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Section 4. How to prevent a nightmare from developing with your new home

Yet the dream of building one's custom home goes on. It should go on. You should know that when you bring together sound information and knowledge, the risks can be managed and your custom dream home can become a reality.

Charles J. Daniels, Dream House, Real House. The Adventure of Planning and Building a Custom House. Macmillan Publishing Co. 1989.

By taking a few deliberate steps you can safeguard the integrity and value of your new house or condominium. The emotional, legal, and financial nightmare many new-home buyers experience can be prevented.

Be forewarned. You will likely meet resistance as you try to protect yourself. Your builder, architect, developer, real estate agent anyone you depend on may protest as you try to protect yourself legally and financially. They may say you are too cautious, too suspicious, not trusting enough, or they may fall back on their 'reputation' for honesty and integrity. If so, run the other way. It is your home that needs protection, not theirs.

The builder, especially, may even refuse to do business with you. If so, count yourself lucky. Don't make the mistake of assuming there is only one lot, one location, one opportunity for you. Your friends may say you're foolish, that Builder X constructs solid houses with no major problems. But remember: past performance is no guarantee of future quality. In truth, most builders merely subcontract out their work, often to the lowest bidders. If the builder refuses to make himself financially and legally responsible for the construction of your home, go elsewhere. Unless you protect yourself ahead of time YOU CAN ONLY LOSE IF YOUR HOUSE IS BUILT DEFECTIVELY.

You must act to protect yourself against major construction and design mistakes. Furthermore, you must ensure that defects will be fixed if, despite all your precautions, they do show up. In this chapter I will make some definite recommendations on how to protect yourself. (Some of these recommendations, such as thorough house inspection by an independent inspector and engineer, and a healthy wariness toward real estate agents, apply equally well to purchasing a used home.)

* * *

First, let me answer a question that might concern some readers: Who am I to make these recommendations? I am not a lawyer, builder, architect, engineer, accountant, real estate agent, or developer. I am not even a businesswoman. By profession I am a psychiatrist, and this book was written in my spare time. How can a full time psychiatrist possibly have the expertise to advise you, the potential home buyer? I have three responses to this most legitimate question.

1) I've been there. Unless people have experienced the agony of defective construction, the futility of litigation against irresponsible business people, they are unlikely to realize how bad things can get when buying a new house (or, for that matter, a used one).

2) I have dealt with numerous other victims, read their stories, talked to them on the phone. And I have treated several of them professionally, for depression and anxiety arising from a defective house. I've seen couples on the brink of divorce, grown men cry in my office, people openly contemplate suicide because the house of their dreams has turned into an unrelieved nightmare.

And I've learned that the consequences of defective construction are the same everywhere. When people buy a defective house and can't get it fixed, the scenario is strikingly similar. (This scenario assumes the builder has not skipped town, something that has happened to many unlucky homebuyers.) Typically, the builder first denies that construction problems in your house exist (our obviously sloping floors were called an "optical illusion"). As the homeowners continue to complain, the builder, instead of dealing forthrightly with the problems, begins to externalize and blame others: "I only do what my architect tells me." "It's not my fault but the fault of the plumber/electrician/ mason/roofer."

When the mistakes are not corrected the builder finally blames the homeowner, criticizing her [usually her] for "blowing the problems out of all proportion," a phrase much favored by builders caught in their mistakes. Or: "She's very picky. Nothing pleases her." This kind of defensive posturing first denial, then blaming other workmen, then blaming the homeowner protects the builder from feeling any guilt or discomfort about his mistakes.

Finally, the homeowners hire a lawyer because they have no other rational choice. At this point the builder also goes to his attorney, convinced the homeowners are being unreasonable. From there, it is (sadly) downhill, as the builder's attorney throws up roadblocks to any resolution. The homeowners suffer delays, denials and, all too often, calumny. They are apt to be vilified in legal-sounding letters (as we were). Instead of properly investigating the complaints and working to achieve a resolution, the builder spends money to fight the homeowners. (Not infrequently, once the homeowners file a lawsuit the builder will countersue, in order to intimidate them.)

