1. Understand that building is not the same as buying an existing house!
This may sound obvious, but whilst the house buying process is relatively simple and shorter, the building does take longer and this can lead to significant stress for most people. There are a number of individual moving parts to the building process that functions independently to one another. The players involved, for example, include surveyors, architects, draftsman, engineers, geo-technicians, the builder and you. The involvement of all these players is typically before an application is even made before any lodgement of plans to the local council for approval! My advice is to expect delays; if you don’t have any then that is a bonus!
2. Understand what you can afford!
This is the most crucial point as finance will drive the whole project. Don’t rely on your local bank branch, as financing building is a specialist function. Use a good mortgage broker who has a track record of financing builds and can get you the best deal. Be prepared to pay for all the services and products involved in the build. It can be an expensive process and expect it to cost you accordingly. I sometimes tell potential clients that they don’t work for free, so don’t expect their builder to work for nothing. Every product used and every service has a price. I often remind clients ‘you don’t go to the supermarket and get it all through the register then say “I’m only paying for some of it!”’
3. Understand what you are buying.
When you are given a quotation or contractual price to build, make sure it includes everything you see or would normally expect in the build process. In the market place, it is unfortunately common for a ‘bargain’ price to be used to get you interested in the build process, but by the time you add in extras, like carpets, paint and decoration, tiles and landscaping etc. the price has suddenly accelerated, but often by then you have already signed the contract and paid a deposit. My advice would be to not sign any contract until you are sure it covers everything and that the price is fair for what you are getting, and includes all aspects of the build. For example, avoid any contract that has PC (Provisional Costing) sums in it.
4. What are the terms of the contract?
It is important that you go through the builder’s contract in detail and get appropriate legal advice. Get your lawyer involved early and make sure your lawyer is familiar with building contracts and dealing with the conveyancing regarding new builds. If your builder objects to you taking the time to do your due diligence on the contract, then they are not the builder for you. Often I find that clients do not want to ask questions as they may feel intimidated or worry that they look stupid. Remember, that any building contract you sign, is a binding contract for one of the most expensive assets you will own. It is critical to understand all the terms and conditions. Many problems can be avoided up front, by making sure all aspects and expectations are communicated and well understood. For example, I have often seen situations, where if there are any retaining walls or cut and fill earthworks, clients have asked the builder whether the costs of obtaining resource consent are included and the builder has said, “Oh yeah,” only to come back later and let the client know that it is specifically excluded from the building contract. Not a great start!
5. Who is actually building my house?
Yes, you might have a big group home builder, but who is actually doing the work? Questions to ask include; “Have they worked for the company before?” “Are they a Master Builder or Certified Builder in their own right?” “Who is the Registered Building Practitioner?” “Who is actually running your job?” “How often can you meet the builder to go over progress?”
6. Are all the council inspections being done?
This is very important for you to get your Code of Compliance Certificate (CCC). If you are worried, ask to see the site plans. A set of the council approved plans must be on site for reference and checking at all times and the council inspectors will sign off at stages when they are required. They will do this at various stages of the house build, so if the roof is on for example, and there are no signatures from the inspectors on the council plans, make sure you enquire why this is. The consequences of not having a valid Code of Compliance Certificate can lead to your house and contents insurance not being valid for example, or problems selling the property later on.
7. How do the contract and payments work?
There are typically two types of contract – a “Turn Key” contract and a “Drawdown” contract. A “drawdown” contract is more complicated and you will need your mortgage broker involved throughout the process as some banks will only approve your loan for a 6 month period with this type of contact. Clients will often need to re-apply to the bank for confirmation of finance and if this coincides with a drawdown of building costs, it can lead to delays and unneeded tension. A “Turn Key” contract can mean two things; one, you sign a contract to build and pay a deposit to the builder, normally 10 – 20% of the total cost. The balance of the price is paid on issue of the Code of Compliance Certificate. Or, it can also be used to describe the completeness of the package, typically including such items as landscaping, drive ways fencing etc. everything basically, so that the day the house is finished you can move a tenant in to rent it, or move in yourself. If the contract is a drawdown of a “milestone” contract, this refers to a more standard contract where you pay as you go. Typically, a 5- 10 % deposit is paid at the beginning, then further amounts are paid to the builder at different stages or “milestones.” These may be when the foundations are complete, the roof is on, the house is closed in, lined etc. Normally these payments will be around 5-10 payments, depending on the contract and each builder. It is important that you get your broker to check that your bank doesn’t require a valuation at each one of the stages, as this will cause delays and additional costs to you.
8. What guarantees do I get?
Is the builder a Master Builder or a Certified Builder? Are they a licensed Building Practitioner and to what level? Also ask, do I get a Home First guarantee? Make sure you understand all of these and what comeback you have if things go wrong. Also check what insurance policy covers the build while it is under construction and when do you need to take over the insurance? Make sure you see the policy certificate. If the builder self-insures, do checks to make sure that they have the finance to cover a rebuild if it burns down. Also check that their insurance policy covers any damages they might inadvertently cause to a neighbour or a power line or a water main?
9. What don’t I know?
This is the hardest one as everyone thinks they know it all and we always ask our friends and family first. As soon as you say you’re planning to build, everyone suddenly has an opinion and are a professed expert! (Even though they have never done a build!). In truth, the answer is more than you think, so always check and ask questions. Do ask advice from people in the industry, like me! Don’t always phone a friend! They have opinions which can have no grounding at all. If you do seek advice, then make sure you understand it.
10. Am I getting what I think I am?
This is the classic situation I have come across – often the specification says one thing but the show home has another, or the sales person has told you whatever they needed to do to get the sale. I have seen it all before! If the contract doesn’t have a picture of the products and a product number which you can research then make the sales person add it in. For example, floor coverings can mean a myriad of things so know exactly what it means. Have it drawn on the plan which rooms have carpets and where they are placed? Check which rooms have tiles or a wooden floor, what kind of wooden floor it is. Is it the builder’s choice – hmm I wouldn’t sign that!?