Buying from small builder

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Maltese_IHB

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We are considering making an offer on a property built by a small-time builder. It is a recently completed property where the builder is in financial trouble and trying to unload the property for a small loss. What potential pitfalls does one foresee when buying a home in this situation? Cracked foundation, construction defects, etc? Would you avoid this scenario and buy used?
 
Maltese said:
We are considering making an offer on a property built by a small-time builder. It is a recently completed property where the builder is in financial trouble and trying to unload the property for a small loss. What potential pitfalls does one foresee when buying a home in this situation? Cracked foundation, construction defects, etc? Would you avoid this scenario and buy used?
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Definitely have an inspector check the property out. Even though the city comes out to check the property before issuing a certificate of completion/occupancy, you want to make sure you do your own homework. Also, if the project was financed you want to ensure that the builder has the approval of the lender to sell the property at that price. Another thing, if the builder is giving out co-op commission get yourself a buyer's agent and have them kick you back the majority of that commission (i.e. DO NOT LEAVE FREE MONEY ON THE TABLE). Btw, where is this project located?
 
You might worry about the warranty situation. Most big builders will do warranty work for the first year or two after you buy the property. If the builder goes belly up then there goes any warranty work.
 
Joe33 said:
You might worry about the warranty situation. Most big builders will do warranty work for the first year or two after you buy the property. If the builder goes belly up then there goes any warranty work.
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He can allows purchase a home warranty from an outside third party such as American Home Shield just to be safe.
 
usctrojanman29 said:
Maltese said:
We are considering making an offer on a property built by a small-time builder. It is a recently completed property where the builder is in financial trouble and trying to unload the property for a small loss. What potential pitfalls does one foresee when buying a home in this situation? Cracked foundation, construction defects, etc? Would you avoid this scenario and buy used?
Click to expand...
Definitely have an inspector check the property out. Even though the city comes out to check the property before issuing a certificate of completion/occupancy, you want to make sure you do your own homework. Also, if the project was financed you want to ensure that the builder has the approval of the lender to sell the property at that price. Another thing, if the builder is giving out co-op commission get yourself a buyer's agent and have them kick you back the majority of that commission (i.e. DO NOT LEAVE FREE MONEY ON THE TABLE). Btw, where is this project located?
Click to expand...

Buying from a small builder may not be a bad thing as some big builders are like McDonald's and as result the knock them out like and assembly line and sometimes the pickup for the walk through can be quit extensive. Smaller builders sometimes build a much better product as they are family and are much likelier to take pride in what they build instead of the wall street traded corporate builder that thinks of you as a number. Under California law you have a one year warranty on the house and most appliances, GDO, water heater etc come with their own warranty as well that may be from 2 to 5 years or more. I would hire an inspection but check with the builder as they might not allow till after the COE. Do check you contract as they all say that you can not hold up a close of escrow because of walk through items but mostly they are nickle and dime things. Remember you will find things in that first year and you just write them down as you see them and the builder takes care of it until at the end of the first year everything should all be taken care of. Real normal. I would talk to the people who live there already to see how customer service is doing. If the builder does go Chapter 11 you may be ok chapter 7 then you are on your own. Remember though that it is new home so there is not really and maintenance for the first 5 yrs other than small pickup items in the first year. If the sales contract is already done no builder is going to pay a co-op as the agent never procured the sale period. The only time a builder will pay a co-op if the agent was the first to bring that buyer to the project and registered them. Plus that money comes out of the marketing budget not the sales budget so you will not win that battle. Just do your homework and research on pricing and take your time and get all your questions answered and usually you get lots of incentives from builders that you will never get in resale and it is a new house vs inheriting someone else's design tastes and maintenance issues.
 
OCCOBRA said:
usctrojanman29 said:
Maltese said:
We are considering making an offer on a property built by a small-time builder. It is a recently completed property where the builder is in financial trouble and trying to unload the property for a small loss. What potential pitfalls does one foresee when buying a home in this situation? Cracked foundation, construction defects, etc? Would you avoid this scenario and buy used?
Click to expand...
Definitely have an inspector check the property out. Even though the city comes out to check the property before issuing a certificate of completion/occupancy, you want to make sure you do your own homework. Also, if the project was financed you want to ensure that the builder has the approval of the lender to sell the property at that price. Another thing, if the builder is giving out co-op commission get yourself a buyer's agent and have them kick you back the majority of that commission (i.e. DO NOT LEAVE FREE MONEY ON THE TABLE). Btw, where is this project located?
Click to expand...

Buying from a small builder may not be a bad thing as some big builders are like McDonald's and as result the knock them out like and assembly line and sometimes the pickup for the walk through can be quit extensive. Smaller builders sometimes build a much better product as they are family and are much likelier to take pride in what they build instead of the wall street traded corporate builder that thinks of you as a number. Under California law you have a one year warranty on the house and most appliances, GDO, water heater etc come with their own warranty as well that may be from 2 to 5 years or more. I would hire an inspection but check with the builder as they might not allow till after the COE. Do check you contract as they all say that you can not hold up a close of escrow because of walk through items but mostly they are nickle and dime things. Remember you will find things in that first year and you just write them down as you see them and the builder takes care of it until at the end of the first year everything should all be taken care of. Real normal. I would talk to the people who live there already to see how customer service is doing. If the builder does go Chapter 11 you may be ok chapter 7 then you are on your own. Remember though that it is new home so there is not really and maintenance for the first 5 yrs other than small pickup items in the first year. If the sales contract is already done no builder is going to pay a co-op as the agent never procured the sale period. The only time a builder will pay a co-op if the agent was the first to bring that buyer to the project and registered them. Plus that money comes out of the marketing budget not the sales budget so you will not win that battle. Just do your homework and research on pricing and take your time and get all your questions answered and usually you get lots of incentives from builders that you will never get in resale and it is a new house vs inheriting someone else's design tastes and maintenance issues.
Click to expand...
You are correct, the buyer will have to mention to the builder that they are working with an agent and were sent by them in order to get that co-op commission.
 
Good luck, Maltese

I would second the suggestion of using a good inspector prior to close, especially if the builder was short of cash during the build as they may have cut corners.

I would also consider a third-party warranty, which should be modestly priced.

Look forward to hearing about the new house when you are ready to share (I hope it is as nice but with a smaller price tag that that 16th place house!)
 
You can PM me or post who the builder is here, and I might know who they are and what their quality is like. It will also depend on when the builder started to have money issues, and whether they had to start cutting corners before they completed it. So I would need to know the address too, to see the time line of the build. And, if you really want, I can do a walk through with you to catch any red flags. While it wouldn't be the same as having a good inspector do a thorough inspection, I can at least catch most major issues or see obvious defects that may not be obvious to you. If I start seeing issues, then you will most likely want to walk away before having to pay for an inspection. If it is on the Eastside, then you can just buy me lunch at El Caliente or bottle of wine or vodka at Hi-Times for my time. Much cheaper than an inspector.
 
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