The emotional consequences of this scenario are predictable for the homeowners: depression, anger, despair, a sense of loss. In my first book I described this experience as "the material equivalent of rape." That has turned out to be a most appropriate description.

The fact that this experience is so similar everywhere means there are basic steps anyone can take to protect their investment and avoid the horrors of a legal fight. The universality of this experience also answers another frequently-asked question: Aren't every state's laws different, and doesn't that make advice in one state invalid in another?

Well, I am not a lawyer but I do know this: states may have different statutes about house construction and contracts and builder's warranties, but the result is the same all over. The buyer of defective construction is, in practical and financial terms, unprotected by the law if the builder reneges. There is no state law that protects the home buyer without that person first expending an enormous sum for legal and experts fees, money which cannot be recovered. Indeed, no matter what contracts have been signed. there is no law in the land designed to fairly compensate the purchaser of defective residential construction.

3) All the professionals involved in selling real estate (new or used) have a vested interest different from yours . The real estate agent, builder, developer, banker and architect all want to sell houses, not warn you of how to prevent defects and litigation. They want you to be happy with your purchase, of course, but rarely will they advise how to protect yourself in the event of problems. Why? Because they don't want to admit that problems might occur.

The professionals know that, after you take title to the house or condo, they have your money and are practically immune from your complaints. Yes, immune. After title transfers you have given up all leverage to make anyone follow through on promises or guarantees. From that point onward, you cannot achieve redress without also inflicting great harm on yourself and expending thousands of dollars.

To properly warn is to needlessly scare away potential customers. The people in a position to profit only have to sell you that new house or condominium once. They don't care about your repeat business because you are not expected to ever buy another new house, at least not from the same people. That is one reason why you'll find no information from the building or real estate industry about the risks inherent in buying a new house, and why you will almost never hear a real estate agent or builder or developer advising you to hire an independent inspector before purchasing new construction.

To professionals on the selling end, nothing can go wrong, nothing should go wrong, and you have nothing to worry about. They will advise you to insure against fire and theft and earthquake and perhaps even flood in some areas, but never against manmade disaster faulty design and construction.

When things go right these professionals are some of the nicest people you'll ever meet. But if things go wrong in a major way, you are apt to encounter a "drop dead" attitude from the same people who were all smiles when they took your money. You only have to

experience this once to see what I mean.

So a psychiatrist who only wanted a decently-constructed house in which to live and raise her family has, by default, become an advisor on how to protect your investment in a new home. Professionals in law, architecture, construction, and real estate might be amused by my avocation, but just remember this: My husband and I (as have countless others) hired a professional contract lawyer to help protect our investment. We (and countless others) had a professional, licensed builder construct our house. We (and countless others) used the services of a licensed architect. We (and countless others) had faith that professionals would know how to design, build, and contractually guarantee for us a well-built house. But in the end the work of these professionals was so very, very bad, that in fact it was un professional. As a result we (as have countless others) lost a lot of money and incurred a lot of aggravation. Don't let this happen to you. It is caveat emptor all the way.

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You're not buying a piece of land and a house; you're buying a builder. More to the point, you're buying a builder's reputation.

--Joys and Perils of That Unbuilt House. Changing Times Magazine, June 1990, pages 41-49.

Very often you will be dealing with local individuals who only build in your area. In fact, the higher priced the house the more likely the builder is self employed and not working for a large firm. Whether your house is constructed by such local people or by a national firm means nothing in terms of quality. You need to thoroughly check out the people you are dealing with in any situation.

There were three defendants in our case, all self-employed. The architect and builder were shown to be incompetent in the design and construction of our house, respectively. All three men lacked integrity, but the architect and developer were particularly bad; they lied to newspaper reporters to in an attempt to resell the defective house.

In the very beginning, of course, we started out cautiously, making what we thought were all the right moves. We had no inkling whatsoever of the trap we were entering. Just how did two hard working professionals get hooked up with three no-good people in the construction of their $350,000 dream house? Easy. We were not careful enough.

