Consumer Information

Your home is usually the single largest asset you will ever own in your life.  Doing your “homework” now and making sure you select the right contractor for your home or project can help prevent many problems later on.  The information provided here is intended to provide an oversight  of the many considerations that go into your home construction or project.  New Mexico Home Builders Association members want you to have the best possible outcome for your home.

Click the information links below to get consumer information on a variety of topics.

Selecting a Production Builder

To select a builder, begin by thinking about yourself.  What kind of customer are you?  If you purchased or built other homes, recall which aspects of those experiences you enjoyed most— and least.  What would you like to repeat?  Avoid?

Production builders are organized for high-volume construction, usually in subdivisions where they own the lots.  If you want one of their homes, you must select a site in the subdivision.  Production builders offer a collection of floor plans, usually with a choice of exterior designs, or elevations.  You can view the homes offered by touring models.  Buyers can personalize the floor plans of their choice with selections of such items as floor coverings, countertops, and cabinets.

Adding features from a list of popular options can further personalize the home.  Options might include air-conditioning, upgraded appliances, or a covered patio.  Today most production builders also accept requests for minor custom plan changes, such as enlarging a closet or adding a window.  Altering structural elements requires re-engineering and resubmission of plans to the local jurisdiction's building department.  Consequently, production builders usually permit few structural changes.

Through repetition, the builder has worked any "bugs" out of floor plans.  The total time to build is usually shorter because construction personnel are familiar with the plans.  Suppliers stock regularly used items, so material delays are less likely and high-volume work offers an advantage in scheduling trade contractors.

The builder’s established floor plans and approved collection of colors and materials may not include the combination you had in mind.  Other purchasers’ homes will have your floor plan and elevation.  Although production builders plan product mix and monitor exterior colors, two similar homes can end up near each other.

FINDING YOUR BUILDER

Your search begins by discovering who is building in the area where you want to live. Start with a preliminary list of candidates from a variety of sources.

·      Local Home Builders Associations can provide names of companies who are members.  Some of the local associations have custom builder councils.

·      Scan advertising in newspapers, including regional publications.  You may hear ads on radio, or television or see ads online.

·      Some of the best builders rely on referrals and do not advertise.  Talk to friends, relatives, and the folks at work who have recently built homes about their builders.

·      Area real estate agents familiar with new home construction, can offer builders’ names and insights.

·      Drive around.  Directional and entry signs will call your attention to communities in which construction is active.

·      New Mexico requires all builders to carry a state license.  To learn requirements builders must meet to become and stay licensed, call New Mexico’s Construction Industries Licensing Division in Santa Fe.

GETTING TO KNOW YOUR BUILDER

Now comes the important task of narrowing your list of potential builders.  Look closely at each builder’s finished work and work in progress.  Your home will receive the same attention to detail.

Think about quality.  Your definition of quality is unlikely to match anyone else's exactly.  Identify the specific characteristics you equate with quality.  Consider aesthetics, function, maintenance needs, and environmental impact.

MODELS. Production builders will generally have model homes for you to walk through.  Look carefully, then return to those you like and look again.  Sit in each room, stand in every corner.  Sit on the floor and look up.  Listen to sounds that carry through the home.  Notice how doors and windows fit. Notice wood trim installation, and paint and stain coverage. Examine the exterior.  The quality you are looking at is the quality the builder will deliver.

HOMES UNDER CONSTRUCTION. Even builders who have model homes seldom offer a sample of each floor plan, but you may be able to tour homes under construction to experience a life-size example.  Seeing homes at the frame, mechanical, insulation, and drywall stages offers an opportunity to see the quality inside the walls.

MEET THE BUILDER

Ask about the things that are important to you.  Ask to meet the person who would be in charge of building your home.  Think of this meeting as interviewing the company.  Look at floor plans and talk about the home you want.  How well does this company listen?  Are the builder's suggestions and comments helpful and relevant?  Are your questions answered clearly and completely?  Remember that your relationship with the builder will continue through the warranty period, so choose someone with whom you will be comfortable for the long term.

READ THE DOCUMENTS

Review the contract, warranty, and warranty standards. Note the amount of detail provided. This same attention to detail usually flows through the construction of the home. How does the company determine a delivery date? Many factors outside of the builder's control can cause delays. Builders who promise a firm date too early often disappoint their buyers; but every builder can have a system for keeping you informed of the targeted delivery date.  See our Quality and Warranty section for more information.

REFERENCES

Ads and signs alert you to the fact that a builder exists; they do not establish how the company treats its customers.  For the answer to that important question, talk to the customers themselves.

HOMEOWNERS.  Talk to previous buyers. Visit communities on a Saturday morning and talk to people who are washing their cars, walking their dogs, or shoveling snow.  “I’m considering having ____ build my home.  Can I ask you a few questions about your home and how the company is to work with?”  Talk to at least five people and visit several areas if possible.

BUILDING DEPARTMENTS AND CONSUMER PROTECTION ENTITIES. Building inspectors or departments are unlikely to provide you with much information unless you have a close friend who works there with whom you can chat.  Similarly, entities such as the Better Business Bureau can only share information other customers have taken the time to report.  They do not recommend or evaluate.  Although if you hear that 87 complaints are on file, caution is in order, remember that lack of negative reports is not a guarantee.

Many factors must come together for you to be comfortable with your builder — design, quality, price, scheduling, and of course location.  Throughout your exploration, comparing one detail after the next, you keep coming back to the same builder.  Phone calls are returned promptly, questions are answered completely, information is forthright and clear.  Suggestions about the home you want make sense, and the price is in line with your budget.  Your efforts have paid off; you have found your builder.

Selecting Your Custom Home Team

Building a custom home is an exciting experience. A great deal of your time, thought, and personality will go into the design and specifications as your housing ideas come together to form a home that is uniquely yours.

To accomplish your goal, you might engage professionals from separate organizations. In addition to establishing your budget and selecting a builder, you may engage the services of an architect, an interior designer, a landscape architect, and a real estate agent. Often one team member leads to the rest through referrals. An architect whose work you like may recommend a builder or a builder whose quality meets your standards may suggest an architect, and so on.

Perhaps you will work with a design-build firm. The design-build approach brings together design and construction expertise, usually resulting in greater continuity of service. The joining of design and construction can save you time and money.

However you organize your design team, keep these points in mind —

  • Check with relatives, friends, and colleagues for recommendations.
  • What are the firm's design specialties?
  • Does the style and quality the designers are known for coincide with your needs and wants? Look at examples of their work.
  • Can this team accommodate special needs you have such as creating an historically accurate design, maximizing a view, achieving accessibility, or incorporating special amenities?
  • How do they charge? What’s included? What’s extra?
  • Does their client load permit acceptable scheduling?
  • Ask about formal training, professional memberships, and check references.

ASSEMBLING YOUR TEAM

The responsibilities of the professionals on your design team may vary. However, the items you need to consider typically include the following categories —

FINANCING. Whether you will be paying cash or working with a lender, determining your budget at the onset is wise. Consider the tax implications of your purchase. Compare loan programs from two or more sources. If you own the lot, you may arrange for construction and mortgage financing. Many lenders offer an express or one-time close package that combines the two. This reduces paperwork, closing fees, and time.

