A cautious path because of builders

Because of slumping market, builders and developers may be adjusting the pace and price of new homes (see A cautious path for builders) but the real caveat should go out to the buyer. The stark reality is that this slump has hit the builders and contractors so hard that they are now running their businesses on vapor. Many, if not most, of the small contractors and builders are spending in a deficit and are doing well if they are merely servicing their debt.

Extraordinary caution should be exercised by buyers of new homes (and those contracting for renovations or additions) to do their due diligence on their builder, and to thoroughly protect themselves in the contract with the builder.

Here are some do's:

(1) Only do business with a builder/contractor who is licensed, insured and can provide evidence of both - the first bill neglected by a cash-strapped builder is the insurance bill. Lack of insurance is a red flag.

(2) Require performance dates and deadlines in a contract. Missing dates is a sure sign that the builder is using your money to finish another job - or to pay his or her lender - rather than to buy materials for your job.

(3) Require mechanics' lien releases. Did you know that an equipment or materials supplier or a subcontractor could potentially place a lien on your property if they are not paid - even if you already paid the contractor?

(4) Be very specific with the source and specifications of the materials to be used. Failure to be specific presents a great opportunity for a builder/contractor to cut his or her costs at your expense.

(5) View other work done by the builder or contractor. Those with a track record and reputation will have more to lose by doing a shoddy job for you.

(6) Get all change orders in writing. This will protect both you and the builder/contractor from dealing with costly "misunderstandings" at the end of the job.

(5) Have quality inspection contingencies. Again, if quality workmanship is not required, shortcuts will be taken.

(6) Stick to the payment schedule. Early payment requests are another sure sign that the contractor is in trouble. Pay according to the schedule and not a day earlier.

If something seems amiss, it probably is. The longer you wait to enforce your rights against a builder or contractor, the more the value of that pursuit will vaporize along with the builders' resources.