We wanted a particular lot so we took what came with it: the developer owner, and his architect and builder. We did not investigate these people except in the most cursory way. We assumed the developer was honest simply because a) he was rich and lived in a high class suburb nearby, b) we were moving next door to his son, and c) his grandchildren and our kids were in the same schools. We actually thought this set of circumstances conferred some type of protection on our deal. Why, we figured, would this nice rich man want to cheat us.

We also assumed the builder and architect were competent, mainly because they were building the house next door, for the developer's son. My husband and I talked about the circumstances, analyzed them repeatedly, and just assumed everything would be OK. Given the same set of circumstances, you might have reached the same conclusions.

Well, we were fooled. You cannot assume anything in an area as important as building or buying your new home. Inspect not just look at other homes your builder, developer or architect have built or designed. Demand references. Dig for information, then check it out. Call people. We didn't check out these men, demand references, or even talk to other business contacts. Such investigation might still not have uncovered their incompetency, or the developer's flagrant dishonesty in our deal, but we didn't think to ask. Like countless other naive home buyers with busy schedules, we assumed, for what turned out to be all the wrong reasons, that we were dealing with competent and fair-minded people.

How do you do it? How do you check out builders, architects, developers? Some advisors recommend you call the Better Business Bureau to inquire about a particular builder or developer. This is a common sense first step but not apt to be all that helpful, for several reasons: 1) builders construct houses under many different names; Joe Blow may have several complaints registered under ABC Construction but none under XYZ Homebuilders, the company you are contracting with; 2) serious complaints usually don't go to the BBB (ours didn't), but instead to a lawyer or arbitrator; 3) the form required to file a complaint is long and cumbersome, and many people just don't bother registering their complaints; 4) the BBB is a business-supported organization, not a consumer-supported one. Its primary goal is to protect legitimate businessmen from the fallout of bad businessmen, not to protect the consumer. While one hopes that the BBB's primary goal meshes with consumer protection, keep in mind that the BBB was set up to protect businesses, not consumers. In short, don't rely on any business-supported agency when checking out your builder. You need to be your own sleuth.

After it became apparent that our house was defective, the builder, when asked by potential clients about his other houses, did not disclose that he had built any homes on our street (he built three, all defective to some degree; ours was by far the worst). A prudent homebuyer who learned what he built for us would think twice before doing business with him.

I recommend you ask your prospective builder for the names of people who have bought his last five houses. Repeatedly emphasize that you want his last five. Not his best five, his first five, or five good ones, but the last five. Tell him all you want are the names, and the phone numbers or addresses. If he balks, or says he doesn't remember, or makes some other flimsy excuse, walk. If he refuses on the grounds he doesn't want to invade the privacy of his customers, be skeptical. Good builders give references all the time. If he gives you the addresses but no phone numbers, you can easily get the phone numbers from the city directory. If the phone number is unlisted, go to the door during daylight hours and knock. Or, write a letter to the homeowner, giving your phone number and asking the person to please call you.

People who bought a house from the builder will level with you, good or bad. If you hear five good recommendations, you've likely found a good builder. If you encounter any seriously disgruntled homeowner, try to get the complete story about what happened. If you are satisfied the builder acted properly there may be no cause for alarm. But what if you discover that two of the last five home buyers are suing the builder! Won't you be happy you called? Whatever you find, if there is doubt don't proceed. It's not worth it.

One last recommendation. On principle, don't use a friend or relative to build your house. Any non-business relationship you have with the builder will compromise your alternatives if things go wrong.


What goes for the individual, self-employed builder goes for the large company as well. Many houses in the mid- and lower-price ranges are built by large regional or national construction companies. These firms can't possibly construct every house with uniform high quality, especially since they are dependent on the vagaries of local workmen. Don't get caught with the worst of their output.

Below is a table listing eight publicly traded home-building companies. Note that even the largest companies are tiny compared to the auto giants, and you are probably unfamiliar with them. The largest U.S. builder of single family homes is Centex Corporation, which trades on the New York Stock Exchange (CTX).

The number of homes sold by Centex in 1990, 7862, represents less than half of one percent of all the new homes sold that year. All seven companies together built less than two percent of the 1,100,000 new homes sold in 1990.

Publicly traded home building companies (ranked by revenues)

(Source: Value Line; NA=not available)

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