the one left in limbo. Don't be afraid to call the city and ask them if proper permits were pulled.
  • Find out who holds the escrow money. I don't like the escrow money being held by the builder. If a builder cannot finance the permit on his own, then I question their financial standing. I have run into buyers who have had problems with builders and had to cancel the contract, only to find out the builder has spent the escrow money and doesn't have the funds to pay the buyers back. It just turns into an awful mess. See if the money can be held by a title company.
  • Don't go with a builder just because they have a great lot. The worst thing you can do is fall in love with a lot that is owned by a builder that you are not excited about. Trust me, it is the kiss of death! I know two buyers currently (not my clients) who went with a builder because of the lot and the homes are falling apart. They were warned about the builder, but they said they would take their chances because they were so blinded by the lot.
  • Don't be afraid to ask questions. Ask everything you can think of, and don't hold back even on the things that seem minor. 

These are just a few things to think about. "Google" the builder, too, and see what pops up. For instance, a  recent article in the Star Tribune highlights how some local builders have lost their license recently or been fined in the past few months.

 

Comments (4)

Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

It's hard.  I specialize in new home sales and over the years, I have simply stopped showing "niche" builders.  Too risky.  I show major builders with quality control and good floor plans.

Apr 21, 2011 09:56 AM
Jennifer Kirby
Kirby Fine Homes - Minneapolis, MN
The Luxury Agent

Hi Lenn,

It is hard when some of the smaller builders have great lots obtained through foreclosure of the big builders. A few really big builders have gone under here in the Twin Cities, and have now opened up new companies that are very small under a different name. They weren't that great in the first place, but the unwise buyer could suffer.

Apr 21, 2011 10:06 AM
Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

O.K.  Time for a plug for experienced buyer's agents who know the builders.

Apr 21, 2011 10:22 AM
Jennifer Kirby
Kirby Fine Homes - Minneapolis, MN
The Luxury Agent

Great plug! Now if buyer's would just not fall in love with the lots owned by bad builders, and we will be ok.

Apr 21, 2011 10:45 AM