ravenwood4

Understanding the contract and costs of building a home

Lifestyle
5 years ago
11 minutes

To help you avoid any surprises, here are some top tips for navigating the contract and costs involved in buying house and land... so you can arrive at your dream home with as little trouble as possible!

article-image

LAND CONTRACT

When you purchase a lot on which to build your new home, you’ll have a land contract which transfers ownership of the land to you. And this land contract will require you to pay stamp duty.

The good news is you will save on stamp duty when it comes to the home you build, as stamp duty is not incurred on a new home. A rough indication of stamp duty fees on a block of land is approximately 5%, but you can find out the exact value by using your relevant State Revenue Office Stamp Duty Calculator.

Other fees relating to the land contract will include legal fees you pay for engaging a conveyancer or solicitor.

article-image

HOME BUILDING

Before you build you will need to have your house plans approved and stamped by your local council to be issued a building contract. The time taken and costs involved for this will depend on your respective council. Fees may include building fee, lodgement fee, inspection fee, and a Government levy.

The benefit of choosing a house package with a reputable builder is that these fees will be included in your house contract price.

The location of your home can also affect some costs regarding construction. This is particularly true if your home is being built in a bushfire-prone area, which will require the use of building materials and construction standards that make your home more fire resistant. This can add to the typical cost of a home, so it is best to be aware of this up front to factor it into your budget.

article-image

CHOOSING A BUILDER

A lot of people choose a project home builder to manage the whole project of building their home. This provides many benefits, perhaps the greatest being that larger builders can hit competitive price points due to the scale of their business. When they used specific materials and designs, the pricing will generally be a lot more competitive than an architecturally designed home.

Experienced home builders are good at designing all inefficiencies out of the construction and materials, and hitting a competitive price point.

The other benefit is the large number of house plans they have, from which you can choose a home that’s perfect for you. The leading builders have over 100 designs, and even within these plans, several builders have a range of upgrades and options that you can include. This is a great way of finding your future dream home.

article-image

HOME BUILDING CONTRACT

The building contract sets out the role and responsibilities of both you and your builder so that everyone agrees on what to expect from each other. It will usually include:

It is vital that you pay particular attention to your Home Building Contract. In simple terms, the builder will deliver whatever is included in your contract. If something is not in this document, you will not get it! The best advice is not to assume anything. If you are unsure, ask, and if you expect something, make sure it is documented in your contract. Don’t make the mistake of assuming something is ‘standard’, only to discover it is actually an extra which will incur additional costs to the building of your home.

Examples where inexperienced home buyers have been caught out include moving into a new home with no door stops, no bathroom furniture, no exhaust fans in the laundry and toilet, no washing line, and so on. Make sure you check your contract carefully.

Remember, your solicitor or conveyancer will not cover this detail. They will not know that you amended the standard plan to change a second living room into a guest bedroom. They will not have been involved in such discussions, so their expectation is for you to ensure the specification and house drawings are as per your agreed correspondence with your builder — it’s your responsibility to keep them informed.

Some of the items you need to address include:

Electrical Plan

  • Enough Light globes to service each room adequately. Pay particular attention in your bathrooms and kitchen. You want to avoid a situation in these rooms you are in shadow when you are cooking, cleaning dishes, or putting on make-up.
  • Sufficient power points to service your needs. How many points do you need in your lounge for all your devices? Make a plan.
  • Data points – these days you can have installed a double general power point with a data point port in the middle.
  • Outside lights are critical for both your front and back yard.

article-image

Bathroom

  • An extractor fan to remove all the steam from the room. This is particularly important if you have a house design where there is no door between your ensuite and cupboards. The last thing you want to do is ruin your expensive clothing with steam coming out of your ensuite.
  • Ensure all your bathroom furniture is included in your contract, i.e. towel rail holders, toilet roll holders, hand towel holders, etc.
  • In some cases you may need to request a tile shelf in your shower. You obviously have the option to buy a separate unit after you move in, however, if you want a shelf tiled in, make sure you clarify if this is included.

