Deep breath and..... last year I contracted a local builder to construct a 2 car garage and bonus room. For the construction loan, the bank wanted a detailed estimate, saying '… don't come back to us for more money." I conveyed that request to the contractor. He is a back of the envelope kinda guy and he gave me an estimate, but not detailed, and not a fixed-cost estimate. So we had to go back and forth with the quotes, all the while increasing in detail and pricing, an obvious reaction to my conservative estimate request. I also suggested a 10% contingency to insure we didn't exceed the budget; naturally he agreed, and he submitted that to the bank. During construction, I kept asking him how we were doing on the budget. He would always say 'just fine', or something to that effect. At about the 75% complete point, I told the contractor that based on his draws and percent complete, that it looked like we may overrun and dip into the contingency. He said, yes, we may use it all. I was a bit taken back by his perfunctory comment, but did not pursue it further. The construction took 9 months instead of his estimated 5 months. The builder is a nice guy with a very good reputation and they do quality work. Problem is, after construction he hands me a bill which is about 10% higher than his original [estimate + contingency], making it ~21% higher than his 'conservative estimate' total. He somewhat apologized saying that he should've known that his original estimate was low because it was significantly below the s.f. average. He also cited several other reasons for the overrun and said his final price excluded any profit on labor. Also I had purchased all of the laminated flooring and most of the light fixtures bringing the total cost to roughly 27% higher than his purportedly conservative estimate. I called the bank to ask for their advice; their construction loan officer wasn't helpful at all.
Since the bank wouldn't adjust the construction loan nor increase the mortgage, I've got to pay him out of pocket. It could not have come at a worse time. I've almost got the funds together to pay him, but today my wife asked if we had any recourse. She was talking to a friend who recalled a similar 'high overrun' situation in which the homeowner got an attorney and sued. I told my wife that in my estimation, we had no recourse because the bank didn't have a firm, not-to-exceed contract with the builder, but that I'd 'look into it'.
Somewhat complicating the issue is some possible water damage to the original structure caused by the builder because he did not provide a watertight seal between the house and new garage. He knows about it and even mentioned pulling back the carpet and surveying the damage some months ago. I plan to hold back about 15% of that final payment until he remedies the situation to my satisfaction. I think that the damage will not exceed that 15%, but it may not. I'm considering how to approach that potential problem.
He sent a reminder letter/invoice in January with a hint to legal action if I didn't respond. I sent a letter saying that we'd pay his invoice, but that I'd hold back a percentage until the repairs were done, if necessary, to our satisfaction.
So, my question: is a good-faith estimate an open checkbook for a builder; certainly at some point they can be held liable for an inordinate overrun, true? I thought about asking for receipts, but practically all of the overrun was his guys' labor. Of course, in hindsight I could have asked for a fixed-cost, not-to-exceed quote, but the bank didn't ask for it, and I simply didn't think it was necessary. This contractor built our neighbor's house, and their's prior to that plus many additions in our neighborhood; all with good references to my knowledge. Last, I didn't have a contract with the builder but of course I benefited from his services. Are there any nuances due to the existing contracts or lack thereof?
Thanks for listening.......
Since the bank wouldn't adjust the construction loan nor increase the mortgage, I've got to pay him out of pocket. It could not have come at a worse time. I've almost got the funds together to pay him, but today my wife asked if we had any recourse. She was talking to a friend who recalled a similar 'high overrun' situation in which the homeowner got an attorney and sued. I told my wife that in my estimation, we had no recourse because the bank didn't have a firm, not-to-exceed contract with the builder, but that I'd 'look into it'.
Somewhat complicating the issue is some possible water damage to the original structure caused by the builder because he did not provide a watertight seal between the house and new garage. He knows about it and even mentioned pulling back the carpet and surveying the damage some months ago. I plan to hold back about 15% of that final payment until he remedies the situation to my satisfaction. I think that the damage will not exceed that 15%, but it may not. I'm considering how to approach that potential problem.
He sent a reminder letter/invoice in January with a hint to legal action if I didn't respond. I sent a letter saying that we'd pay his invoice, but that I'd hold back a percentage until the repairs were done, if necessary, to our satisfaction.
So, my question: is a good-faith estimate an open checkbook for a builder; certainly at some point they can be held liable for an inordinate overrun, true? I thought about asking for receipts, but practically all of the overrun was his guys' labor. Of course, in hindsight I could have asked for a fixed-cost, not-to-exceed quote, but the bank didn't ask for it, and I simply didn't think it was necessary. This contractor built our neighbor's house, and their's prior to that plus many additions in our neighborhood; all with good references to my knowledge. Last, I didn't have a contract with the builder but of course I benefited from his services. Are there any nuances due to the existing contracts or lack thereof?
Thanks for listening.......
