Building a House? Here’s what you need to look for in the build contract.

Congratulations! You're considering constructing a home! Building your dream home is a thrilling experience, but it can also be quite stressful. There are thousands of ways to throw yourself into financial problems (or wind up with a home you don't want) and so many things to take in. We've helped several clients finance their dream home, and while you're probably a long way from examining construction contracts, here are a few things to keep in mind when the time comes.

1. All construction contracts are not created equal.

If you want a lender to approve your construction loan, your build contract must be "fixed price." A fixed-price contract stipulates that the building cost is set in stone and that all expenditures are disclosed upfront. A “cost-plus contract” is a form of construction contract that is an alternative. The builder passes on the cost of the construction work as well as a profit margin. The eventual price of these types of contracts isn't always apparent, which is why lenders are hesitant to lend against them.

2. What is the “Construction Period”?

The "Building period" is a time term provided in your contract that estimates how long the builder will take to complete your home. The following factors may have an impact on the construction period:

• The land's slope
• Ground conditions that were not anticipated (like large quantities of rock)
• Site accessibility (how simple is it to get on the site?)
• Easements and trees are involved (do trees need to be removed before construction can begin on-site?)
• Holidays and the Christmas season (the building industry often shuts down over this period, so this is something to keep in mind when planning your timeline)

The “Date for Practical Completion” is the date on which your home is expected to be finished, and it should not be left blank.

3. What does it mean to be in the “initial period?”

The first phase refers to the time you have to finish a few duties before the builder may start working on your home. These responsibilities usually entail demonstrating to the builder that a) you own the land and b) a lender has approved financing for your project.

4. What do you mean by "Liquidated Damages"?

This is the penalty that applies for each day that the builder exceeds the specified building time. This is frequently left blank, implying that if the builder takes longer to complete your home, the builder is under no contractual duty to compensate you. Regardless of whether or not these damages should be imposed (and paid by the builder), it's a good idea to fill out this part.

5. Builder’s Margin

Variations made throughout the construction process can be costly because most building contracts require the builder to add an agreed-upon margin to the cost of your proposed variation. Knowing that any requested adjustments will be subject to a margin, it's advisable to avoid them if at all possible. The more planning you undertake before construction begins, the more money you'll save (and often stress perspective). We understand that this is easier said than done because sometimes you don't realize there's a problem with what you signed off on until you see the house emerge. Admin fees and/or variants may be applied to the build at times. Before you submit a variant request, it's critical that you understand all of the fees associated with making a modification.

6. Payment schedule in installments

Your home will be built in phases, with the builder receiving payment from the lender as each stage is completed. Your construction will typically go through a set of stages (Deposit, Slab Completed, Frame Stage, Roof Stage, Internal Fixing, Painting, and Completion). It's critical that this be precise because this is the schedule that the lender will use to distribute loan payments to the builder. The builder will not receive all of the building proceeds until the house is completely finished. This is also the time when you begin paying off your completely drawn construction loan.

7. Items that are not permitted

There will be items listed as "Excluded Items" in your Building Contract. It's critical that you understand what these products are and the financial (or quality) consequences of excluding them. Will you have to pay more for the removal of rocks or dirt? Is there anything you've decided to cover on your own that you'll need to budget for, such as a new heating/cooling system or further joinery work?

8. Provisional Sum Item vs. Prime Cost

The term "prime cost" refers to an item (fixture or fitting) that has not been chosen or that cannot be costed at the time the contract is signed, and for which the builder has made a provision in the contract price. A provisional sum item is a type of work (labour and materials) that cannot be costed precisely at the time the contract is signed and that the builder has factored into the contract price.

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9. Additions

Don't sign anything until you have a full description of what's included - and you've done your homework on it. We imply that you should look into the quality and worth of each item so you know exactly what you're buying. When it comes to standard house packages, the list of inclusions frequently contains items that may or may not need to be changed to reflect the level of quality you desire in your new home. This is by no means an entire list, but here are a few things to look into as a starting point:

• Window and door schedule – what type of infill is used around the doors and windows (is it brick infill, or fibre cement sheet)? What type of garage doors are included? There can be significant difference in the cost between garage doors, even though they look the same (to the uneducated eye) from the street. Regardless of what options you go for, it’s important you know what you’re paying for. Knowing what you’re paying for gives you the opportunity to change things if you want to.
• Insulation – what is the rating? Is the insulation sufficient for your house size? Also check whether there’s insulation between the garage and house. Often this is not included and can have an impact on the energy efficiency/ comfort levels of certain parts of your house.
• Heating/ cooling systems/ water tanks – check to ensure these are sufficient for your house size, as the base models included can be inadequate.
• Appliances – research the model of every appliance so you have an idea of the quality you’re getting.

SOURCE: https://mmo.com.au/