Bankrupt Builder – Will The Insurance Be Enough?
I have previously talked about dealing with the mess when a builder goes bust.
To make the financial aspects clearer a worked example follows:
This is based on a contract for a house to be built for $300,000.
A typical building insurance is 20% of the contract cost so it will be $60,000.
Assuming the builder becomes insolvent during the construction of the frame.
- You should have already paid out
- $15,000 (5% Deposit)
- $30,000 (10% Base Stage Payment)
- $45,000 Total Payments
- A new builder is going to charge more than the remaining $255,000 to finish the job as they will have to do quite a bit of extra administration and estimating. Say plus 20% ($306,000).
- You have probably had some legal costs say $10,000.
- The total cost of building the house is now:
- $45,000 Initial payments for Original Builder.
- $306,000 New Builder Cost
- $10,000 Additional Legal cost
- $361 ,000 Total.
- You will be reimbursed up to $60,000 by the insurer so the total cost to you will be $361,000, which is $1,000 more than the original cost.
- As any new builder will probably charge a percentage on the remaining work its possible that if you are in the later stages of a build the insurance will be enough. If you are right at the start it may be best to walk away and start again with a new builder.
- If you have allowed the builder to charge more than the Standard Progress Payments there is more likely to be a shortfall in insurance money increasing the amount you will need to find.