Construction Insurance for Building a Modular Home

Why You Need Construction Insurance

Here’s a risky way to save money building a modular home.  Select a modular dealer and contractors who are not properly insured.

Imagine that a neighbor’s child is seriously hurt when he falls into your cellar hole before your modules are set on the foundation. Imagine that one of the trucks delivering your modules strikes your neighbor’s car causing serious damage.  What if the crane company drops one of your modules rendering it unusable? What if a member of the set crew is seriously injured or killed when he falls from your roof?  Or what if the plumber fails to securely connect a pipe, which causes severe water damage before the leak is discovered?

Accidents and mistakes can happen when building a home, regardless of the type of construction. Since the right insurance can mitigate the damages, you need to ensure you’re thoroughly covered.

Require Everyone to Obtain Construction Insurance

This is best done by requiring everyone involved in building your home to have insurance. (Here’s a previous blog that elaborates on the insurance you need.) Making this a requirement won’t prevent disagreements about who is responsible for coverage, but it will increase the likelihood that one or more of the insurers will take on this responsibility, which is a lot better than you being saddled with the liability.

Don't forget to obtain proof from everyone working on your modular home that they have proper construction insurance.
Don’t forget to obtain proof from everyone working on your modular home that they have proper construction insurance.

Verify Construction Insurance Coverage

Making insurance a requirement, however, isn’t enough. You need to verify that each party has a current policy with sufficient coverage. To do this you need to insist on receiving a “certificate of insurance” directly from each party’s insurance agent. Getting a copy of the certificate directly from the insurance agent will protect you against being duped by a dealer or contractor whose policy has run out, since it is not difficult for someone to doctor a photocopy of an expired certificate.  You might be surprised how often this happens, mostly because builder insurance is expensive. There will be no sympathy from the insurance company, however, if you file a claim against a policy that was not renewed. After receiving the certificates, you should ask your own agent to review the coverage. They should be able to determine if the coverage includes sufficient liability insurance and workers compensation insurance.

Secure Your Own Construction Insurance

Since you need to have coverage from everyone working directly on your project, you also need to follow the same procedure with any subcontractors you directly hire. In addition, you should obtain either a “builder’s risk” policy or its equivalent for yourself, since this will provide better coverage against theft and vandalism than an ordinary homeowner’s policy.

For more information about modular home construction insurance during its construction, see  Selecting a Modular Home Dealer, Selecting a General Contractor, and Financing a Modular Home in my book The Modular Home.

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Exclude Oral Representations

Oral Representations Often Lead to Disagreements

Now that Daylight Saving Time has arrived and spring is two weeks away, many customers are ready to start building their home.  Other customers are getting ready to select their modular builder.  With interest rates predicted to rise by June and housing starts to increase to their highest level in several years, getting started soon is a wise move.  Here is some advice about ensuring that your modular home contract includes what you expect.

Experienced modular builders have lots of stories to tell about the types of problems that cause disagreements with their homebuyers.  One type of problem involves misunderstandings about items that were never discussed or documented because one party just assumed what the other party intended.  Another type of problem involves misunderstandings about things that were discussed but not included in the builder’s contract.  It might surprise you that more frustration, anger, and stress are generated by issues that were actually discussed – but not documented in writing – than by those that were not discussed.

These situations typically involve complaints by the homebuyers such as, “I told you I wanted raised panel maple kitchen cabinets and not picture frame maple cabinets.”  The builder might come back with, “Don’t you remember, we did talk about your preference for raised panel maple cabinets, but the additional cost put you over your budget.”  The problem is that the modular builder and homebuyers had talked about this on two occasions, going back and forth about which would be included, but the final contract just said “maple kitchen cabinets” and now both parties remember the discussion differently.

Your contract with a modular home builder should exclude oral representations and instead require that all details be documented in writing.
Your contract with a modular home builder should exclude oral representations and instead require that all details be documented in writing.

The Cost of Relying on Oral Representations

The cost difference between the picture frame and raised panel maple cabinets would be substantial enough on its own.  But usually this misunderstanding doesn’t get discovered until the cabinets are already purchased and at least partially installed.  It will cost either the homebuyer or builder (or both) a bit of money to make the change.  The alternative is no better.  If the homebuyers accept the picture frame cabinets, they will likely be unhappy with their modular builder and forever disappointed in their kitchen.  The relationship between the two parties will now be fractured by distrust, which will make it more likely that small disagreements will become antagonistic.

