Beware of builders seeking high deposits

CECILE MEIER
Last updated 05:00 14/07/2014

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With an increasing number of building companies going bust, homeowners need to take care when they hire a builder.

Insurance lawyer Duncan Webb and Registered Master Builders chief executive Warwick Quinn give their tips to avoid rip-offs when hiring construction companies.

Be suspicious of cheap contracts: Webb says really good deals can be too good to be true. Quinn says builders might be underpricing to get the job and later run out of cash.

Do your research on the company and its directors. Is it a reliable, long-standing company run by people who have a history of being trustworthy? "There are a whole lot of companies in Christchurch that have sprung up, and some of them are run by people who've had multiple failures," Webb says.

Don't pay more than 10 per cent deposit: A builder who demands more than that is a worry because it suggests they don't have the cashflow themselves, Webb says. Quinn says registered master builders won't ask for more than 5 per cent. "If you pay 20 or 30 per cent deposit and the builder goes bust, you might never get your money back," Quinn says.

Look at options to guarantee your deposit. A third party could guarantee the deposit. A personal guarantee, however, is unlikely to protect you successfully as builders might put their personal assets in family trusts. Also, taking them to court is a long and expensive process. Webb says another option is to have a bond arrangement where the deposit is paid to a third party.

Make sure all contracts are in writing. If you invest all your savings, it might be worth hiring a lawyer, Quinn and Webb say.

"Whenever you're spending enough money to make yourself absolutely broke and destitute, you need to take good advice. And it's no good trusting the people who are selling it to you," Webb says.

Have a good dispute mechanism in the contract: If you get into an argument, get it resolved quickly, Quinn says. Industry organisations can provide an independent dispute resolution mechanism. Otherwise, you can agree to go to mediation or arbitration if things go wrong before going to court.

Never pay for more than what has been done: Quinn says good building contracts should have a clear payment schedule. That way, if the builder goes bust half way, you should have enough money left to hire another one.

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