BUILDER. Ultimately your home plans are transformed into reality by your builder. He or she assists with your plans and specifications, establishes a budget, selects trade contractors and material suppliers, schedules the work, and oversees each step of construction. After move-in, the builder may provide a limited warranty covering materials and workmanship, for a set limit of time.

ARCHITECT. Depending on the terms of your contract or the relationship between the builder and home designer, the architect may remain involved throughout construction or may simply develop the plans, then serve as a consultant if questions arise. The terms of your written agreements with the architect and the builder should cover this point.

PLAN SERVICE. Plan services offer you another source of home plans. They publish catalogs of house plans that you can study and compare. For a fee, most plan services will make custom changes to their plans and some offer prepackaged variations. Look for a plan service that offers —

  • Plans drawn or reviewed by an architect or structural engineer.
  • Specifications that meet the standards of a recognized national building code. (Your building department or homeowner association may impose changes to such plans to accommodate local requirements.)
  • A procedure for custom changes or permission to make changes.
  • Technical support for answers to construction questions.
  • Alternate foundation designs.
  • The option of purchasing a master from which copies can be made for trade contractors.
  • A copyright release.

PLAN OWNERSHIP. The question of plan ownership should be answered in your contract. House plans are intellectual property. From an artistic standpoint, some designers want control over their creations and will not authorize anyone else to build from their plans. Others accept a fee for permission to build their design. Be certain to build your home from plans you own or have the right to use. Plan ownership should be addressed in your contract documents.

INTERIOR DESIGNER. You can rely on this professional to coordinate design details, finishes, and color selections for your home's interior. The same designer can assist you in selecting window coverings and furnishings, so this relationship can continue long after move-in.

LANDSCAPE ARCHITECT. Decisions about placement of your home on the lot, preservation of trees, and configuration of the drive and walks affect your landscape plan and its cost. If you're building in a covenant-protected community, make certain that your landscape designer is familiar with the association’s requirements and approval process.

REAL ESTATE AGENT. A real estate agent familiar with available land and new construction in the area can guide you through much of this process. Be certain the professional you select specializes in custom building and knows the custom builders and related professionals in the area.

LOCATION: DESIGN TEAM GUIDANCE

Your design team may help you select a location for your home. They may know of sites in your price range with the characteristics needed for your home plan.

The feasibility of the site for the style of your home is an important issue. An architect’s or builder’s experience studying a lot, evaluating a set of plans, and determining how the two might fit together can provide you with options you might overlook. For instance, not all sites accommodate a walkout style home. A walkout site has enough slope to expose part of the foundation and permit access to the yard from the lower level. Possibilities the design team mentions might affect design, budget, schedule – or all three. Your builder can obtain information on the development status of a proposed lot. The cost difference between raw land (with no utility services or road) and a finished lot (road installed and utilities available) is usually significant.

DESIGN AGREEMENT

Unless you already have a complete set of house plans, you may begin with a design agreement, also called a preconstruction, or services agreement. This document defines the working relationship between you and your design team. A design agreement does not commit you to build the home, but describes the steps followed to create your home plans.

Typically, three phases are covered in a design agreement: design schematics, preliminary design, and working drawings. You review each phase of the work and discuss. desired refinements. Each phase may require several meetings. Between meetings you make choices, list questions, and continue to imagine your new home.

DESIGN SCHEMATICS. The design process begins with rough sketches called schematics usually drawn at 1/8” scale. Each 1/8" represents a foot; a wall that will be 8 feet long is 1 inch long on these sketches. These drawings show the style, size, and layout of the home you want. Sketches show how the home fits on the lot and suggest elevations (exterior design).

PRELIMINARY DESIGN. Incorporating your comments about the schematic design, the design team redraws the home, typically at 1/4" scale. These larger drawings show more detail in both floor plan and elevations. Meetings include discussion of materials and their relative costs.

WORKING DRAWINGS. These plans include fully dimensioned drawings and details required for the building permit. Besides the floor plans and elevations, working drawings include a foundation plan, electrical details, cabinet layouts, and framing layouts for floors, walls, and roof. Using these, the builder can obtain prices from trades and suppliers to develop a budget.

The design agreement also lists the cost and payment schedule for each step of this process and identifies who owns the completed plans and who will pay for services of outside professionals such as an engineer.

COMPUTER-AIDED DESIGN. The use of computer-aided design, or CAD systems, is common. This technology allows you to see the results of changes you are considering quickly. Changes can be made in a few key strokes — adding a wall, moving windows, or changing room sizes. The CAD operator inputs your requirements and the system identifies the plans the builder has that meet, or nearly meet, your criteria.

HOW MUCH WILL THE HOUSE COST?

The exact price of your home can be determined only after the design and all your selections are complete. Throughout the design process, watch for items you want that you can add in a later update if the total price exceeds the budget. A good design team can help you identify these details and point out many alternatives. Your builder can assist with a rough budget from the beginning, but the numbers change with each choice you make. Sometimes material volatility can cause the price of a home to increase between the initial estimate and the actual completion of the project. The working budget is constantly fluctuating.

Builders use three basic methods to price homes. One is fixed-price. This means you and the builder both know the cost of the home described in the plans and that is the price you pay unless you and the builder agree to changes later. Another method is cost plus. The "plus" refers to a percentage of the cost of building the home, the builder's margin for overhead and profit. The percentage is fixed but the dollar amount may change, depending on material prices and decisions you make during construction. The third method is fixed fee. The builder sets a fee for managing construction of your home and that fee remains unchanged. The cost of the home itself can change if you make changes or site conditions result in extra charges.

However it is calculated, the price of the home appears in the purchase or construction agreement along with a draw schedule as determined by the construction lender. A draw schedule sets out the timetable and procedures for paying bills during construction. Keep in mind that your home is being built for the first time. As construction progresses, some modification may be necessary to make all the components work together successfully on the site. The final cost of your home may also change due to items such as —

ALLOWANCES. If you have not made final decisions in certain areas—for instance, floor coverings—an “allowance” will be included in the pricing. This gives you more time to consider these selections while a definite price for the new home can be set. If the allowance is $1500 and your final choice totals $1650, you will pay the additional $150 when you sign the order. If the total is $1400, the difference is credited to you at closing.

REIMBURSABLE EXPENSES. The cost of some aspects of construction cannot be determined in advance. Your contract might provide for reimbursable expenses. These include such items as establishing a well for your water supply or handling unexpected site conditions such as large rock formations.

CHANGE ORDERS. Although changes are possible during the building process, once blueprints have been drawn, engineering completed, and a building permit obtained, even a minor change can necessitate redrawing, re-engineering, and re-approval by the building department and homeowners association — costing both time and money. Take full advantage of your design meetings to arrive at a plan that expresses your new home dream and minimize changes to avoid extra costs or extending your home's construction schedule.

