Building your first home – dream or disaster?
So, you have spent weeks, months or even sometimes years religiously pouring over the newspaper, Trade me, Open-to-view, real estate agent websites, and other property websites looking for the perfect home to purchase. You have worn down the soles of your shoes, attending numerous open homes and auctions and you feel you are now in Groundhog Day territory. And just when you have found your perfect home, it is snapped up by another first home purchaser or property investor. In the cold hard light of the day, maybe it wasn’t a perfect home after all – it didn’t have that spacious third bedroom, the entertainers kitchen, nor sufficient outdoor space for your kids. This is when your thoughts turn to building your first home.
Deciding to build your first home
Star-jumps and whoops of joy as you embrace the joys of planning and designing your home exactly as you want it. The myriad of house design plans and house sizes, mirror the choice of colours, textures and styles available. What once may have seemed a pipe dream, is now an achievable reality.
Before you leap into the unknown, be mindful of the disaster stories – yes we’ve heard a few – the budget and the house plans are miles apart, the trimmed down plans that no longer meet expectations, the location of the house on the section isn’t ideally placed, progress on the section development has stalled, the construction time frames have completely blown out, variations have increased the building cost and the entire process seemed to have morphed from the molehill to a mountain – the dream has become a nightmare.
“If you fail to plan, you are planning to fail” was never a more apt!
To succeed, you need to do your homework – read, research and read even more. Understand the legalese, the fine print and take the time, to take your time. . After all “Fools rush in where angels fear to tread“. Chances are you will have a much more rewarding experience be able to regale your family and friends with your success story.
Tips and tricks to building your first home
Here are some of the main points you need to consider when building your first home:-
- Building Contract – Arguably it is the most important document you will sign. Read and understand it. Don’t skimp on a “simple contract” for the sake of saving time or legal fees. This is possibly going to be your greatest financial investment, so give the Building Contract its due. A building contract should provide for:-
- the price, the deposit, when paid, where and to who it is paid, is it to be held by a stakeholder or available for immediate release to the builder;
- progress payments – what are the different stages of construction when progress payments are required to be paid, how are the payments calculated, how are variations to be dealt with;
- variations – what if the building materials cannot be sourced (either at all, or in a timely manner), how is this negotiated and documented and how are any price variations recorded and paid for;
- conditions – finance and valuation conditions may be required;
- default provisions – what happens when either the builder or the purchaser defaults on a term/obligation of the contract, or in payment;
- penalty provisions – interest penalties for late payment and additional payment penalties on the builder should they be unable to complete the work in the stated timeframes. Also include a provision allowing the purchaser to cancel the contract, in the event extended timeframes aren’t met;
- Local Authority Consents – whose responsibility is it to obtain the building consents, arrange Council inspections and final Code Compliance Certificate, who pays and when;
- Insurance – whose responsibility is it to insure throughout the build period and at what point does the builder’s insurance obligation cease and the purchasers insurance obligation commence;
- Defects and Maintenance period – how defects must be notified, access provisions and timeframes for completion of work;
- Dispute provisions – what is the process for negotiating and resolving disputes;
- Plans and Specifications – while these documents are indeed daunting to most, take the time to carefully read the plans and check the specifications. Do a virtual walkabout – look at the plans and pace out the entranceways, the hallways, the access to each room, the room sizes themselves, the locations of light switches, power points, light fittings, appliances and working areas. While in your mind’s eye two people can easily fit in the kitchen, the reality is you might end up tripping over each other. Doors and cupboards might inconveniently open into each other. Do note that the plans and specifications should be attached to the building contract with every page initialed.
- Finance – ensure that your bank is aware that you are entering into a building contract which contains progress payments. Check whether your bank has specific requirements around the progress payments i.e. what stage the bank is prepared to release funds and whether a valuation of the work to date as required. Your Bank’s procedure for release of funds may differ from the timing of the progress payments required under the building contract. A mismatch here could mean you default in payment and are charged penalty interest, or worse.
- Master Build guarantee – we highly recommend that you obtain a master build guarantee. You should ensure that the guarantee includes an obligation on the builder/building company to remedy defects. Also, check whether or not the guarantee is transferable and whether there are any transfer costs associated with this.
Things to avoid with a first home build
- Don’t rely on any verbal agreement or representation from the builder. Dot your I’s and cross your T’s and ensure and insist that every agreement you reach with the builder, is written down. Even if it is minor in nature – negate the risk entirely – write it down. A gentleman’s hand shake is no longer what it once was.
- Don’t make advance payments to the builder (other than the deposit). Only pay a small deposit, no more than 10% of the total contract price.
Remember – keep your wits about you and “If it seems too good to be true, it probably is”.
- Advice from Consumer NZ on building a new home https://www.consumer.org.nz/topics/building-a-new-home
- Kiwisaver benefits to building a new home http://www.kiwisaver.govt.nz/new/benefits/home-sub/