The Strong Foundation Your Construction Project Needs. Michael L. Chapman.

Frequently Asked Questions about Home Construction Contracts.

I receive several calls a week asking for practical advice on what to do about home construction contracts and disputes with home builders and developers. Every case and every contract is different, but here are some common sense questions that a smart consumer may want to consider:

  1. Have you actually read your building contract? A surprising number of people have no idea what they have agreed to do in a contract for possibly the largest purchase of their entire lifetime. Do you have insurance coverage for the loss? Read your insurance policy or call your agent.
  2. Have you prepared a numbered list of punch list or warranty items and given that list to your builder? General discussions don’t cut it. Your contract may require you to submit such a formal warranty claim to the builder within a set time, often one year from the date of substantial completion of the home. Put together this list carefully and hire a qualified home inspector to help you if necessary, but do a completed inspection of the entire home and grounds and get this list to the builder in a timely manner. Don’t wait to the last minute to do this. Keep your numbering consistent and refer to your master list as your builder completes the punchlist or warranty work.
  3. Is your problem a “defect” as defined in your warranty? Most builders provide you with a warranty booklet when you sign a contract to build a new home. This warranty booklet sets out a list of common home defects such as driveway cracks, drywall issue, painting issues, flooring issues, HVAC and appliance issues, roof leaks, etc. This booklet is intended to define what is considered a “defect” under the terms of the warranty. For example, how wide does a crack have to be before it is considered a “defect”? Know the requirements of your warranty and follow the procedure called out in the warranty for correcting warranty issues with your home.
  4. Are you aware of the right to repair law? Georgia has adopted a home construction right to repair law that protects builders from certain types of lawsuits filed by consumers. In most cases you must be aware of the requirements of this law and comply with these requirements before you can properly file suit against your builder.
  5. What should you think about in hiring a lawyer? Does the lawyer work in the construction field? How much of the lawyer’s time is devoted to construction dispute? Before you hire a lawyer, consider the lawyer’s hourly billing rate and ask for at least some kind of broad estimate of what each stage of the arbitration or litigation is likely to cost you. While many factors are not within the lawyer’s control, most seasoned lawyers can give you at least a rough estimate of the cost of each stage of the upcoming litigation. Do you have the resources to take on this kind of expense?
  6. Arbitration can be as expensive or even much more expensive than litigation, depending on the circumstances. Will you have to pay fees for someone to administer the arbitration? Will you have to pay some share of the hourly cost of the arbitrator? Will interrogatories, requests for documents and depositions be allowed? How much will this cost? How soon can the hearing be scheduled? How long will the hearing take? What will be the cost per day for your side? Will you have to pay these fees up front or in advance? Is it possible you may have to pay the other side’s legal expenses or all of the cost of the arbitration? Do you have the money to pay those expenses? Will the arbitrator be selected from an industry trade group of arbitrators who market their services to home builders, or will an independent arbitrator be selected? Who makes the decision about hiring the arbitrator and that arbitrator’s hourly rate?
  7. Have you considered early mediation of your dispute? Mediation is like a coached negotiating session with a mediator who helps you to reach a mutually agreeable settlement with your counterpart on the other side. Early mediation can save tens of thousands of dollars of expense if it resolves the case early. It is worth the cost if both sides are willing to try for a negotiated solution.
  8. Magistrate Court litigation is limited to disputes below $15,000. If your dispute involves less than $15,000, consider filing in Magistrate (“small claims”) Court. Settlements reached in Magistrate Court are fully enforceable, but any judgment rendered by the trial of a case can be appealed de novo (starting all over again from the beginning) in your county’s State Court. Mediation is usually offered (free) in Magistrate Court to help the parties reach a mutually agreeable resolution.
  9. If you are only asking the lawyer to do certain limited amounts of work, such as representing you at a Magistrate Court hearing, consider asking the lawyer for a fixed fee quote. What does it hurt to ask the lawyer to do the work for a flat fee? Some will do it, some won’t. Weigh your options.
  10. If you are going to go forward with litigation of your dispute with the builder, consider whether you can fix all of the problems yourself if you hired an outside contractor to do this work. You may have the legal right to sue the builder, but is it worth it? If the builder is not going to do the work, is it worth it to simple pay for the repairs to be done by another contractor and resolve the matter and then go on about your business without going to court? You avoid an expensive and time-consuming court battle and you get your problem repaired to your satisfaction. What is that worth to you? If you do decide to go to court, you have documented the actual cost to repair the defect and will have excellent proof of your damages.
  11. If a construction defect really bothers you and for whatever reason you can’t get a defect repaired by the builder, at least consider selling the home. You must disclose known defects when you sell the house, but you can price around these problems and dispose of the property after full disclosure. Consider that someone may want a bargain home with some known defects the new homeowner is willing to repair. Don’t try to conceal defects or fail to disclose known defects in the home when you list the house for sale. Things that really bother you may not be that concerning to a different homeowner.
  12. What does your contract say about canceling the contract? If you have a contract that states that the builder can cancel the contract at any time, for any reason, what do you think that contract language means? At best you have something akin to a reservation on that home, perhaps nothing more. You may have certain rights to refunds and you may have other remedies, but as a general rule it is not a good idea to sign contracts that give the other side the power to cancel the contract at any time, and for any reason.

These are simply questions to ask yourself before you get deeply involved in a construction dispute with your builder. Let me know any questions you may have about this list. Call 404-734-8510.