ESCALATION CLAUSES. Sometimes building materials experience volatility in their costs due to high demand or import tariffs. During times of economic stress and uncertainty in pricing for items such as lumber or metal components, it is common for builders to include an escalation clause that simply states if the cost of components for the construction increase before they can be delivered to the job site, you agree to pay the increased cost. For this reason many builders recommend setting a reserve of 20% of the original budget to cover these potential costs. Or you can compile a list of finishing items that can be cut back on should the cost of construction increase.

Many buyers begin this process with a great deal of construction knowledge. Others know what they like in a home but have not been exposed to the technical side of home building. Wherever you are on this continuum, when your new home is complete, you will have acquired considerably more construction knowledge. Do not hesitate to ask for an explanation at any point. Your design team expects and welcomes your questions, and they look forward to working with you to create your unique new home.

Selecting a Remodeler

Deciding to update your existing home is an exciting experience.  A great deal of your time, thought, and personality will go into the design and specifications as your housing ideas come together to update or modify your house to make it uniquely yours.  It may even signal a new chapter in your life as you consider aging in place instead of moving to a new neighborhood.

The decision to remodel or have an addition built onto your current home can follow most of the same process as building a custom home.  To accomplish your goal, you might engage professionals from separate organizations.  In addition to establishing your budget and selecting a builder, you may engage the services of an architect/designer, an interior designer, a landscape architect, or a kitchen/bath designer.  Often one team member leads to the rest through referrals.  An architect or designer whose work you like may recommend a builder, or a builder whose quality meets your standards may suggest a designer, and so on.

Perhaps you will work with a design-build firm.  The design-build approach brings together design and construction expertise, usually resulting in greater continuity of service.  The joining of design and construction can save you time and money.

However you organize your design team, keep these points in mind —

·      Check with relatives, friends, and colleagues for recommendations.

·      What are the firm’s design specialties?

·      Does the style and quality the designers are known for coincide with your needs and wants? Look at examples of their work by checking their website or touring homes they may have entered into local Home Builder Association parade events.

·      Can this team accommodate special needs you have such as creating an historically accurate design, maximizing a view, achieving accessibility, or incorporating special amenities?

·      How do they charge? What’s included? What’s extra?

·      Does their client load permit acceptable scheduling?

·      Ask about formal training, professional memberships, and check references.  Look at our “Check before hiring a contractor” page for more information on this.

ASSEMBLING YOUR TEAM

The responsibilities of the professionals on your design team may vary. However, the items you need to consider typically include the following categories —

FINANCING. Whether you will be paying cash or working with a lender, determining your budget at the onset is wise.  Consider the tax implications of your purchase.  Compare loan programs from two or more sources.

BUILDER. Ultimately your home plans are transformed into reality by your builder.  He or she assists with your plans and specifications, establishes a budget, selects trade contractors and material suppliers, schedules the work, and oversees each step of construction.  After completion, the builder may provide a limited warranty covering materials and workmanship for a set limit of time.

ARCHITECT. Depending on the terms of your contract or the relationship between the builder and home designer, the architect may remain involved throughout construction or may simply develop the plans, then serve as a consultant if questions arise.  The terms of your written agreements with the architect and the builder should cover this point.

INTERIOR DESIGNER. You can rely on this professional to coordinate design details, finishes, and color selections for your home’s interior.  The same designer can assist you in selecting window coverings and furnishings.

LANDSCAPE ARCHITECT. Decisions about modifications to your lot, preservation of trees, and configuration of the drive and walks with special access affect your landscape plan and its cost.  If you’re remodeling in a covenant-protected community, make certain that your landscape designer is familiar with the association’s requirements and approval process.

DESIGN AGREEMENT

Text Box: You will likely begin with a design agreement, also called a preconstruction, or services agreement.  This document defines the working relationship between you and your design team.  A design agreement does not commit you to the remodel or room addition to the home, but describes the steps followed to create your home plans.

Typically, three phases are covered in a design agreement:  design schematics, preliminary design, and working drawings.  You review each phase of the work and discuss. desired refinements. Each phase may require several meetings.  Between meetings you make choices, list questions, and continue to imagine your new home.

DESIGN SCHEMATICS.  The design process begins with rough sketches called schematics usually drawn at 1/8” scale.  Each 1/8" represents a foot; a wall that will be 8 feet long is 1 inch long on these sketches.  These drawings show the style, size, and layout of the home you want.  Sketches show how the home fits on the lot and suggest elevations (exterior design).

PRELIMINARY DESIGN.  Incorporating your comments about the schematic design, the design team redraws the home, typically at 1/4" scale.  These larger drawings show more detail in both floor plan and elevations.  Meetings include discussion of materials and their relative costs.

WORKING DRAWINGS.  These plans include fully dimensioned drawings and details required for the building permit.  Besides the floor plans and elevations, working drawings include a foundation plan, electrical details, cabinet layouts, and framing layouts for floors, walls, and roof.  Using these, the builder can obtain prices from trades and suppliers to develop a budget.

The design agreement also lists the cost and payment schedule for each step of this process and identifies who owns the completed plans and who will pay for services of outside professionals such as an engineer

COMPUTER-AIDED DESIGN. The use of computer-aided design, or CAD systems, is common.  This technology allows you to see the results of changes you are considering quickly.  Changes can be made in a few key strokes — adding a wall, moving windows, or changing room sizes.  The CAD operator inputs your requirements and the system identifies the plans the builder has that meet, or nearly meet, your criteria.


HOW MUCH WILL THE PROJECT COST?

The exact price of your modifications to your home can be determined only after the design and all your selections are complete.  Throughout the design process, watch for items you want that you can add in a later update if the total price exceeds the budget.  A good design team can help you identify these details and point out many alternatives.  Your builder can assist with a rough budget from the beginning, but the numbers change with each choice you make.  Sometimes material volatility can cause the price of a home to increase between the initial estimate and the actual completion of the project.  The working budget is constantly fluctuating.

Builders use three basic methods to price homes.  One is fixed-price. This means you and the builder both know the cost of the modifications described in the plans and that is the price you pay unless you and the builder agree to changes later.  Another method is cost plus.  The "plus" refers to a percentage of the cost of the project, plus the builder’s margin for overhead and profit.  The percentage is fixed but the dollar amount may change, depending on material prices and decisions you make during construction.  The third method is fixed fee.  The builder sets a fee for managing construction of your project and that fee remains unchanged.  The cost of the project itself can change if you make changes or site conditions result in extra charges.

However it is calculated, the price of the project appears in the construction agreement along with a draw schedule as determined by the construction lender if you are using one.  A draw schedule sets out the timetable and procedures for paying bills during construction.  Keep in mind that your project is being done for the first time.  As construction progresses, some modification may be necessary to make all the components work together successfully with the original construction of the home.  The final cost of your project may also change due to items such as —

ALLOWANCES. If you have not made final decisions in certain areas—for instance, floor coverings—an “allowance” will be included in the pricing.  This gives you more time to consider these selections while a definite price for the project can be set.  If the allowance is $1500 and your final choice totals $1650, you will pay the additional $150 when you sign the order.  If the total is $1400, the difference is credited to you at closing.

REIMBURSABLE EXPENSES.  The cost of some aspects of construction cannot be determined in advance.  Your contract might provide for reimbursable expenses.  These include such items as increasing the size of your septic system or handling unexpected site conditions such as large rock formations.

