What could go wrong building a new construction home?

[Sophia Berry]

Hello all,

I am trying to find out what type of insurance or documents needed just in case something went wrong building homes as an investment project.   Just a little background, my brother and I purchased three lots in a subdivision and successfully built and sold one home.  My brother was not the easiest person to deal with therefore, I just sold him the other two lots and I went on to other projects.  In the first project we had a builder complete the home and I just paid him in draws to get the home done.  There was always something in the back of my mind that he may be charging me more for the work than what the actual cost were. 

Fast forward I found and purchased 5 other lots in a subdivision and have just started building the first house. This time, I am in a unique position because I am acting as the General Contractor/Builder.  I was referred to a guy who has built homes for many years for another company and he is willing to let me use his knowledge to build my homes and I will be just paying him to go out to the site and make sure the work is completed correctly. He is also in charge of ordering the inspections and moving the process along for me.  I don't pay any of the subs until he tells me the work was done correctly and completed. My job was pulling all the permits and hiring all subs to do the work and paying them directly.  Most of the subs he has worked with however, if I found a better price somewhere else I can do so. I believe I am in a better position because I am in complete control of how much I spend and cost. I am  also learning a lot about the process which is Great.  Things have been running smoothly so far.  I was speaking to some friends and he asked me what would I would do if one of the workers got hurt, or what if something is wrong with the house once complete.  I know I will most likely need Home Owners Insurance if there was a fire ect.  Just want to know everything I need to cover myself if something went wrong.

[Nate Bell]

@Sophia Berry

There are policies called “course of construction” policies. They’ll protect you against injuries, vandalism, fires, etc.

It’s for reasons like this that I just buy all my insurance through a single agent. I don’t shop around and try to save $10 here and there. I send my guy an email, he offers everything, and it’s done same day in most cases.

[Lisa Jackson]

Hi Sophia,

In reading through your email I noticed that you said your site manager was telling you when work was completed for payment but as you are pulling the permits a good portion of information should come after you pass those inspections (payments follow) and be there for inspections whenever possible as well.

On the various subs it would be helpful to keep a punchlist for each trade. Stand with them and see that is accurate and keep track of completion points, and information of sources etc. this becomes a useful resource as you move on to other projects as well.

My other suggestion is to be there and walk through daily (at various times of day) so you see the work and workers during their processes, make connections, maybe bring an occasional box of doughnuts, building loyalty for the next job, and Nate is 100% correct get with a knowledgeable insurance agent and get the proper insurance. 

So cool to see you taking this on, best of everything to you!

[Sophia Berry]

@Nate 

@Nate Bell Thank you so much.  I will get with my Insurance Agent to possibly get a "Course of Construction Policy". 

@Lisa Jackson.  Yes, I am notified when the inspection fails or is approved.  I guess some of the process where there is no inspection required the site manager would let me know if work was acceptable.  I am at the site quite so the workers know who I am.  I will look into a punch list as well.

Thanks again.

[Nate Bell]

@Sophia Berry

Also known as “builders risk” insurance

[Teri Feeney Styers]

@Sophia Berry in addition to a builder's risk policy (and yes - like @Nate Bell I have one go to agent) you will always want to put your properties into your umbrella policy. If you don't have one then you need one. Ours is about $300-$400 per year depending on how many properties and vehicles are covered at any given time. I just use my umbrella policy for vacant land and don't put a risk policy in place until work starts. A completed new home will most likely require some sort of warranty. In Colorado it is layered from 1-6 years. 

[Jeremy Goodrich]

@Sophia Berry, Congrats on all of this great forward progress!  Moving into the role of GC definitely means a more comprehensive insurance policy.  I agree with the comments above that you should find an insurance advisor that you trust and stick with her/his advice along the way.  What you need from an insurance perspective is the following:

- Builders Risk Policy - This coverage the building itself and the materials used to build it.  Builders Risk it property coverage specifically for houses being built

- GC General Liability - This covers you as the GC for bad things that could happen to other people along the way.  IMPORTANT - This will NOT replace the need for your contractors to have Workers Comp insurance for if they get hurt while building.  The relationship between the contractors Work Comp coverage and your General Liability coverage is a longer convo, but definitely require that all contractors have their own Work Comp.

- Property Owners General Liability - You're playing two roles.  One as he GC and the other as the property owner.  Just make sure your insurance addresses this.  Both can usually be covered on the same policy.

We take care of developers of all sizes so feel free to reach out if you have questions.  Happy to help!

Jeremy

[John Mocker]

Sophia,

Talk to your agent about Workers Compensation.  The laws for Workers Compensation vary from state to state but it is likely you will need it.  As the GC, you could be brought into a Workers Comp. claim if one of your subs does not have coverage or lapses it.  The example to give your agent is  What happens if the employee of my sub is injured and my Sub does not have coverage.  In many states, the claim moves up to the GC.  Your policy would respond and then go after the Sub.   Good luck on the project and Happy New Year.