The High Cost of Cheap Home Builders

One day Justin, a mortgage broker we know, told us about a couple he met who made some disastrous home-building decisions. The couple bought a lot and hired an architect to design their 3,235 square-foot dream home. Early in the design process, they told their designer they wanted to keep construction costs below $700,000.

The couple gathered bids from a dozen contractors. To their surprise, the bids ranged from $589,000 to $970,000. Eventually, they found a contractor who agreed to build their new home for the price they wanted to pay: $700,000. The couple liked the contractor and decided to hire him.

But there was a big red flag. The contractor’s price was only $216 a square foot. The prevailing cost at the time for a home of their desired quality was $285 a square foot ($922,000 for the project).

Because of the extremely low bid and the builder’s lack of experience, Justin’s bank declined to fund the project. However, the couple quickly found another bank that approved the contractor and funded their project. So, they started building.

About 18 months later, Justin drove by the project site. The house was still under construction! On closer inspection, it didn’t look like anyone was working on it. The exposed framing, roof, and exterior siding were grey and weathered from exposure.

Just as Justin’s bank feared, the contractor had run out of money, abandoned the project, and disappeared. The lender soon called in the loan and foreclosed on the home.

The hopeful homeowners’ credit was ruined, all their time and money were lost, and their dream home turned into a huge liability. They paid the same price that many people unfortunately pay when working with cheap home builders and their new-home dream became a nightmare.

“The contractor had run out of money, abandoned the project, and disappeared. The lender soon called in the loan and foreclosed on the home.”