CHANGE ORDERS.  Although changes are possible during the building process, once blueprints have been drawn, engineering completed, and a building permit obtained, even a minor change can necessitate redrawing, re-engineering, and re-approval by the building department and homeowners association — costing both time and money.  Take full advantage of your design meetings to arrive at a plan that expresses your dream and minimize changes to avoid extra costs or extending your project’s construction schedule.

ESCALATION CLAUSES.  Sometimes building materials experience volatility in their costs due to high demand or import tariffs.  During times of economic stress and uncertainty in pricing for items such as lumber or metal components, it is common for builders to include an escalation clause that simply states if the cost of components for the construction increase before they can be delivered to the job site, you agree to pay the increased cost.  For this reason many builders recommend setting a reserve of 20% of the original budget to cover these potential costs.  Or you can compile a list of finishing items that can be cut back on should the cost of construction increase.

Many buyers begin this process with a great deal of construction knowledge.  Others know what they like in a home but have not been exposed to the technical side of home building.  Wherever you are on this continuum, when your project is complete, you will have acquired considerably more construction knowledge.  Do not hesitate to ask for an explanation at any point.  Your design team expects and welcomes your questions, and they look forward to working with you to create your unique dream.

Check Before Hiring a Contractor

Do your homework before work is done on your home. Don’t hire just anyone! Use this checklist to select a contractor you can trust with your most valuable asset.

  • Is the contractor licensed to work in New Mexico? The New Mexico Construction Industries Division (CID) contracts with PSI to maintain the database of current contractor’s licenses. Every contractor must list his license number on all advertising and contracts. Check the PSI website www.public.psiexams.com/ to see if a contractor’s license is current.
  • CID handles complaints against contractors over building code violations. Call their Santa Fe Office at 505-476-4700 and ask if they have any complaints on file for the contractor you are considering. CID also has additional consumer information on their website at www.rld.state.nm.us
  • The Better Business Bureau (www.bbbnm.com/) acts as a mediation bureau. They can tell you if there have been any complaints against a contractor where they have become involved in the mediation of a dispute.
  • Does the contractor have proof of workers’ compensation and general liability insurance? If not, you may be liable for any construction-related accidents on your premises. Ask for the contractor’s insurance agent’s name and number and call the agent to get copies of “Certificates of Insurance” for these coverages.
  • Will the contractor provide you with names of recent customers? Call them to see if they would hire the same contractor again. Also ask how their relationship is with the contractor, and if they are related in any way.
  • Can you inspect the contractor’s work, both completed and in progress? If so, look for quality of workmanship and materials.
  • Will the contractor provide you with a complete and clearly written contract? A deposit is often required, but DO NOT pay the entire amount in advance.
  • Are you able to communicate easily with the contractor? Misunderstandings may cause problems. You will be in close contact with the contractor and may share your house with the crew until the project is completed.
  • Be wary of contractors who go door-to-door offering discounts for finding other customers, and watch out for those who offer to use materials left over from other jobs.

One way to know if a contractor values professionalism is to see if he is a member of a trade association. Members of New Mexico Home Builders Association join through one of nine “Local” associations around the state. Our website has a map to assist you in finding the Local Home Builders Association nearest you. Click on the town closest to you for contact information.

What if the Contractor Asks for a Deposit?

YOU SHOULD EXPECT a request for a cash/check deposit on residential remodel projects.  It is customary for a contractor to ask for funds up to 30% for a remodel to order materials.  For instance, kitchen cabinet suppliers generally request 50% down to place an order. The same goes for any custom windows that may be ordered.

Custom homes and room additions may require a first draw at the time of pouring the slab/foundation (also generally 30%) from the bank.

An important part is the deposit request must be in a written contract.  Consumers should ask for a “draw schedule” for milestones of when funds should be provided to the contractor.  Even if the contract doesn’t mention it, the contractor is obligated to pay Gross Receipts Tax to the State on each of these progress draws.  Consumers should expect to have GRT added to the progress payment.  GRT is calculated in the county where the construction project is being built/remodeled.

Again, USE CAUTION AND HIRE A REPUTABLE CONTRACTOR!

Quality and Warranty

Many builders have developed formal inspection procedures. Building inspectors, warranty insurance companies, FHA, VA, or your lender may also inspect the home. However, no matter how strong the commitment of the builder and all the inspectors, the desire for a high quality home will be strongest for you, the eventual owner.

No matter what the price of your home, you may reach a point where your standards exceed everyone else’s. Or you may not have the technical knowledge to judge the quality of every stage of the work and wonder if it is done well. Trust and information are vital to your peace of mind at such times. For perspective on this important subject, keep these points in mind:

  • Building codes make no distinctions based on price. Code books do not include one set of regulations for homes up to $200,000 and another for those over $200,000. Codes require that all homes meet the same level of safety.
  • Codes make no attempt to set standards for aesthetics. Many steps in construction allow the builder and the buyers to exercise their discretion. Performance in such areas is based on experience, pride of workmanship and the ever-present budget.
  • Price differences often show most notably in size and features. The more expensive the home, usually the larger and more complex the design. The list of features in a $597,000 home is longer than that of a home costing $125,000. For instance, the master bath of the former has a jetted tub with a fancy faucet. Tile walls, including hand-painted accent tiles, surround the tub. Beside the tub is a spacious walk-in shower, enclosed by clear glass panels in gold-tone frames. The cabinets have raised-panel doors with brass knobs and provide lots of storage space. The master bath in the second home includes a fiberglass tub with a chrome faucet. Tile surrounds this tub also. The buyers select from eight colors, none of which include hand-painted accents. A shower rod comes standard, but space limitations prohibit a walk-in shower. A single cabinet beneath the vanity offers some storage space. Its unadorned doors have no hardware. Although different in appearance and price, the plumbing to both tubs must work without leaking. Neither tub should have chips or gouges. The tile in both baths must meet the same standards. In time, grout and caulking in both baths will need maintenance by the homeowners. The cabinet doors should all operate smoothly and be level. They will all show variations in the way the wood took the stain.

THE STATE OF NEW MEXICO DOES NOT REQUIRE A CONTRACTOR TO OFFER A WARRANTY.

At closing your contractor will provide you with the manufacturers’ warranty documents for the new appliances. Mechanical systems such as water heater, furnace and air conditioning/swamp cooler also carry a manufacturer’s warranty of varying lengths.  Ask to see any other warranty the builder may choose to provide for your new home AT THE TIME YOU SIGN THE PURCHASE CONTRACT.

