“You only find out who is swimming naked when the tide goes out.”
Warren Buffet, 28 Feb 2002, Chairman’s Letter to the Berkshire Hathaway Shareholders.
Setting:
In my previous article “Swimming Naked in Alice Springs” I told you I’d follow up and let you know how the project finished up. Well, this article is the follow-up; what happened? How did it turn out? What did you learn? What sort of protection did you put in place to make sure you didn’t get burned again?
Yes, the house in completed. We made it. But the saga continues. Read about why? And, I’ve also included before and after photos!
Who’s Your Builder?
“Yes, Mr Ives, what can I do for you?” said the voice over the phone. I was calling the building certifier’s office to set up an appointment to discuss how to get my house completed.
“I just had a meeting with my builder and he’s informed me he can’t complete my home because his company is insolvent. So, I’m calling to find out what to do next to get my house completed.” I explained as calmly as I could.
I was a bit nervous, a bit exited, a bit relieved, a bit scared. Nervous that I was now in charge. Excited that I could finally take control of the project. Relieved that my builder was finally out of the way. And, scared because I was left “holding the bag.” I now had to find a way to complete the project. “Never done this before.” I thought to myself with a bit of frightened laughter. And, then I thought, “How do I get out of this mess?” Finally calming myself down with some constructive self talk, “Stay calm, relax, one step at a time. You can do it!”
“Who’s your builder?” the certifier questioned me. I thought that was an odd question, since this project had been ongoing for over seven or eight months. Doesn’t the certifier know who my builder is? But, I answered the question, giving him my builder’s name.
The response back over the phone floored me. “He’s not your builder.” Said the certifier as if this were some kind of good news. “Your builder is a guy from Darwin.” Then he told me the name and it meant nothing to me. Never heard of the guy, never even heard the name mentioned in passing.
Builder Switcheroo – A Real Who Done It
This builder mystery would take on several twists and would eventually open up an ugly can of worms. It appears there was a deliberate deception taking place; paperwork submitted to the certifiers showed a different builder; different from my contract builder. The applicant on the paperwork was none other than my trusted real estate agent; the man in charge of the New Homes deal. ‘We’ll take care of the paperwork for you.’ Very suspicious indeed.
By the way, this “builder switcheroo” is part of an investigation by the Northern Territory Real Estate Licensing Board and the Alice Springs Police. Of course, nobody wants to admit to this deception. The real estate agent says, “It’s got nothing to do with me.” That’s a curious response, considering the real estate agency is listed on the paperwork as the “applicant.” Completing and submitting the paperwork was all part of their “New Home Package” charter. And, as the listed applicant, they are responsible for filling out and submitting the paperwork. I – and all the other “New Home” customers – essentially hired them to do this work. I’m looking forward to the results of these two investigations to find out the truth about who was behind this underhanded deception.
Keep Moving; Get the house built!
But, my main focus at the time was to get my house completed. I didn’t want to waste my time on a CSI “who done it” case study. I wanted to focus solely on getting my house built. After all, this unfinished project was costing me money every day; a financial “leaky boat.” My mission was to stop the “bleeding!”
Now that the “broke” builder and my suspect real estate agent were out of the way, I could finally get on with the process of getting my house completed. I wasn’t quite sure how I was going to do it, but I knew I must get started. I would somehow figure it out.
“What do I need to do to get my house completed?” I asked the certifier. Just skirting aside the “unknown” builder issue.
“Well, you need to get another builder and have him finish the project.” replied the certifier.
Let’s Shop for a Builder
“It’s a shame because I could have built the house from scratch for only $150,000 plus GST.” Said the builder in a deadpan voice. He just handed me a quote for $114,000 to complete my house.
I got another quote for $104,000. A third builder refused to quote. “I’m not interested in touching anything started by that other builder.”
Both quotes appeared genuine and accurate. I was going to have to pay for this misadventure. I wasn’t going to get off easy or cheap.
