One of the best “worst” kept secrets in the building industry is the “change order” scam. Proponents of this scam make more money on change orders than they do on the actual building contract. I have talked with several general contractors who actually brag on how they draw a customer into a contract with an artificially low contract price, knowing all along that they will end up making a huge profit in the change order process.
The “change order” con artist contractor intends to make a huge profit on each and every change order that you make and in the end, he or she can make thousands of dollars in additional profit at your expense.
On the fly changes on custom homes are very common and they should NOT be used as a method to take advantage of the homeowner.
So how do you protect yourself from being taken advantage of? As a potential home builder, there are a few red flags that can tip you off that you are dealing with such a contractor.
1. If a builder has the audacity to charge you for the “privilege” to make a change order, you will know up front that this contractor is going to rip you off. Some contractors charge several hundred dollars just to start the change order process.
2. If your contractor will not accept a verbal change request, but instead shoves a piece of paper at you to sign, accompanying every single change you make along the way, this is a good indicator that you should watch your back. A good contractor will communicate with you and what you want and make the necessary changes along the way.
3. Beware of a contractor who purposely leaves items common to any house out of the contract (without you requesting it). For example: door hardware, plumbing fixtures or lighting fixtures should be part of your original quote or else you will be stuck with additional costs at the end of the build.
It is a good idea to ask your potential contractor for a sample contract. Sometimes it is very clear on what type of contractor you are dealing with just by his/her contract. If the contract is unusually long and is biased towards only protecting the contractor, then this is a red flag. If the contractor won’t produce a sample for you, this is another red flag.
Many custom home builders also use the ridiculously low allowance method to trap a customer into change order scam. For example, if your contractor has put in a $1600.00 lighting allowance or a $2200.00 plumbing fixture allowance for your 3000 heated square foot custom home, you should walk (or run) away from this person. It is advisable to do some quick math on your part on these items so that you know if this is a reasonable amount for such items.
It is often said by many people that have actually gone through the custom home building process with other contractors that a 10% to 15% budget overrun is the norm; I say this is simply preposterous. While it is quite common for custom home building clients to add things and make changes to their new dream home during the building process, at Mark Lally Construction and Design, there is NO charge for change orders other that the actual cost of the said change order (materials upgrades, add a door or fireplace, etc.) there is no administration fee, no profit margin, no hidden fees and no grief what-so-ever.