Most purchase contracts will contain:

  • An arbitration clause that essentially states if any (or all) dispute(s) may arise, you will not have the option to go to court to settle your differences.  Instead, disputes will be decided by an arbitrator.  This is generally recognized to be faster, cheaper, and simpler than going to court.  Consult an attorney and decide if you are comfortable with this concept BEFORE SIGNING THE PURCHASE CONTRACT.  You should not be surprised to be requested to sign a form stating you have read the arbitration clause and understand its impact on your legal rights.
  • If your contractor builds more than 10 homes a year, you can expect to see a clause that requires arbitration to be done separately for each home; in other words — no class action suits.  If you are having your home remodeled it is less likely this clause will be included.
  • If your contractor offers a warranty, you should expect to see information on this included in the Purchase Contract.  If it is not mentioned, you should not assume your contractor is offering a warranty. 
  • If the Purchase Contract does include a warranty, ask for a copy of the warranty up front, and review it before you sign the Purchase Contract. Warranties generally cover some items for one or two years, and structural issues for up to 10 years.  The length of time each category of items are “warranted” for is generally stated in the Purchase Contract. Warranties never cover issues such as paint color or floor coverings.  These are considered “cosmetic” and not structural.
Quality and Warranty

Many builders have developed formal inspection procedures.  Building inspectors, warranty insurance companies, FHA, VA, or your lender may also inspect the home.  However, no matter how strong the commitment of the builder and all the inspectors, the desire for a high-quality home will be strongest for you, the eventual owner.

No matter what the price of your home, you may reach a point where your standards exceed everyone else’s.  Or you may not have the technical knowledge to judge the quality of every stage of the work and question if it is done well.  Trust and information are vital to your peace of mind at such times.  For perspective on this important subject, keep these points in mind:

  • Building codes make no distinctions based on price.  Code books do not include one set of regulations for homes up to $200,000 and another for those over $200,000.  Codes require that all homes meet the same level of health and safety.
  • Codes make no attempt to set standards for aesthetics.  Many steps in construction allow the builder and the buyers to exercise their discretion.  Quality in such areas is based on experience, pride of workmanship and the ever-present budget.
  • Price differences often show most notably in size and features.  The more expensive the home, usually the larger and more complex the design.  The list of features in a $597,000 home is longer than that of a home costing $125,000.  For instance, the master bath of the former has a jetted tub with a fancy faucet. Tile walls surround the tub.  Beside the tub is a spacious walk-in shower, enclosed by clear frameless glass panels.  The cabinets have solid wood doors, drawers and frames, and provide lots of storage space. The master bath in the second home includes a fiberglass tub with a chrome faucet.  Tile surrounds this tub also.  The buyers select from eight colors, none of which include hand-painted accents. A shower rod comes standard, but space limitations prohibit a walk-in shower.  A single cabinet beneath the vanity offers some storage space. Its painted doors have no hardware.  Although different in appearance and price, the plumbing to both tubs must work without leaking.  Neither tub should have chips or gouges.  The tile in both baths must meet the same standards.  In time, grout and caulking in both baths will need maintenance by the homeowners.  The cabinet doors should all operate smoothly and be level.  They will all show variations in the way the wood is finished.

THE STATE OF NEW MEXICO DOES NOT REQUIRE A CONTRACTOR TO OFFER A WARRANTY.

At closing, your contractor will provide you with any manufacturers’ warranty documents for the new appliances.  Mechanical systems such as water heater, furnace and air conditioning/swamp cooler also carry a manufacturer’s warranty for varying lengths of time.  Ask to see any other warranty the builder may choose to provide for your new home AT THE TIME YOU SIGN THE PURCHASE CONTRACT.

Most purchase contracts will contain:

  • An arbitration clause that essentially states if any (or all) dispute(s) may arise, you will not have the option to go to court to settle your differences.  Instead, disputes are decided by an arbitrator.  This is generally recognized to be faster, cheaper, and simpler than going to court.  Consult an attorney and decide if you are comfortable with this concept BEFORE SIGNING THE PURCHASE CONTRACT.  You should not be surprised to be requested to sign a form stating you have read the arbitration clause and understand its impact on your legal rights.
  • If your contractor builds more than 10 homes a year, you can expect to see a clause that requires arbitration to be done separately for each home; in other words — no class action suits.  If you are having your home remodeled this clause is less likely to be included.
  • If your contractor offers a warranty, you should expect to see information on this included in the Purchase Contract.  If it is not mentioned, you should not assume your contractor is offering a warranty.
  • If the Purchase Contract does include a warranty, ask for a copy of the warranty up front, and review it before you sign the Purchase Contract.  Warranties generally cover some items for one or two years, and structural issues for up to 10 years.  The length of time each category of items are “warranted” for is generally stated in the Purchase Contract.  Warranties never cover issues such as paint color or floor coverings.  These are considered “cosmetic” and not structural.
The Building Process

From the moment you decide to build, a natural question is, "When can we move in?"  Understandably you are anxious to see dirt moved and walls erected.  That move-in date can't come too soon.  However, in the initial stages of the project, the delivery date is a moving target because of factors beyond a builder's control. 

Weather is one obvious factor. Also, before construction can begin, your builder has several important tasks to accomplish that involve outside people and entities, for example—

·      Most residential construction requires a building permit. The process varies and can take a few minutes to many weeks depending on local practices and workload.

·      If you make structural changes to the plans, the engineering for the home may need revision.  This revision can take from several days to several weeks, and it must be completed prior to applying for a building permit.

·      If your home will be in a covenant-protected community (one with a homeowner’s association), your house plans may need to be approved by the association’s design review committee.  These groups may meet only once a month.

Your builder recognizes that timing is critical to planning your move.  Although a guaranteed date is unrealistic in the early stages of construction, the builder can provide regular updates.

As your home nears completion, the builder can provide a firm delivery date (usually 30 to 60 days before the closing).  Meanwhile, be flexible and avoid making arrangements that might cause you worry if the move-in date changes.

CONSTRUCTION SCHEDULE

Once the physical work begins, you will find an understanding of construction scheduling basics helpful.  The builder creates the construction schedule based on experience and input from the trades.  Some portions of the work must occur in sequence and some trades work best alone in the home.  Having the electrician and the plumber in the home at the same time prolongs their work because they get in each other's way.

Depending on how much construction is occurring in the region, trade contractors need varying lengths of lead time or notice before working on your home.  Lead times change constantly.  Your builder orders materials so that deliveries occur at the correct time.  You can help by completing your selections as early as possible and following your builder's guidelines for changes.

Your builder is involved with your home on a daily basis.  He or she frequently checks the work at the site, updates the schedule, answers questions from the trade contractors, and checks on material deliveries.  When the builder asks you to clarify details, you need to respond quickly to prevent delays.

Both your satisfaction with the home and the builder’ s reputation rely on this close attention.  Technical standards (such as building codes) and specific requirements (such as blueprints, specifications, and change orders) provide detailed criteria for these inspections.

The building department that issues the permit usually also inspects the work as it progresses.  Construction cannot continue until it passes the required inspections at various stages of completion.

SITE VISITS

Some builders schedule meetings with you points during construction.  You meet at the site, discuss questions, and update the target delivery date.  These visits might occur every week or two or upon completion of certain phases of work.

Scheduled meetings may not satisfy your desire home.  Your builder may set guidelines for days and times when other visits are welcome.  Your safety, satisfaction, and the smooth flow of work are the builder’s prime concerns.

In most contracts with a builder, buyers agree not to interfere with work in progress.  If you have a question, get in touch with your builder.  Don’t give instructions directly to trade contractors who may only know about one portion of the plan.  If you are working with a small firm, you may be told to speak directly with your builder. With large companies, the builder’s salesperson is likely to serve as your liaison.

