Choosing a Contractor to Build Your Dream Home

Time to Build: Will You Use a General Contractor or Manage the Project Yourself?

 

You’ve chosen the great house plans you want in order to build your dream home. Now an important decision regarding the construction of your house has to be made: will you use a residential general contractor (GC) or be your own GC and hire a bevy of subcontractors whom you will manage?

 

The majority of those who choose to build their own homes do use a general contractor because it is easier. The job of the GC is to plan the entire project and hire, oversee, and be the liaison between all the subcontractors working on the project. His job is to be your representative and create the agreed-upon outcome – a home built to your specifications. It’s a big job, with the planning phase being the most important: getting permits, planning the workflow, and making material estimates.  All of that is key to a smooth home-building process.

It is possible to save money by doing it yourself – acting as your own GC – but it’s also possible to have cost overruns and jobs needing to be redone, and it will take lots of your time and patience. On the other hand, you have more control by being your own contractor: you will be making all the decisions.

Let’s go over the pros and cons of both options: being your own GC vs. hiring a professional for the job.  

 

General Contractor

Not all states require a residential GC to be licensed. The National Association of Home Builders has information about your state’s specific rules and governing body. Some states have minimum amounts after which a project needs a licensed contractor, or for things like asbestos removal only; some states regulate contractors at the local level. It is worth knowing.

Pros:

1.  When working with a GC, you have one person to handle all of your questions, changes, or concerns about building your house.

2.  You will save time. He or she handles getting permits and inspections and hiring all the “subs,” or subcontractors:  plumbers, painters, carpenters, and various other trades. If there is a problem, the general contractor gets called first, not you; and he or she may already be on site.

3.  GCs have the expertise that you may not have. That can save time and potentially money – the GC is liable for problems rather than you. 

Cons:

1.  You incur a higher cost to build the home.

2.  As the GC is very powerful in the process, communication with him or her has to be excellent, so you need to be clear, concise, and vigilant.

 

Being Your Own Contractor

Pros:

1.  You will save money: up to 20 percent of the total cost. This is if all goes well, and there are no surprises like miscalculations or cost overruns. (Both are more likely if you are not experienced and in the business day to day.)

2.  You will have more exacting control over the project.

3.  You will gain a sense of pride at managing the entire process of homebuilding.  

Cons:

1.  The process will take more time than you may think. You will have to research and interview each sub. You will be on call for questions from the subs. You will need to do research and be up to speed on the house-building process for the best outcome.

 

2.  You have to pull permits for electrical, plumbing, etc., which allow construction to proceed, and you will need to ensure that inspections are done to attest that your home is up to code.

3.  You will plan out the flow of subs so that each process is completed in the right and most efficient order. You will be the one to settle any disputes or issues as they arise.

4.  You will need to plan on making periodic, possibly frequent trips to the construction site.  Will you have time to do that if necessary?  Is it close enough to be feasible on short notice?

 

Dealing with Contractors

Whichever approach you decide to take – dealing with a GC or acting as one yourself and working directly with the subcontractors – some issues come into play. Here are some tips on what to ask for from GCs and subcontractors:

1.  Research: 

• Ask friends, family, or work colleagues you trust for builders with whom they have had a good working relationship and – perhaps more important – any who they don’t recommend!
• Do some legwork. Talk to those in the home-building industry. Perhaps a building inspector can tell you who routinely meets and exceeds code in the area. Go to your local lumberyard or big-box home supply or pro center, and ask around. They will know who buys quality materials, who pays on time, and the like. Those things are signs of stability and professionalism. You can also cross-check their names with the state consumer protection agency and your local Better Business Bureau (BBB) to review a contractors history of disputes with both clients and subcontractors. One of the most important things to consider is that you should feel comfortable communicating with your contractor – a professional who is open and forthright and understands your needs.

2.  Bids: get a written bid (three separate bids is standard), preferably with costs broken down. The contractors bidding the job will need your blueprints, your desires, and the budget. To compare bids, ask each builder to break down the cost of materials, labor, profit margins, and any other expenses. Typically the building materials account for 40 percent of the total cost, and the remaining 60 percent covers overhead and the profit margin. That way, if you, say, change the type of flooring in the kitchen, you’ll know how much you are saving. Get a timeline estimate as well. If a contractor wants half the bid paid upfront, this could be a red flag. Ask them if they can take on a project of your size and if they have any other big projects. Find out if they will provide financial references from banks or suppliers and, of course, you need to get a list of their previous clients if you havent already. Here are some considerations once you get the bids in:

• Toss out the lowball bid. You need to be aware of a contractor who is cutting corners or one who is desperate for work.
• Registration/licensing. In the United States visit https://contractorquotes.us/find-contractor-license/ as a starting point for your state and the type of construction. Verify the contractor’s license if required in your area, then ask to see the current licenses, making sure they have not expired.
• Get and check references. Be sure to call up their clients to find how they liked the contractor and how their home turned out. Was the project started and completed on schedule? Take a look at the finished homes or remodel jobs to ensure that the contractor meets your standards. The homeowner may have given a good reference, but the job might not meet your standards when you do a visit. You can also visit a current job site and see how the contractor and his workmen are doing. Are workers courteous and is the worksite safe, neat, and clean?
• Give preference to someone who has been in your local area for some time. If his or her company has lasted a long time that’s a plus. It may also be easier to get the truth about his or her skills, and he or she will likely care more than someone traveling to your area who has fewer established relationships.