Agree to Make Oral Representations Null and Void

The last thing you want to do is to rely on your modular builder’s or your own memory of what you’re getting.  That’s why it is better for modular builders to include a clause in their contract that states that “It is mutually agreed that any oral representation made by either party prior to the signing of this agreement is null and void.”  This clause serves to limit and place boundaries around the scope of either party’s representations and warranties.   Even if an item is discussed and agreed to verbally, it has no legal validity unless it’s documented in the contract.

Replace Oral Representations with Detailed Written Representations

My suggestion is that you share responsibility with your modular builder for documenting all the details by taking notes during your meetings.  You should be concerned if your builder is not also taking notes.  If you then compare your notes with the builder’s contract, you are more likely to avoid contentious and costly disagreements.

For more information about oral representations in your contract with your modular home builder, see Selecting a Modular Home Dealer and Selecting a General Contractor in in my book The Modular Home.

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Modular Home Contract

Six Clauses in Your Modular Home Contract

Three years ago I outlined what should be included in your Modular Home Contract.  I recommend that you take a look at that post before you read today’s entry.

Here are six clauses you may see in your modular home contract.  Their purpose is to document standard construction industry practices that you, as the Homeowner, might not know.  When put in writing, they help eliminate potential areas of disagreement between you and your modular builder.

Modular Home Contract:  Changes, Deviations, or Omissions

This clause states that you agree to accept the minor deviations that sometimes incur in construction as long as the work is substantially the same as described in the contract and within accepted industry tolerance.  Many builders don’t include this clause because the types of changes covered are usually so minor that you are unlikely to notice them.  The reason this clause is sometimes included is that a few homebuyers have been known to get very upset when there is a change of ¼” in the size of a bedroom.

The builder may also include a similar clause that refers specifically to materials and products.  Building code requirements, product availability, and design improvements may compel the builder to substitute material similar in pattern, design and quality to that listed in the plans and specifications.  When possible, the builder should consult the customer when this occurs.

Have an attorney review the legalese of your modular home contract.
Have an attorney review the legalese of your modular home contract.

Modular Home Contract:  Access to Your Property

As the Homeowner, you will at all times have access to your property and the right to inspect the work.  However, if you enter the property or invite others to enter the property during the course of construction, you all do so at your own risk.

Although your access to the property is ensured, this clause points out that you cannot interfere with the work or the modular builder, his employees, or trade contractors.  In addition, you will need to communicate directly with the supervisor assigned to your project rather than other employees or contractors on the site.

Modular Home Contract:  Work Performed by the Homeowners and Their Trade Contractors

This clause speaks to your responsibilities when you perform some of the work or directly hire contractors other than your builder to complete some of the work.  In that case, you are responsible for ensuring that you and your contractors have liability and workers compensation insurance.  You will also be responsible for coordinating this work to avoid disrupting or interfering with the work being done by the builder’s team.  Needless to say, you are responsible for the quality of this work as well as whether it complies with the building code.  In addition, you will need to take care of any warranty work.

Modular Home Contract:  Unused Materials

Builders often have unused materials after they complete their work.  Sometimes this is intended, since it’s easier to return the excess than to leave the job in the middle of the work to fetch what’s missing.  Keep in mind that you have only paid for the materials your builder has used.  This clause states that the builder owns these unused materials.  However, most builders will leave you some extra siding, shingles, paint, as well as some other materials, if they have them.

Modular Home Contract:  Signage and Marketing

Most modular builders will want permission to display a sign on your site until their work is completed.  They will also want permission to invite their prospective customers to walk through your home while it is under construction.  This clause will allow the builder to do these things, but it should also state that prospective customers visit at their own risk.

Modular Home Contract:  Building Code Compliance

Your modular dealer is responsible for ordering the home so that it complies with the state building code current at the time your agreement is written.  Modular manufacturers are required to build their homes in compliance with the code in effect at the time they build your home.  This clause states that when changes happen to the state code, you are responsible for the additional material, labor, services, and other expenses required to comply with the changes.  It also states that you are responsible for the costs associated with complying with local building codes when these codes exceed the state code.