For any issue you should consider whether it can wait until the next routine conversation with the builder or whether you should contact immediately.  For instance, if you order a pink bathtub and see a blue one delivered, your builder and the plumber will both appreciate your calling attention to the error right away.  However, try to resist pointing out items the builder will address in the normal sequence of construction.

If you are in doubt about how urgent your concern is, play it safe and contact the salesperson or builder.  Put serious questions or extensive lists in writing and keep a copy.  Putting your concerns in writing reduces the possibility that they will be forgotten or miscommunicated.  Also keep the following points in mind once you have notified the builder of a concern:

·      Your concern may involve a detail the builder already has noticed or appreciates your pointing out.  Still, correction may not occur immediately.

·      Work may simply be incomplete; an early wrong to you may be exactly right when finished.

·      Methods and materials vary from region to region and change over time.  When you are familiar with one method, you naturally question a different one.  That doubt does not make the new method wrong.  Ask questions until you are comfortable.

SAFETY

Everyone involved in building your home should keep safety in mind at all times.  This practice is common sense.  To make it more common, the Occupational Safety and Health Administration (OSHA) set regulations for residential construction.

To avoid violations and fines, your production builder may require that you be accompanied by company personnel when you visit your home construction site or that you sign in at the sales center when you are on the site.  At various phases of construction, your builder may require you to wear a hard hat.  Whatever your builder’s policies, keep the following points in mind at all times:

·      Always look in the direction you are walking.

·      Stay clear of large, noisy equipment and power tools.  Assume the operator does not see or hear you.

·      Be aware of someone working above you.  Construction personnel working on the roof may not hear you arrive.

·      Avoid handling or attempting to use any tools, equipment, or ladders you see on site.

You may meet many characters on the construction site.  Overall, you will find a pragmatic group of people committed to doing a good job.  You should also expect mud, trash, material scraps, lunch wrappers, gravel, more mud, blowing sand and dust, mystery parts, and vehicles of every shape and size.

From time to time this diverse cast of characters may all seem to leave the stage simultaneously.  At several points during the construction of every home nothing appears to be happening.  Several factors cause this phenomenon:

·      Until the home is closed in, precipitation, high winds, or low temperatures can stop all work.  Exterior work is always subject to weather conditions.

·      Sometimes a trade completes its work ahead of schedule.  The next trade has an assigned time that your builder cannot change on short notice.  Sometimes a trade contractor arrives late because work at another site took longer than expected.

·      One late trade can lead the builder to reschedule several others.  Because of that rescheduling, your home may lose its place in line with one of the affected trade contractors.

·      At several points during construction, progress stops until the work up to that point passes required building department inspections.  Items noted by inspectors must usually be corrected before work can continue.  Few homes go through construction without an inspector citing something.

·      Materials may not arrive on time.  The arrival of back-ordered or custom-made items is especially unpredictable. Sometimes shipments arrive incomplete or damaged.

·      Some portions of the work move quickly while other more-detailed tasks move slowly.  Work may be progressing quite well even though you don't see much change.

If these scheduling delays cause you concern, remember that your builder works with these circumstances every day.  All existing homes were subject to the same factors.

 

Building a home is part science, part art, and part plain hard work. As one of the last handmade products available to us, each home is unique in the same way that an oil painting by a landscape artist is unique. The artist can stand in the same place and paint the same panorama using identical colors and the same size canvas as for a previous work. Yet in the end, every painting has a personality distinctly its own.

Settlement Terms

Going to a settlement and signing a contract on a new home can be bewildering. Home buyers are usually required to sign a seemingly endless pile of documents, most of which are written in legalese. While you will not understand all of the details involved in the settlement process, there are certain important items you should know about so that you can achieve the best possible terms for yourself in the transaction. The following fees will be included in the contract.

Appraisal Fee: An appraisal is an estimate of the fair market value of your home. Appraisals help both the lender and the buyer to determine if the sales price is consistent with the actual value. An appraiser inspects the house and the neighborhood and makes an estimate based on the price of comparable houses and other factors. The appraisal provides no guarantee that the property is free of defect. Lenders insist on an appraisal to see how much they could recover by selling your house if you default. The fee for this service may vary considerably depending on the specific characteristics of your house.

Attorney’s Fees: If the lender requires and attorney to draw up any of the settlement documents, you may be charged a fee–a flat amount or a percentage of the loan. If you hire a lawyer to assist with the settlement, you will have to pay an additional fee at or immediately following settlement.

Credit Report: The lender may charge a fee for investigating your credit history.

Earnest Money: Earnest money is a deposit paid to a seller to show you are serious about buying a house. Your receipt for this payment is called a binder. If you later buy the home, the earnest money is applied to your down payment. If not, the earnest money is returned, minus expenses for processing. Understand refund procedures before you make a deposit.

Escrow Fees and Accounts: Escrow involves having a third party hold funds and/or documents until you and the seller complete settlement. Depending on the circumstances of your loan, you may be asked to make monthly payments to an escrow account after you purchase your home. Money in the account may be used to pay taxes, insurance and any other regular assessments as they fall due. Such accounts serve a similar purpose to withholding income tax from your paycheck–by putting aside money each month, you avoid large annual or semiannual payments. You may be charged a fee for the service. In some states, escrow accounts draw interest.

Sometimes, escrow agents handle settlements. Rather than you and the lender meeting to sign all of the documents and transfer money, the agent works with you and the lender separately to ensure that everything is done properly. Once again, a fee is required for this service.

Loan Origination Fee: A lender will charge a fee for the cost of processing the loan, usually calculated as a percentage of the loan amount.

Loan Discount (Points): The largest of your settlement costs may be the “points” lenders require to make the yield on your loan more profitable. A point is one percent on your loan amount. If you are borrowing $50,000, one point equals $500. Points are tax deductible if they are paid separately and not deducted from the loan amount. For VA loans, you can be charged a maximum of one point, but the number of points can be higher for FHA and conventional loans.

On a 30-year loan, each point that you pay reduces your interest rate by roughly 1/8 of a percent. You may be faced with a choice between two mortgages in which one has lower monthly payments but involves paying more points up front. Annual percentage rate calculations include buyers’ points, so ask for the annual percentage rate (APR) to help you make your assessment. Keep in mind that an APR is a 30-year composite figure. If you sell your new home after a few years, the average annual cost of your points will be much higher than is reflected in the APR. If you plan to move soon, you might be better off with a loan that had a slightly higher rate but fewer points.

Property Survey Fee: You may have to pay to have your lot surveyed, especially if there is a question about the boundaries. The cost will depend on the complexity of the survey.

Recording Fee: Because title is changing hands, the transaction must be recorded with your city, county or other appropriate branch of government. The fee covers administrative costs.

State and Local Transfer Taxes: Some jurisdictions levy taxes on the transfer of property or real estate loans.

Settlement and Costs Between Buyer and Seller: Your builder may have already paid the annual property taxes on your new home or filled up your fuel tank. When title changes hands, you must reimburse the builder for a proportional share of the taxes, any fuel that remains in the tank, and any other prepaid costs.

