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Author: RJW2000 One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 129261  
Subject: Home building contract question Date: 12/17/2002 10:11 AM
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For those of you that have had a home built I have a question. If the home is not completed by the date stated in the contract what normally happens? My feeling is that there should be something in the contract that would explain what happens but is this usually the case or is the completion date put in simple as a goal that the builder is shooting for with no penalties involved?
Thanks
Bob
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Author: FfitTAG One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 29948 of 129261
Subject: Re: Home building contract question Date: 12/17/2002 11:53 AM
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Bob,I'm not sure if you are talking about a architecturally designed, on of a kind, custom home project or buying a semi custom home in a development. The comments below are geared more toward the former. In the latter instance the builders have a pretty clear picture of what it will take to build the home - it's typically a "model" that's been done before so in that instance I think a penalty clause is warranted but may be hard to get the developer to agree to especially if his project is in high demand. If he's hurting for sales - go for the moon and stars.

In a standard AIA contract there is a place to enter penalties for not hitting the contractual finish date. Typically called liquidated damages, or sometimes "real" damages, these are contractually defined as a $ amount per day or a lump sum actual cost that must be documented. This amount will be established on some real basis - for instance... you must move out of your current house on said date and move into the new house. The builder is not complete so you end up having to rent an apartment for a month plus moving twice. Your "damages" are the actual costs of this inconvenience. Another example would be a retail business that opens late due to construction delays… the "actual damages" are those documented sells that are missed - this one becomes a lot more gray - who says all those people were going to buy those widgets on those days… Liquidated damages are set at a dollar amount per day and are some what arbitrary.

In my experience these type of agreements can be counter productive if building a custom home. The problems occur as things change and the onus is on the contractor to track all changes through a change order process. Changes affect time and money. When there is this big stick hanging over the builders head (penalty clause) they tend to nickel and dime the change order process. It can build animosity which can lead to problems regarding quality. If you want to go there I would recommend offering an incentive clause as well. If you beat the date there is a bonus if you miss it there's a penalty.

If the house is fully designed (all construction drawings are complete) you should be able to establish a schedule to go with the contract. Have the contractor establish milestones so you can track whether or not they are on schedule. Typical milestones are the completion of: Foundation, Main floor framing, Roof framing, Dry-in, mechanical and electrical rough-in, insulation, sheetrock, exterior siding and finish, interior doors and trim, mechanical and electrical system trim out, appliance install, other finishes such as tile, carpet, wood flooring, completion date, punch list time frame… If you monitor these things through the process you can avoid surprises like committing to a moving company a month to early.

Good luck





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Author: rsprang Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 29951 of 129261
Subject: Re: Home building contract question Date: 12/17/2002 12:35 PM
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If the home is not completed by the date stated in the contract what normally happens?

Closing is delayed ;-)

Seriously, usually construction contracts don't specify a firm completion date - there are too many variables. One year is a common time frame specified. If they say one year, and complete it within two years, the courts would likely agree that is a reasonable time period.

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Author: wesking Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 29955 of 129261
Subject: Re: Home building contract question Date: 12/17/2002 1:43 PM
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Normaly it would require a fine of some sort. But also the same stands true if he finishes early.... i.e. a bonus. But you could get real detailted on this in the contract as you wish.

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Author: RJW2000 One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 29956 of 129261
Subject: Re: Home building contract question Date: 12/17/2002 1:59 PM
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Bob,I'm not sure if you are talking about a architecturally designed, on of a kind, custom home project or buying a semi custom home in a development. The comments below are geared more toward the former. In the latter instance the builders have a pretty clear picture of what it will take to build the home - it's typically a "model" that's been done before so in that instance I think a penalty clause is warranted but may be hard to get the developer to agree to especially if his project is in high demand. If he's hurting for sales - go for the moon and stars.

In a standard AIA contract there is a place to enter penalties for not hitting the contractual finish date. Typically called liquidated damages, or sometimes "real" damages, these are contractually defined as a $ amount per day or a lump sum actual cost that must be documented. This amount will be established on some real basis - for instance... you must move out of your current house on said date and move into the new house. The builder is not complete so you end up having to rent an apartment for a month plus moving twice. Your "damages" are the actual costs of this inconvenience. Another example would be a retail business that opens late due to construction delays… the "actual damages" are those documented sells that are missed - this one becomes a lot more gray - who says all those people were going to buy those widgets on those days… Liquidated damages are set at a dollar amount per day and are some what arbitrary.

In my experience these type of agreements can be counter productive if building a custom home. The problems occur as things change and the onus is on the contractor to track all changes through a change order process. Changes affect time and money. When there is this big stick hanging over the builders head (penalty clause) they tend to nickel and dime the change order process. It can build animosity which can lead to problems regarding quality. If you want to go there I would recommend offering an incentive clause as well. If you beat the date there is a bonus if you miss it there's a penalty.