For more information about modular home contracts, see Selecting a Modular Home Dealer and Selecting a General Contractor in my book The Modular Home.

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Modular Home Checklists

There are many things to learn the first time you build a modular home.  But if you’re like most homebuyers, you won’t get the full benefit of what you learn, since you’ll likely only build one home.

But you can benefit from what I’ve learned over twenty-eight years building more than 1,200 homes.  To start with you can read my book, The Modular Home, which gathers all this information in one place.

Use these modular home checklists to guide you through the process of building a modular home.
Use these modular home checklists to guide you through the process of building a modular home.

Take Advantage of My Experience by Using My Modular Home Checklists

Of course, it’s hard to use a book efficiently the first time you use the information.  That’s why I’ve created several checklists that cover the most important steps.  Below is a link to each of the checklists.  There’s also a link to this list on the home page of The Home Store’s website.  I hope you find these modular home checklists helpful.

  1. Ensure You Are Ready Willing and Able to Build a Modular Home
  2. Selecting a Modular Home Dealer
  3. Your Modular Home Dealer Customer References
  4. Selecting a Modular Home General Contractor
  5. Your Modular Home General Contractor References
  6. What to Include in Your Modular Home Legalese
  7. Selecting the Right Modular Home Plan
  8. What You Should Ask Modular Home General Contractors
  9. Reviewing Your Modular Home Floor Plans
  10. Reviewing Your Modular Home Elevation Plans
  11. Modular Additions
  12. Building a Universal Design Modular Home
  13. What Your Modular Manufacturer Needs from Your Contractor
  14. How to Air Seal a Modular Home
  15. Making an Offer To Purchase for a Building Lot
  16. Your Municipal Water and Sewer Connections
  17. Reviewing Your Modular Construction Drawings
  18. Potential Permits and Supporting Documents
  19. Your Modular Dealer and Financing Tasks
  20. Your Permit and General Contracting Tasks
  21. Omitting Materials from the Modular Manufacturer

For more information about all the topics covered in the checklists, see my book The Modular Home.

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Modular Home Insurance During Construction

Modular Home Insurance                                               

When building a modular home you need insurance coverage for five parts of the project:

  • The delivery of the modules
  • The set of the modules on your foundation
  • The work done to your land before and after the modular delivery (tree clearing, excavation, foundation, etc.)
  • The work done to complete the “button-up”  of your modules after the set
  • The completed home after you receive a certificate of occupancy from the building department

Most of this coverage should come from the companies that are completing each step.  The delivery and set  of the modules, including the crane, should be insured by the modular manufacturer and/or modular dealer.  To ensure your modular home insurance is in place, you need to ask each modular dealer you are considering to have their insurance company mail you an insurance binder.  It is best to receive it directly from the insurance company, since it is fairly easy to fake the forms. Make sure the coverage includes sufficient liability insurance and workers’ compensation; ask your insurance agent for the recommended amounts. This will limit your potential liability if the dealer or one of his subcontractors is not fully insured and something goes wrong during the set, such as an accident causing a serious personal injury or significant property damage to your home.

You need to follow the same procedure with your general contractor (GC) and any subcontractors you directly hire to complete the work to your property and the button-up of the modules. Secure a certificate of insurance from each of your contractor candidates before making your final selection.  Ask your own agent to review the coverage.

You should also insist that your contracts with your modular dealer and contractors state what modular home insurance coverage each of you is obligated to provide. You should accept responsibility for obtaining a builder’s risk policy or its equivalent. The contractors should accept responsibility for providing general liability insurance and, if they have employees, workers’ compensation.

Modular Home Insurance with a Builder’s Risk Policy

The advantage of a builder’s risk policy over a typical homeowner’s policy for your own modular home insurance is that it automatically provides coverage for theft of building materials and supplies as well as vandalism. You should direct your insurance agent to provide this additional coverage even if you opt for a homeowner’s policy. Since your personal circumstances may differ and your agent may offer other alternatives, consult with your agent.