Title Search and Insurance: A title search involves having someone look through public records to see if anyone else has a claim to your property. A lender does not want to lend you money only to learn in the event of foreclosure that somebody other than you has a prior claim to the property.

You will normally be required to purchase lenders’ title insurance to guard against a faulty title search as well as hazards that even the most thorough search will not reveal–such as a forged deed that does not transfer title, claim by a previously undisclosed relative of a former owner, or a mistake in the records. For a one-time premium at closing, title insurance will clear up title problems, pay the lender’s legal expenses for defending against an attack on title, or pay claims on property the lender may lose.

Lenders’ title insurance does not compensate buyers for any legal expenses they might incur, or the value of property they might lose. A separate owners’ title insurance is available to safeguard the buyer. Whether the seller or the buyer pays for owners’ title insurance depends on local custom.

The list of settlement terms above is not all-inclusive. You may also be charged fees for notarizing documents and other miscellaneous items.

 

How to Prepare for Closing

Closing or settlement (also called close of escrow in some states), is a process that involves a lot of paper and a lot of money. When it all stops sliding back and forth across the table, you own your new home. Congratulations!

Celebration aside for the moment, at closing the ultimate purpose of the original sales agreement is achieved: Ownership of your new home is transferred from the builder to you. The technical steps include finalizing your loan (one set of papers and checks) and the builder selling you the home (another set of papers and checks).

Next the money is disbursed to the appropriate people and companies including real estate agents, attorneys, title company, and surveyor, just to list a few. Title is transferred and the loan is recorded against your new property.

This process sounds easy enough, but it involves about 75 documents. Some of the documents are duplicates, but you need to sign nearly all of them.

Depending on how many questions you have, closing should take from 45 to 90 minutes. To understand how this closing is achieved, let’s review the process one step at a time.

SETTLEMENT AGENT

Depending on where you are building, your lender, a title company, an attorney, a real estate broker, or an escrow company can serve as the settlement agent and orchestrate the closing. Services provided by the settlement agent include ordering the title work and property survey and organizing all the paperwork for the closing itself. Chances are either your builder or your lender has experience with closing agents in the area and will suggest a closing agent. If the choice is left to you, compare the services provided and fees charged before making a final choice.

CLOSING APPOINTMENT

Expect several days’ notice for the closing appointment. Whoever sets the time should confirm the location with you. Closings can take place at a title company, the lender's, attorney's, or real estate agent's office.

ESCROW CLOSING

In some parts of the country an escrow agent handles closing. This type of closing takes place in steps as outlined in an escrow agreement which you will sign. The agreement specifies that the buyer and the seller will each deposit required documents and funds with the escrow agent within a set time frame. One or more days later, the escrow agent records the transaction. Once recorded, the escrow is closed. You now own your home and can pick up your keys (the builder or closing agent will advise you where).

PREPARATION

Whether you close in escrow or in person, the key to settlement is preparation. By addressing the details during the weeks before closing, you have time to resolve any last-minute glitches calmly.

INSURANCE. You need to obtain and present proof of a homeowner’s policy from your insurance company. Your insurance agent will have a standardized form for this purpose. Arrange for proof of insurance no later than 3 weeks before the expected closing date. This insurance policy should list your lender as “also insured.” Check with your loan officer ahead of time to learn the complete legal name to be used in this reference. Your insurance agent will need the name and phone number of your lender and will want to know the location of the nearest fire hydrant, the type of construction of the home, and price.

UTILITIES. Your goal is to have service provided in your name beginning as close to the date of the closing as possible. The utility companies may shut service off if the builder’s name is removed from the account without yours taking its place. Make no assumptions about the availability of cable service and do not rely on the experience of your new neighbors. Work-loads change and lead times fluctuate. Call early to avoid inconvenience.

UNRESOLVED ISSUES. Your builder and lender may attend the closing but are not required to do so. Closing agents are not authorized to negotiate or make representations on behalf of any party involved in the closing. If any issues remain unresolved, you are not ready to close. Finalize all agreements before closing.

LENDER CONDITIONS OR CONTINGENCIES. Your loan approval may have included one or more contingencies. You must satisfy all loan conditions in order to close. For example, if closing the sale on a previous residence was a condition of loan approval, you need copies of those closing documents to close on your new home.

THE FINAL NUMBER. The amount of money you must bring to closing includes items such as property tax and interest on your new loan. These items are subject to proration and change depending on the exact date of closing. Therefore, the closing agent cannot calculate the total until the closing date is set. A federal law, the Real Estate Settlement Procedures Act (RESPA) provides you with the right to see the final figures 24 hours before closing. Just ask for them.

FORM OF PAYMENT. Depending on the requirements of your lender, you may need to bring cash or certified funds to closing. Allow time to obtain these funds. Remember that banks sometimes place a hold on funds moving to your account from another source. Check with your closing agent regarding how to make out the check. You can usually cover minor, last-minute adjustments in costs with your personal check.

CLOSING DOCUMENTS

At closing, you sign and receive the documents necessary to convey the new home to you and to close the loan from the mortgage company. The standard documents include the following:

DEED. The deed conveys the home and lot to you, subject only to permitted exceptions such as a recorded easement.

PROMISSORY NOTE. This note is from you, payable to the lender in the principal amount of the loan plus interest.

MORTGAGE OR DEED OF TRUST. This document encumbers your home as security for repayment of the promissory note.

TITLE INSURANCE COMMITMENT. The title insurance company will mail the actual policy several weeks following the closing. When you receive this policy, keep it in a safe place with your other important papers. What you receive at closing is a promise that the insurance company will issue the policy.

BUILDER'S LIMITED WARRANTY OR INSURANCE-BACKED LIMITED WARRANTY. Unless you move into your home early under a rental agreement with your builder, the limited warranty begins as of the date of closing.

HOMEOWNER ASSOCIATION DOCUMENTS. If your new home is in a covenant-protected community, you will also see homeowners association covenants, conditions, and restrictions, the association by-laws, and articles of incorporation at closing. In addition to these standard items, the lender, title company, or the builder may ask you to sign other documents.

CLOSING EXPENSES

The closing agent itemizes the charges and credits for closing on a standardized form called a Settlement Statement. The form lists standard items and has blank lines for additional entries specific to your purchase. Not every line applies to every closing.

If you already owned your lot, the process for closing is simpler. You signed much of the paperwork described here when you closed on your lot purchase. Similarly, some custom home construction loans, which go by names such as one-time close, combination loan, or express loan, convert to a permanent mortgage without a second closing.

Although closings vary from region to region and with the type of financing, ultimately the goal is the same: the transfer of ownership of your new home from the builder to you. Ultimately, you have house keys, and the time has come to move in and begin to enjoy your new home.

What the Law Says About Contractors' License Bonds

The code-compliance bond repays a consumer for costs to correct code violations that the original contractor either refused to correct or was unable to correct.

