How Can I Be Sure My Builder Is Financially Stable?

Building your dream home shouldn't be a gamble. This guide helps you spot financially secure builders and avoid builders who might go bust halfway through your project.

You might remember that we published an article in November 2023 talking about the number of building companies that have gone bust and the instability of the building industry as a whole.

Since then, news stories continue to surface about consumers being left with half-built homes that they can’t afford to get finished because they’ve not only lost their money but don’t have the funds to pay a new builder to complete the project.

We can certainly understand how this has made many people sceptical about getting a new home built rather than buying an existing one. But there are still many advantages to building a new home that just can’t be overlooked.

In fact, for many people, this is still the best option because it allows them to get exactly what they want and makes a great investment for the future.

So, how can you be sure that the builder you want to work with is financially stable and won’t let you down?

Or, more importantly, how do you choose a builder who you know will get the project completed and not leave you stranded with a half-finished one?

Look carefully at the proposal and the price.

Believe it or not, going for the lowest price is not always your best option. As the old saying goes “If it sounds too good to be true, it probably is”.

Mmmmm. There’s always a reason as to why the price is what it is.

So you want to ask yourself why the price is where it is. For example, if you’re presented with a price that’s really low compared to the other quotes, why do you think this is?

Is it because the builder is using cheaper materials or cutting corners? Or is it because the builder’s working on really slim margins and hasn’t allowed any room for things like material costs going up or the lack of tradespeople who will work for set rate that is below the average.

On the other hand, if a price seems higher than you think it should be, what could be the reason for this? Is it because the builder is using really top-notch materials? Or are there extra inclusions that the others don’t have?

Look for the value.

Essentially, you want to look for a builder or building company that offers you a realistic price for what you want. In other words, can you see the value in the overall proposal and does the quote sound realistic?

Dig beneath the surface and try to see the value in each one. What are you getting with each build? Does it include everything you want and more? Or will there be things that you’re going to have to pay extra for?

You need to remember that builders, like any business, have overheads such as insurances, licenses, and hiring qualified and professional tradespeople. On top of that, there are the costs of the building materials themselves.

A reputable builder will take all these overheads into account and price the build accordingly. This might mean that a financially stable builder is not the cheapest on the block, but you can be sure that you’re going end up with a completely finished home that you’ll be proud to call your own, year after year after year.

Apparently Benjamin Franklin said the bitterness of poor quality remains long after the sweetness of a low price is forgotten. Whether he said it or not, we reckon there’s definitely something in that quote!

And that’s what real value is all about.

Why do some builders and building companies go bust?

We’re not saying that all the builders and building companies who have gone bust have not been reputable. There would have been those who did excellent work but were just not the best business managers financially.

There are numerous factors involved here but the most important one to think about is that the builder hadn’t priced the projects at a rate that would cover all the overheads plus the cost of the materials.

In fact, over the last couple of years, the cost of building materials has risen sharply. And if a builder wasn’t considering for his customers and factoring those increases into his margins, then the company was simply just not able to absorb the higher costs.

This meant that the builder would have had trouble paying the suppliers and would have also resulted in tradies not getting paid promptly either. This then had a snowball effect, where tradespeople who were not being paid properly would have moved on to work with another builder who could afford to pay them.

So, the builder with the slim margins ended up with another problem. The lack of available tradespeople to complete the projects that had been started.

After countless sleepless nights, it would have become apparent that the business was no longer viable, and it was time to call it quits. Or, worst-case scenario, a creditor made that decision for them …

So, while the builder’s customers might have thought that they’d stitched up a great deal, at the end of the day, they ended up with an incomplete home and a very difficult road ahead of them to get it all sorted out.

How can you be sure that your chosen builder is financially stable?

There are three things that you should look for when selecting a reputable builder who’s financially stable and who you can rely on to get the project completed.

Make sure the builder is registered and has insurance.

In each state, registered builders are required to have mandatory building insurance. For example, in NSW this is run by the government and is known as the Home Building Compensation Fund.

But the insurance is there to protect you, the consumer. So if anything does go pear shaped, the insurance will cover you to either get the home finished or to get any building faults repaired.

In order to get this insurance coverage, builders have to meet stringent criteria and are vetted to ensure that their business is financially stable. Ask the building company if they can provide you with evidence of this insurance before you take any other steps.

Get professional advice.

By professional advice, we mean asking the builder to provide you with a written statement from either their accountant or their bank that states that the builder or building company is financially stable. This is commonly known as a ‘letter of comfort’.

A further step that you can take is to ask the builder for a report that comes from a credit agency. If the builder can’t supply this, you might have to conduct your own research. Consider contacting a credit agency like ‘Creditor Watch’ to get a report on the building company you’re interested in working with.

The report will most likely come at a small cost to you, but it should be comprehensive enough for you to see if the builder pays all their bills and whether there are any defaults in the company’s history.

Learn a little about the owners of the business.

It does help to get a bit more information about the owners of the building company to see if they’re honest and trustworthy. Try to see what their background is and how long they’ve owned the business.

Is it a family business with generations of experience or is the company run by a corporate entity that also owns numerous other companies? When you dig a little deeper into who owns the company, you can find out all sorts of information that will either put your mind at ease or present you with red flags.

Essentially, it’s not all that difficult to find out whether a builder or building company is financially stable if you know where to look and what information you should look for.

It always pays to do a bit of research.

In fact, it’s actually good practice to do a little googling before you make any major purchases. You’ll find it quite astonishing at all the information that might pop up.

But make sure that you do this research with an open mind as there will always be the odd disgruntled consumer who could easily ruin a company’s reputation with just one or two bad reviews.

Open communication is the key here. So if you do find something that you’re a little concerned about, just ask the builder or company about it and see whether the response feels right.

At the end of the day, there’s no silver bullet to finding a builder you can trust, but these tips and tricks we’ve outlined here will go a long way to making sure everything turns out ok for you.

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