Garages

  • Make sure you understand how the lights work in your garage when the door is open. If you have one light, you may find when the garage door is open the light serves minimal benefit.
  • Something worth considering is a button in your garage that activates your door. This avoids you looking for a remote, or retrieving it out of your car.

article-image

Outside items

  • When it comes to ‘Handover’ you will receive a complete home on your block of land and in most cases, unless you commit to a turnkey package, the rest of your block will be empty. So when it comes to items outside of your home, key additional costs include the following:
  • Do you need to deliver soil in your backyard? In terms of access, is it easy to do so?
  • Alfresco area
  • In some cases, you may be better off for your home builder to help with such a solution.
  • Front yard
  • Landscaping
  • Letterbox
  • Path to your front door
  • Driveway – something to consider. In some cases, you may be able to secure council approval to build a double driveway. This will allow you to have two cars in front of your garage for visitors, without them driving on any of your landscaping or grass
  • Landscaping
  • Do you seek a drought-tolerant solution?
  • Be careful not to place all your plants next to your home and then extensively water them. This may create issues when it comes foundation movement and damage.
  • Where you plant trees is also a key issue, as you do not want the root system impacting on your home slab.
  • Fencing
  • This can be difficult. In cases where you are dependent on a 50% commitment from your neighbour you will need to negotiate with 3 separate numbers in most cases, for both sides and the rear fence.
  • Front fencing may be a consideration for you. Please ensure you check design and siting guidelines or covenants, as in several cases you will not be permitted to build any such structure. That way you can avoid building something you will be required to tear down later.
  • External gas points for items such as a BBQ are worthwhile including in your contract. Things like this are easier and more cost effective to do upfront, rather than doing them post-Handover.

article-image

General

  • Several displays have a limited number of doors. For example, some displays may present main bedrooms without a door separating the ensuite. It is most likely this is how it will be documented on your contract. If this is the case and you want a door, make sure you request one.
  • Items you need to ask about:
  • Washing Line
  • Blinds
  • Letterbox
  • Driveway
  • All external landscaping
  • Exhaust fans i.e. in the toilet and laundry.
  • Owners corporation fees (also called body corporate fees) cover the maintenance of common areas (gardens, guest parking, etc.) and can include payment for insurance. It is important if you go into such a project that you understand how much you pay, how often, and what exactly you are paying for

The benefit of including all of these items in your contract is that you can negotiate with your bank to get the required funds to buy such items. For example, depending on your taste in blinds, the costs for a large home can easily equate to well over $10,000. These are all the items you need to be prepared for and consider.

Remember, no two builders are alike. What is standard for one builder, is not necessarily standard for the next, so it can be difficult to assess who is giving you better value. A recommended approach is to compile your own checklist and do the best you can to assess what you are getting. All of this will come into your evaluation before you commit to your chosen builder.

article-image

DESIGN GUIDELINES/BUILDING COVENANTS

Design guidelines are an important item for you to understand. Some land estates will naturally be more expensive to build your home in, due to their guidelines. Builders are well versed in managing this process for you.

It is important for you to understand that you will be required to have your home plans meet the guidelines in order to gain approval to build it.

Design guidelines can include numerous elements such as:

  • Fencing detail, i.e. no timber allowed, Colourbond only, etc.
  • Façade design, i.e. specified number of materials and/or composition
  • Roof Pitch, colour and/or material
  • Front façade window detail
  • Requirement to build your home in a specified time period – this is extremely important as it needs to align with your plans

On face value it may seem such items are prohibitive and unnecessary. Several of them are there to protect all home owners in a project. You should not be overwhelmed by them, with your home builder guiding you through the requirements. You just need to have an understanding of what they are and that there may be a cost implication.

HIA CONTRACT - DEPOSIT AND PROGRESS PAYMENTS

Most builders will use a HIA (Housing Industry Association) contract. This contract comprises a series of payments that are triggered by key milestones being reached:

In Victoria, builders are not allowed to charge more than a 5% deposit for contracts greater than $20,000, according to the Domestic Building Contracts Act 1995.

Here’s when the payments are commonly taken:

  • Deposit 1%
  • Balance of Deposit 4%
  • Base Stage 10%
  • Frame Stage 15%
  • Lock Up Stage 35%
  • Fixing Stage 25%
  • Completion 10%

That final 10% will be a great moment – your brand new home is completed and pretty sone you’ll be moving in!