Highlights of the code bond:

  • Claims may be filed by your customers if they feel you have committed a building code violation.
  • Construction Industries Division (CID) will determine if a violation of a building code has occurred.
  • According to CID, contractors will be given a “reasonable opportunity” to correct a code violation before the bond pays out.
  • The surety company may pay no more than $10,000 per project, directly to the building owner.
  • Claims must be made within two years following final inspection or issuance of a Certificate of Occupancy (whichever is earlier) for the project.
  • Claims may be only for actual cost to repair the code violation (no legal fees).
  • Contractor must repay the surety company if the surety has paid out on a bond.

There are lots of questions about how the investigation of the code violation allegation will proceed, but CID has made public statements including the following:

  • An individual looking to collect monies from the bond must participate in CID’s investigation complaint process.
  • CID will issue a certification of uncorrected code violation to the contractor, bonding company, and the homeowner.
  • The surety companies will likely require the homeowner to submit three estimates limited to the cost of repairing the violation.
  • The homeowner must notify CID in writing that a claim has been filed.
  • CID has promised the surety companies that the PSI website will contain information that will publicly show a contractor’s license has been the subject of a claim of uncorrected code violation.

Once a contractor’s license code bond has paid out on a claim, if the surety company has not been repaid it is unlikely they will renew a bond for that contractor.  With the information publicly available for any other surety company to check a contractor’s payout status, it will be harder for a contractor to get a bond from another surety company.  If a new bond is not acquired, CID will cancel the contractor’s license for failure to maintain the proof of responsibility required by the Construction Industries Licensing Act.

If you have questions about the contractor’s license code bond, call the New Mexico Home Builders Association’s bonding subsidiary, New Mexico License Bonding, at 505-344-7277.  For further information about the complaint process that could lead to a fine, call the Construction Industries Division in Santa Fe at 505-476-4700.  For general information on the licensing process contact PSI at 877-663-9267.

This article is provided with the understanding that New Mexico Home Builders Association does not intend this information to be viewed as rendering legal advice or service.  If legal advice is desired, the services of a competent professional should be sought.  New Mexico Home Builders Association shall not be responsible for any damages resulting from any error, inaccuracy or omission contained in this article.

Construction Industries Licensing Act

60-13-49. Proof of responsibility. (Effective July 1, 2009.)

A.  No applicant for a contractor’s license or for renewal of a contractor’s license shall be issued a license until the director determines that the applicant furnishes proof of responsibility pursuant to Subsection B of this section.

B.  Proof of responsibility shall be a bond of ten thousand dollars ($10,000) acceptable to the director and underwritten by a corporate surety authorized to transact business in New Mexico. Such bond shall meet the following conditions:

(1) payments from a bond required pursuant to this section shall only be used to cure code violations caused by a licensee, certified by the division and not corrected by the licensee. Claims against the bond shall be made within two years following final inspection by the governmental entity having jurisdiction over code enforcement or within two years of issuance of a certificate of occupancy for the construction project, whichever is earlier;

(2) the total aggregate liability of the surety for all claims shall be limited to the face amount of the bond;

(3) the bond carrier shall provide to the division and to the licensee thirty days’ prior written notice of intent to cancel a bond required pursuant to this section. The surety for such a bond shall remain liable under the provisions of the bond for all obligations of the principal pertaining to bond terms that occur before the bond is canceled, expires or otherwise becomes ineffective;

(4) failure to maintain the bond for the period required by law is cause for revocation of the license; and

(5) if the bond is canceled, expires or otherwise becomes ineffective during the period of a license, the division shall notify the licensee that a new bond is required. If the licensee has not provided proof of a new bond before the fortieth day after the date on which the bond was canceled, expired or otherwise became in effective, the license shall be subject to revocation for failure of proof of responsibility.

5931 Office Blvd., NE – Suite #1 • Albuquerque, NM  87109
Phone: (505) 344-7072 • 1-800-523-8421 • FAX: (505) 344-3103

 

Unlicensed Contractors

If you have come to this page because no one told you all this stuff, and you have discovered your “contractor” is unlicensed, there are still a few things you can do:

1.)   If you have not paid in full for the work that has been done, you don’t have to pay any more money.  Under 60-13-30 of New Mexico law, no unlicensed contractor can “act as agent or bring or maintain any action in any court of the state for the collection of compensation for the performance of any act for which a license is required by the Construction Industries Licensing Act without alleging and proving that such contractor was a duly licensed contractor at the time the alleged cause of action arose.   Any contractor operating without a license as required by the Construction Industries Licensing Act shall have no right to file or claim any mechanic’s lien as now provided by law.”

Some construction dispute resolution experts have stated that this also means the unlicensed “contractor” can’t sue you or require you to engage in mediation/arbitration — even if they had you sign a contract that says you must.

2.)  If you have already paid in full for the work that has been done, you need to seek legal counsel to determine if you have a case for filing a lawsuit to seek to recover some (or all) of the money you have paid.  Make sure your attorney is aware of the limitations that affect the unlicensed “contractor” under 60-13-30 of the Construction Industries Licensing Act.

3.)  Tell the “contractor” you have discovered the fact they do not have a contractor’s license, and that you will not be paying them for any further work.  Then report them to the Construction Industry Division so they can take action to prevent further unlicensed activity.

You have a problem with your new home — what now?

So, you have read all of this information, and you still end up with problems.  There are several things you can do to resolve the situation:

1.)  Call your builder and get details of the “call back” program offered.  Put things in writing so the builder knows exactly what items
you are talking about.  Be patient.  Builders will often need to work through the sub-contractors who performed the work.

2.)  Check your contract with the builder to see what warranty (if any) the builder offers. The State of New Mexico does not require a contractor to offer any warranty on their products, but many home builders offer a one-year warranty on a new home to give the homeowner a chance to discover any “call-back” items needing to be fixed.  Some builders have chosen to adopt the National Association of Home Builders Construction Standards as part of their warranty program, and they will replace/repair items utilizing the Standards as a guideline.   This gives both the customer and builder a good “baseline” for expectations.  Call the builder and ask if there is someone they can send to inspect what you think  may be a problem.  (Remember, you’ll usually get a better response if you are non-confrontational.)

If you and the builder agree there is a problem but cannot agree on how to fix it, you may want to consider checking the contract for an arbitration or mediation clause.  Even if such a clause is not in the contract, sometimes utilizing the services of a construction dispute resolution company can be an effective way to resolve construction debates.  There are several articles on this website with more information on this process.

3.) If the builder is not responsive to your complaint and your concern is about something you suspect is a building code violation, you may feel you should call the Building Department of your town or city to ask for an inspection.  If you are in a rural area where your town does not have its own Building Department, you can go directly to the Construction Industries Division of the State of NM.  Their consumer complaint process is online at http://www.rld.state.nm.us/CID/Complaints/complaint.htm.  Keep in mind that these entities enforce building codes, and not aesthetics or contract issues. Building codes cover life and safety issues such as foundations and electrical wiring, not cosmetic items like paint, carpeting, or bathroom mirrors.

If your Building Department does not inspect for code violations, you may always contact the Construction Industries Division’s complaint process noted above.

Remember, that in order to fix construction problems, it will be necessary for the builder and/or sub-contractor to have access to your
property to inspect or repair the problem.  It would therefore be beneficial to all parties if you can find a way to work  with your builder.  After all, the ultimate goal is to get your problem resolved,  not to exact revenge.