A recent customer reminded me of something I take for granted, but he pointed out that most people aren’t aware of many of the potential pitfalls to avoid when hiring a builder to build a new home on your land. Since my customer happens to be a banker, and has seen the good, bad, and ugly of home building practices, I thought I would share what he shared with me. First, he reminded me that many home builders are not on solid financial footing, and that can be risky for someone hiring such a home builder to build on land that you own. Most people don’t realize that if the builder doesn’t pay his bills for some reason, the owner of that partially-built home is going to be on the hook. How would you like to pay twice for your new home?
So, the question is how do you know you’re dealing with a builder who isn’t going to leave you hanging? The good news is there is a fairly simple technique: find out if your home builder has a line of credit with a bank to build homes on his own. If the bank is willing to lend the builder money to build speculatively (meaning building homes that aren’t sold prior to construction), then the chances are that builder is reliable. A reputable bank has built-in methods of analyzing a builder’s finances that can detect if a builder is likely to go out of business and leave you with the bills. So, ask the builder point blank: do you have a line of credit, and if so, with whom? If you get a blank stare or some story about how banks just aren’t lending, it’s time to move on.
Thanks for reading!
Tim
About Tim Turner