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How do I know my builder won’t go broke and leave me high and dry?

Do your due diligence before you engage a builder

Residential construction company Stellar Homes announced its collapse last year, appointing external administrators. The company had fallen victim to stiff competition in the state’s struggling domestic housing construction market. This reflects the difficult economic climate.

Stellar Homes was established in 2004, and had built over 500 homes across the state of South Australia. This collapse affected approximately 36 homes at various stages of construction, and has halted the operations of approximately 173 tradespeople employed on those sites.

Whenever a builder goes into administration or liquidation halfway through construction, financial mismanagement is often a big part of the reason. Unfortunately, it is usually the property purchasers who bear the most risk, particularly when all of their funds are locked up with either the Vendor’s agent or the embattled builder, and new builders need to be found to finish the job.

We’ve compiled a list of eight things to consider before you engage with any builder. This helps to manage the risk and alleviate some of the angst that goes with building that dream home.

  • Do your due diligence on your builder. Ensure the company is not a phoenix company for building purposes. A phoenix company is a commercial entity that has come about from the collapse of another through insolvency. It is set up to trade in the same or similar name trading activities as a former company, and is able to present the appearance of “business as usual” to its customers.
  • Ensure that the builder is a licensed builder. You will be surprised how many builders are not in fact licensed but come across as licensed. Do a Google search.
  • Know your rights and obligations when it comes to paying deposits and progress payments. Careful consideration should be given to milestone and time-related progress payments. Having these payments too heavily priced early in the construction time frame can place you at significant risk.
  • Don’t rely on insurance solely, as builder’s insurance can only protect you in limited situations such as for defects or other negligent constructions, but not the winding up of a company. However, in saying that, ensure the builder does have Home Indemnity Insurance as this can limit your losses.
  • Look at the background of the business and find out how long it has been operating for, previous projects it has completed, the size of the business and where it is located.
  • Watch out for builder promotions offering big discounts and bonus inclusions. Remember if it sounds too good to be true, it often is.
  • Research the history of the company through the Australian Securities and Investment Commission (ASIC). Newly established companies may not be financially sound or experienced as other long standing companies. Do a Google search of Directors.
  • Contact a member of our PROPERTY Team

 

We can assist you with each step and will ensure that the contract with your builder covers you from all legal aspects. Our property team has dealt with various builders, developers and Vendors and can provide their wealth of experience to ensure that your rights are covered.

You can also access our assistance throughout the whole purchase process to ensure that your transaction goes smoothly so you can successfully acquire your property. Contact a member of our Property Team.


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