Modular Home Insurance and Lender Financing

If you are paying for the modules with funds from a lender, which means you are paying by the assignment-of-funds method, your lender will require you to have your modular home insurance in place when you close on the loan. If you are financing your home with your own funds, have coverage in place before your GC begins any work.

If your lender is paying for the modules after the set, the dealer’s insurance should be responsible while the modules are parked on your property before the set, since you will not yet own them. If the dealer does not provide coverage, you should direct your insurance agent to provide it. If you are using private funds to pay for the modules upon delivery, your insurance should provide coverage when the modules are parked on your property, since you will already own the units. You should verify this. Your insurance is less likely to provide coverage when the modules are stored away from your property in a staging area. If you cannot obtain coverage for your situation, ask the dealer for help.

Instruct your insurance company to mail or fax your modular dealer a certificate of your modular home insurance a few weeks before the scheduled delivery. This proves that you have the necessary coverage. The effective date should be set at least 48 hours before the scheduled delivery date and remain in place for at least a week. The certificate should state, “[Dealer’s company name] is loss payee as interest may arise.” The certificate protects the dealer and manufacturer should your modules suffer damage after they are set on the foundation but before your lender pays the dealer. This might happen, for example, if lightning were to strike the modules the first night of a two-day set. Should this unlikely event occur, the certificate ensures that your insurance company would compensate the dealer so he can pay the manufacturer. Once the dealer is paid for the house, he no longer has any insurable interest, so your insurance coverage reverts to you and your lender. The manufacturer’s insurance should cover the modules while they are being delivered to the site. The dealer’s and crane company’s insurance should cover the modules while they are being lifted onto the foundation.

Modular Home Insurance for Personal Property During Under Construction

Do not move any of your belongings into your home before your GC finishes his work without his permission. If the GC agrees, he will ask you to use those rooms he has finished. If you intend to store your things in the basement, he must have already completed all of his work there. Since you are responsible for theft or damage, ask your insurance agent about your coverage.

Modular Home Insurance Costs Less

Modular home insurance during construction will save money compared to insuring a site-built home due to the shorter construction time. The shorter construction period also lessens your exposure to the typical risks that attend construction sites, such as vandalism and the pilferage of construction materials. Vandalism is further curtailed because the modules can be secured more rapidly than a site-built home. The ability to quickly secure the modules also makes it more difficult for someone to steal construction materials. Pilferage is further reduced because of the size of the modules; you cannot walk off with a module in the way you can carry away a few boards of lumber. Completing the home more quickly also reduces your biggest financial risk, that of a personal injury to a contractor working on the job or a neighborhood child playing around the home after hours.

For more information about modular home insurance during its construction, see  Selecting a Modular Home Dealer, Selecting a General Contractor, and Financing a Modular Home in my book The Modular Home.

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Homeowner Warranty Service Obligations for a Modular Home

Homeowners have a few warranty service obligations of their own that must be taken seriously, especially those relating to normal maintenance and care. A good overview of the homeowner’s responsibilities can be found in a booklet by the National Association of Home Builders titled, “Home Maintenance Made Easy.”

Homeowner Warranty Service Obligations – Notify Responsible Party

One responsibility often ignored by homeowners is the obligation to contact the appropriate party in a timely fashion when a warranty service situation is discovered. Even a simple warranty issue can become serious and require an expensive fix when you delay reporting it. For example, if your front door leaks a little water every time it rains because the threshold needs to be adjusted, the finished flooring and framing can quickly become damaged.

Homeowner Warranty Service Obligations – Maintenance and Care

Modular homes are strong, but they are not indestructible. Expect your home to show signs of normal wear and tear over time, and accept responsibility for fixing the inevitable results.

You will want to restore your home to as-new-as-possible condition after the first heating season, since most of the settling and drying of wood will have occurred by that point. In a typical home, completing this tune-up usually takes a day or two by someone who has carpentry, drywall, and painting skills. Some of these normal changes will reappear in subsequent years, but they should be less noticeable and easier to repair.