3.  Payment Schedule: agree on a payment schedule. For larger projects, a schedule usually starts with 10 percent at the signing of the contract, three payments of 25 percent evenly spaced over the duration of the project along with a check for the final 15 percent when everything has been completed. 

6.  Contract: Be sure you sign a contract with each contractor, and ensure that everything you will require of them is in writing. Be sure to understand your contract. The biggest cause of homeowner-contractor disputes is the written contract, from not having one to having one everyone ignores or having a poor contract. Hire a lawyer to review it. The contract needs details for every step of the project including a payment schedule; proof of liability insurance and workers compensation payments; a start date and an estimated completion date; specified materials to be used; and a requirement that a general contractor obtain lien releases from all subcontractors and suppliers. This will protect you if the contractor does not pay his bills.

 

Checklist of Contract Items

A good contract should include:

• The company name, address phone number, the name of the builder, contractor and license number. (Post office boxes are not acceptable.)
• A detailed project description.
• The products and materials list.
• A statement that all necessary permits and inspections are the responsibility of the contractor.
• Starting and completion dates.
• Warranties of workmanship, the length of the warranty, and specifically whats covered and whats not
• The contractor must guarantee he carries liability insurance and workers compensation coverage.
• A clean-up statement that this will be done by the contractor.
• Total price and the payment schedule.

 

CAUTION!

You should be leery of hourly, time and materials or cost-plus pricing where the final price is not determined until completion of the project. Fixed prices always give you the best protection. Before hiring a subcontractor, let him or her know upfront that you expect and require quality workmanship – and be firm on this. Also, let him or her know that the home will be inspected by the mortgage company and that it must meet codes. In addition, hold back any retainer fee until after work has been inspected. General contractors are sometimes a little more loose with subcontractors because they usually have several projects going at one time and its easy to withhold payment on another project. As a homeowner builder/GC, you dont have this luxury. Your payment is your only power.

• Be cautious about upfront payments for more than 15 percent of the entire contract price.
• The payment schedule and criteria for each installment should be clearly defined.
• Any payment installments should be not be required on a certain date, but rather correlated to work completion.
• Never pay cash. Reputable builders will ask for a check.
• Make any changes to the project in writing with a "work order change" to avoid any .misunderstandings.
• Safety issues: Keep children and pets away from the construction site. Wear a hard hat.
• Inspect the work regularly.
• Always pay promptly according to the contract.

NOTE: If you decide to hire a GC, tell your contractor that The Plan Collection has an open invitation to professional builders to join its Find-A-Builder program. This free, easy-to-use, online feature allows builders to get their name and contact information in front of thousands of house building client prospects – right before they pull the trigger. Click here for more info.

 

The Construction Process

Once you have hired a GC or the various trade subcontractors (if you are acting as your own GC), you must stay informed and will need to get regular reports either from the GC or from the multiple subcontractors. Keeping a detailed schedule and staying on top of the contractors is imperative.

 

As construction winds down – and before the final payment is made when the job is at a point of “substantial completion” – you or the GC will check that all is in order and that every aspect of the home appears and operates as it should. You will draw up a punch list.  

 

According to home expert Bob Vila. a punch list is created and given to affected subcontractors “when you’ve got more than two or three items,” that need fixing, and “after he [the subcontractor] has had enough time to address the fixes you gave him on the last list.”  Click here for more about punch lists. Keep copies of the punch list. Be sure that the final details are contractually tied to the release of the last payment.

This timing is preferable and gives you more leverage than linking the final release of funds to the Certificate of Occupancy (CO.) The CO can mean different things in different areas, and it may still leave you with details that are not completed as contractually agreed. Click here for more on the final check. VERY IMPORTANT: Require ALL sub-contractors to sign a Mechanic Lien Release (or lien waiver) form, showing that you have paid them in full. Your local title company probably has a pre-written form.

Some examples of the final inspection and the types of issues a punch list might cover include things like:

• broken tile
• a window that doesn’t open smoothly
• shower and/or tub not working
• missing molding in one or more rooms

If you work with a GC, he or she will do this final inspection. As a homeowner, you should take time – preferably with someone else – to do your own inspection. Try everything: open doors, turn faucets, etc. Take notes, and then do an inspection with the GC to create a complete punch list.

If you have chosen to be your own GC, then you will need to take this step with each and every subcontractor. This is potentially another major time sink for you.

You can see why the idea of control and saving money might motivate you to act as your own contractor on your home construction. But it is a substantial commitment, one that will most likely test your patience and research and management skills. So it comes at a cost.

Its best to do some research on everything that the role will entail in your area and then honestly access your skills, available time, and motivation to take on the task.

In summary, you should be satisfied with the build of your new house plan if you follow all of these guidelines. Just remember that most homeowners agree that its worth it in the end. Take a look at this popular Plan #106-1274 from The Plan Collection, below.

 

Whichever way you decide to go – hiring a GC or managing the project yourself – get building!

 

Footnote: The lead image (upper) in this article is a delightful 2-story, 4-bedroom, open-floor Country style house with gorgeous landscaping, a wrap-around porch, a balcony, and a private deck. For more on this home, view: (Plan #126-1132)