I went with the lower bid for several reasons. First, it was lower. I could use the extra ten grand for landscaping. Next, I had worked with the builder before and had a good experience. He renovated several bathrooms for me on a rental property. He did good, timely and fairly priced work.
No Swimming Naked; Put on a Bathing Suit!
I negotiated a “no swimming naked” clause with my new builder. He asked for two payments; one midterm and one at the end. I asked if we could make one payment at the end. I wanted to ensure he’d stay on the job and hopefully it would give him incentive to complete the job faster. This was my no swimming naked clause. When it’s done, I’ll pay. That way when I pay, I’ve got the product. I didn’t do that with the previous builder (I use builder loosely; remember he didn’t have a license!) and it cost me big-time. I must admit, I was somewhat surprised when my new builder agreed to my “no swimming naked” clause.
I also added a further clause; for every week the project is delayed from the contract completion date, the builder will pay $400. The builder happily agreed. Apparently, this is a standard clause used by the government and the builder was confident he could build it in the contract time frame. You won’t get it if you don’t ask for it!
I felt good about this contract. Good builder, good terms.
Essentially, I was invoking an insurance policy. I don’t pay until work is done and builder pays my costs if he’s late. I should have done this with the initial contract. Let me explain.
Initial Contract was Heavily Weighted to the Builder
The initial contract called for progress payments. Pretty standard procedure. But, I didn’t realize these progress payments were heavily weighted in favor of the builder. In other words, every time I made a progress payment, the builder was ahead. The builder had more money than I had house. By the time he told me he was broke, he was way ahead. I had paid 90% of the contract but had only about 50% of a house. I only owed another $24,000 on the contract price of about $240,000. Now, I was up for another hundred plus grand to complete. Not exciting and very embarrassing for me!
How could you let that happen?
Good question. Remember when I signed the contract? In the real estate agent’s office? My “trusted” real estate agent assured me the payment plan was fair and according to industry standards. I believed him. I trusted him. I felt he wouldn’t steer me wrong. And, guess what … I was wrong!
Lesson learned: It’s ok to trust people, but do an independent check of the facts anyway. If they question you for doing this (e.g. “Don’t you trust me?”), then drop them; quickly!
Project Re-Start Highlights
I could write 25 pages on the project re-start, but for the sake of space, I’ll just go over the highlights as follows:
- Waiting on certifier and government approval delayed re-build by two weeks (late March 2009)
- Builders first task was to rip out all the secondary carpentry work. Certifier described the secondary carpentry work as awful.
- Found more discrepancies that drove builders price up by another $4,500. Such items as “re-do window reveals, fix back wall, timber around outside windows.”
- I requested further items driving price up by about another $10,000. Items such as “garden shed, clothes line, dishwasher, fence.”
- Landscaper price came in at $12,500. Had to wait on landscaper delays before offering property for sale or rent.
- House finally ready at end of July 2009.
- Held and “open house” on Saturday 31 July 2009. Offered house for sale or rent.
House Completed; Time to Pay Up
In late July 2009, I did a final inspection with my builder and then we had a negotiation at the kitchen counter. The house completion was about 8 weeks overdue. We agreed that two weeks were unavoidable – government and certifiers delays. Then we agreed that we could both take some blame for the rest of the delays. I had requested a garden shed and fencing and these set the timetable back a bit. Garden shed had to be ordered and fence was sort of a last minute request. But, the builder agreed he introduced some delays; he could have done it faster. So, we split the difference and knocked about “3 weeks” off the bill. Each week is worth $400, so price dropped by about $1,200. I was happy, he was happy.
I wrote out a check for $119,000 to the builder.
About a week or so later, I wrote a check for $12,500 and gave it to the landscaper.
Before and After Pictures
Here’s a picture of the house prior to the restart. I’m trying to force a smile … not easy!
And, now a picture of the finished product. What an improvement!
Then What Happened?
To be continued … part III is coming – stay tuned!