If the house is fully designed (all construction drawings are complete) you should be able to establish a schedule to go with the contract. Have the contractor establish milestones so you can track whether or not they are on schedule. Typical milestones are the completion of: Foundation, Main floor framing, Roof framing, Dry-in, mechanical and electrical rough-in, insulation, sheetrock, exterior siding and finish, interior doors and trim, mechanical and electrical system trim out, appliance install, other finishes such as tile, carpet, wood flooring, completion date, punch list time frame… If you monitor these things through the process you can avoid surprises like committing to a moving company a month to early.

Thanks much for the reply. The home is being built for a friend. I think it would be considered a semi custom home since I believe they are using plans that the builder already had and sweaking it to make it fit their needs. The builder has built many homes in the area and has a good reputation so they will probably come out okay. The contract states 4 1/2 months to complete the home, which seems a little aggressive to me unless everything goes smoothly. Since he has already signed the contract I guess he will just have to deal with any delays the best he can. He has a home to sell so if I were him I think I might delay putting it up for sale until he knows for sure when they can move into their new home.

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Author: FlyingCircus Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 29960 of 129261
Subject: Re: Home building contract question Date: 12/17/2002 10:03 PM
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The other comments about "it depends" on the type of house and builder are all valid. Also, unless there's a really, really good reason to do this, I recommend against a "deadline". Too much pressure and animosity. Builders are lousy project managers - and all they're after is money. Even an incentive is an incentive to cut corners, IMO. A penalty is also. There will be a lot of change in the process, and it will almost never be done exactly when they say unless conditions are perfect throughout the life of the project.

Milestones with associated payment %s are the way to go. Make sure there's a *significant* holdback for punchlist stuff. By the time 95% of the house is complete, the builder will be on to his next project(s), and if there isn't enough money on the table to make it worthwhile for him to finish, and if he doesn't really give a sith, he'll just walk away.

FC

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Author: goohsmom Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 29961 of 129261
Subject: Re: Home building contract question Date: 12/18/2002 5:54 AM
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Thanks much for the reply. The home is being built for a friend. I think it would be considered a semi custom home since I believe they are using plans that the builder already had and sweaking it to make it fit their needs. The builder has built many homes in the area and has a good reputation so they will probably come out okay. The contract states 4 1/2 months to complete the home, which seems a little aggressive to me unless everything goes smoothly. Since he has already signed the contract I guess he will just have to deal with any delays the best he can. He has a home to sell so if I were him I think I might delay putting it up for sale until he knows for sure when they can move into their new home.

If the builder has a really good reputation, and your friend seems to have a rapport with him, maybe your friend should bring this concern up to the builder in a casual conversation. Letting the builder know that your friend just wants to time the sale of his house correctly, and that he's not trying to start any trouble with the builder seems like a good approach to get an honest answer. Depending on the housing market, it might not be a bad idea to put the house on the market now, just as long as any sales contract includes the clause that they can't close until closing occurs on the new home. This way your friend is less likely (IMHO) to be sitting on a house that's not selling after completion of the other home.

Just my .02

Pam

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Author: rah1420 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 29962 of 129261
Subject: Re: Home building contract question Date: 12/18/2002 7:54 AM
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just as long as any sales contract includes the clause that they can't close until closing occurs on the new home.

Just as long as the seller realizes that this could be a sure way to kill the sale of a house. Depending on the housing market, of course -- but in this area, such a contingency will cause the prospective buyer to walk from any deal so structured.

As the seller, we were flexible, and had to be. We broke ground on our new house and put our old house on the market simultaneously. We built a semi-custom center hall colonial and got an estimate of the move-in date from the builder after the sheetrock was up, with a plus or minus one week confidence. He hit it on the nose.

We had already had our closing, since our bank wrote the loan as a mortgage with a stip that it was a construction loan until the bank approved the construction; when the house was done, the builder, the owner (us) and the second owner (the bank) all went through the house and then signed off to remove the stip and it converted over to a mortgage. The great thing about that was that it gave us an extra 6 months of 'seasoning' before we were even in the house, and we were able to retire the PMI 1.5 years after move-in, based solely on appreciation.

Anyway, I digress.

We closed on our old house six weeks before we moved into the new one. In no way were we ever thinking about asking the new buyers to wait six weeks, since THEY were selling a house that they had to leave. We simply found an apartment for six weeks, and moved twice, essentially, putting most of our stuff in storage for a couple months. A pain, but you do what you can to preserve the deal.

It was easy for us, mind you, since we were building in the same town we already owned in. I don't pretend that this will work for everybody, but my point is that you can't depend on contingencies to make the closing easier -- sometimes, they suck. :-{)

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Author: goohsmom Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 29976 of 129261
Subject: Re: Home building contract question Date: 12/18/2002 4:29 PM
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We closed on our old house six weeks before we moved into the new one. In no way were we ever thinking about asking the new buyers to wait six weeks, since THEY were selling a house that they had to leave. We simply found an apartment for six weeks, and moved twice, essentially, putting most of our stuff in storage for a couple months. A pain, but you do what you can to preserve the deal.

