Posted by Melissa Lynn Galland on Dec 11, 2017 8:00:00 AM
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Decisions around home buying are a huge deal for most Americans. Consider the fact that total housing costs—including your rent or mortgage, home insurance, interest, and upkeep—will on average eat up about 30 percent of your gross income throughout your lifetime. Clearly, an investment in a new home should be made with eyes wide open.

As you begin the search for your next home, it’s important to thoroughly vet your builder, and when applicable, your realtor. Unfortunately, not every business or individual will meet your needs. With such a significant decision on the horizon, now is the time to keep an eye out for risky behavior—especially from custom home-building companies.

Watch for Red Flags

Building a custom home is an experience like no other. You have the opportunity to create the home of your dreams—one that your family will enjoy for years or even decades.

However, you want to ensure you’re working with a reputable, well-trusted builder. We’ve heard too many stories over the years of homebuyers working with a brand-new company, or one that makes too-good-to-be-true claims, and then finding themselves high and dry only a few months later.

As you start looking for a custom homebuilder, keep an eye out for the following potential red flags:

1. Lack of Longevity.

First, you want to ensure that your builder will be in business for the duration of your build, throughout your warranty period and, ideally, for years to come after that. If your builder happens to file for bankruptcy during the building process, they no longer have to honor your contract. Worse still, you may not be able to recover any funds that you’ve already put down on the project. That’s why it is vital to find a builder that has proven longevity and success over time.

Two of the top reasons that builders fail is poor performance and frequent changes in leadership. These types of problems are all too common in companies led by people who lack the experience needed for a fast-paced, competitive market.

When comparing custom homebuilders, be sure to check with the Better Business Bureau to determine how long a company has been in operation. Some builders advertise their “combined years of experience,” rather than years in business, which is misleading. By focusing on years in business, you’ll be able to confirm exactly how long the company has been successfully operating, which can help you select a builder who is experienced and stable enough to be fully trusted.

2. Very Small Businesses.

Supporting small local businesses is usually a great idea, but be wary when it comes to tiny homebuilders. They have the highest rate of failure among construction companies.

Many small builders don’t have access to the capital they need to consistently build homes, especially after the sting of the 2008 recession. In the 10 years since the housing bubble burst, membership in the National Association of Home Builders has shrunk by 47 percent, with many smaller builders going out of business because they couldn’t secure financing from wary banks.

Another potential problem with very small builders is that they may not have experts at every level of the business. Instead, they may have a few “jacks of all trades.” Unfortunately for home buyers, this means that these folks are pulled in many different directions at once and may not have the experience they need to really excel at the various tasks required to successfully build a custom home.

Before choosing your builder, do some research online (and, if possible, in person) to determine the size of the business. One red flag is if they don’t have a permanent place of business; this might be a sign that they are a small, one- or two-person operation or that they haven’t been around for very long.

3. Inflexibility Toward Your Ideas.

Finally, avoid any company that isn’t open to your ideas for your custom home. Look for a builder that will work with you to ensure the home incorporates all the features that you want. If your builder is pushing back on reasonable requests or being inflexible to your wishes, it may be time to look elsewhere.

Although it can be nerve-wracking to shop for a custom homebuilder, looking for these red flags can help guide you in the right direction. After all, building a home is one of the biggest commitments you’ll make. You want to ensure that your builder will be there to support you throughout the process and for years to come.