At the other end of the spectrum, when we bought our house, the sellers had waited to put there's on the market until their new home was almost ready, and ended up having to offer quite a few concessions on the house just to keep from having two payments while trying to sell. A lot can depend on the market. I would think the inconvenience of having to live in temporary housing for 6 weeks or so would be better than having to make two payments while hoping your old house will sell soon.

Again, just my .02

Pam

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Author: rah1420 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 29982 of 129261
Subject: Re: Home building contract question Date: 12/18/2002 7:35 PM
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I would think the inconvenience of having to live in temporary housing for 6 weeks or so would be better than having to make two payments while hoping your old house will sell soon.

Which was exactly our thinking. Including the fact that our "storage" was very LBYM -- we used a service that dropped large containers off at our driveway, we loaded them and padlocked them, and they hauled them away on a flatbed for a nominal fee. Then they hauled them back to the new place and dropped them in our new driveway. Very cost effective.


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Author: goohsmom Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 29984 of 129261
Subject: Re: Home building contract question Date: 12/18/2002 8:32 PM
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Which was exactly our thinking. Including the fact that our "storage" was very LBYM -- we used a service that dropped large containers off at our driveway, we loaded them and padlocked them, and they hauled them away on a flatbed for a nominal fee. Then they hauled them back to the new place and dropped them in our new driveway. Very cost effective

Great type of service. Mind sharing the name of the company?

Pam

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Author: rah1420 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 29985 of 129261
Subject: Re: Home building contract question Date: 12/18/2002 9:07 PM
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Which was exactly our thinking. Including the fact that our "storage" was very LBYM -- we used a service that dropped large containers off at our driveway, we loaded them and padlocked them, and they hauled them away on a flatbed for a nominal fee. Then they hauled them back to the new place and dropped them in our new driveway. Very cost effective.

Great type of service. Mind sharing the name of the company?



I would've finished the post, but dinner called. :-{)

It's a local company, but you may be able to find a similar service near you. Check out www.dropabox.com.

My image-conscious teenage daughter (is there any other kind?) cringed, since the containers are about 10' deep, 8' wide and 7' high. They are covered on the load site with brightly colored tarps (all different colors) with "DROP A BOX" stenciled on them in foot high letters. She likened it to the circus coming to town -- but she didn't have to pay an exorbitant fee for storage for six weeks, either.

These prices are 1999 prices -- no idea whether they went up or not, but my guess is "yes."

They charged $50 for the dispatch of the first box (including flatbedding it out, dropping it and returning it to warehouse, and re-dispatching it when the move's over) and $10/box after that. They also charged $10/month storage. This behooved you to order plenty o' boxes up front, as there's no penalty to return empties. They estimated 10 boxes for our 1600 SF house, which we self-described it as "cluttered." It ended up using 16, which meant the flatbed had to come back with 6 more (for another $100.)

There's a weight limit of 1200 pounds in these boxes, too. We put our library in one and the fork truck guy said it tipped the scales at 3000 lbs. Didn't charge us a penalty, however -- I think the whole thing amused him. A ton and a half of books. Sheesh.

We lived on a main state highway, so the boxes got lots of exposure. As a matter of fact, we noted that several other people in our new development had taken advantage of this service too. They probably should've paid us for all the free advertising -- I even had people stop and ask what was going on as I was in the middle of loading these containers.

On the down side, I'll never run out of padlocks again. LOL

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Author: goohsmom Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 29989 of 129261
Subject: Re: Home building contract question Date: 12/19/2002 6:01 AM
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Thanks for the info, I'll definitely keep a service like this in mind when we move.

As for the padlocks, I suppose you could donate them to a local school.

Pam

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Author: wjhodgson One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 29997 of 129261
Subject: Re: Home building contract question Date: 12/19/2002 10:48 AM
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Great type of service. Mind sharing the name of the company?

In my neck of the woods, Houston, Public Storage runs the same type of service. I don't have any information on the rates.

Bill

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Author: RadioPhool One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 30227 of 129261
Subject: Re: Home building contract question Date: 12/28/2002 5:40 AM
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Hi, FC! My first post here on this board. We are about to hire a contractor to build an adddition onto our house. I was wondering if you might have some thoughts as to what a good milestone payment schedule might look like and what you would consider a "significant holdback" for punchlist items. I was thinking somewhere along the lines of 10%. Too high? Too low? I'd appreciate any thoughts you might have on this. Thanks!

RadioPhool!!!

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Author: FlyingCircus Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 30282 of 129261
Subject: Re: Home building contract question Date: 12/30/2002 5:59 PM
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RP,
A few generally used guidelines for milestones are 1.) startup (they'll need enough to get through the excavation, foundation and initial framing purchase 2.) completion of foundation (w/inspection) 3.) completion of framing (w/inspection) 4.) completion of roughin & drywall 5.) completion of finish. The funding released at 5 should bring you to 90% or 95% of the cost depending on how much holdback you can negotiate; once the punchlist is complete you release the final amount. And then badger them for up to a year afterwards to fix the little things that snap/pop/break after the initial punchlist is taken care of.

FC

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