If your modular dealer was also your GC, it is reasonable to expect him to correct these problems before your warranty expires. It is less clear, however, who should make these corrections when the dealer and GC are separate companies. Some of the drywall and moldings will have been installed by the manufacturer, and some by the GC. You could insist that each correct what they built, but this assumes that all changes in a particular area of your home are due to the company that completed the work in the area, which is not always the case. If your home has excessive drywall cracks in a few different areas, for example, they could have been caused by the way the manufacturer built your home or by the way the GC leveled the sill plate. If there is a lot of shrinkage of the wood moldings and floors installed by the manufacturer, it could have been due to the materials used by the manufacturer or to excess moisture that entered the home during the button-up. The best course in this situation is to contract with your GC to complete all of the tune-up, regardless of who built the different parts of your home.

Your GC may balk at taking on this responsibility. Since he did not build the modules, he might fear that he is exposing himself to too big a risk. In addition, if he has no prior modular experience, he may feel unable to predict the amount of time required for the tune-up. A fair way to handle this is to agree to pay him for his actual time and materials. An alternative would be to take on the work yourself, if you have the skills.

When completing the tune-up, the GC should retape any cracks in the drywall or the tape covering the drywall. He might be tempted to cover them with compound or caulk to save time and money, but the cracks will reappear if he does. On the other hand, fine cracks in the mud covering the drywall tape can be filled with a high-quality, paintable caulk. Small, open miter joints or other small gaps between pieces of wood can be filled with wood filler or caulk; larger gaps should be corrected by removing and reinstalling the wood. Popped drywall fasteners should be driven further into the framing, when possible. Otherwise, additional fasteners should be used. A small gap between a wall and a kitchen or bath countertop should be filled with caulk.

After these corrections are completed, the reworked areas can be touched-up, ideally with paint or stain left over from the original button-up. If the GC has to buy new paint or stain, he may not be able to obtain an exact color match with the previous application.

Although you do not need to, you might want to wait until your home has finished settling and drying out before  painting the walls and ceilings with custom colors. If you do not wait, you should save some matching paint to complete the tune-up. However, you may still need to paint an entire wall or ceiling in a room when you do the tune-up to avoid shadows caused by slight variations in color.

You might also want to wait until your home has finished settling and drying out before wallpapering or stenciling. Regardless of when you apply it, you will be responsible for repairing any damage to the wallpaper due to settling or drying.

For more information about modular home warranty service, see Warranty Service for a Modular Home in my book The Modular Home.

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Modular Home Warranty Service Disagreements

In my last blog I discussed warranty service expectations, inspections, and procedures.  In this blog I will discuss what happens if you disagree with your dealer or GC about whether something in your home is defective, damaged, or poorly installed.

Building Codes and Warranty Service

When a warranty service problem involves a building-code violation, the burden will usually be on the manufacturer, dealer, or GC to correct the problem. Installing the wrong type of smoke detector is something the dealer, through his manufacturer, must correct. Using undersized framing for your site-built garage or deck is the kind of mistake the GC must correct. The dealer is not, however, automatically responsible for meeting specifications that exceed the state building code. For example, if your local building inspector insists that an air-infiltration barrier must be installed under your siding, but this is not the required by the state building code, your dealer would be accountable only if he had accepted responsibility for verifying whether any special codes were being enforced in your community. If you agreed to assume this responsibility but failed to obtain the correct information, than you would be responsible for the additional material and labor, including, in this case, the cost for removing and reinstalling whatever siding was already installed by the manufacturer.

Contractor Scope of Work and Warranty Service

The GC is not responsible when the scope of work for a task was not included in his original contract with you. For example, the fact that you need a set of stairs from the door to the backyard does not obligate the GC to provide them if you excluded them so you could build a deck in the future. Nor is the GC responsible for providing clean backfill to place around the foundation if the building inspector declares that the soil that was removed from the cellar hole cannot be used as backfill. If the GC uses the fill before the building inspector instructs him not to, the GC will be responsible for removing it, since he is obligated to know the building code. You will still be responsible, however, for paying for the replacement fill as well as for removing the rejected fill, if it needs to be taken from your site, since you needed this to be done regardless of the GC’s mistake.

Quality Guidelines for Warranty Service

Cosmetic issues are often sources of warranty service disagreements. A customer should receive the degree of finish they selected and paid for, but this is often different from what they may have seen in a model home. One way to handle disputes of this kind is to have your contract include a set of quality guidelines for materials and workmanship that can be used to help settle differences. Keep in mind, however, that guidelines and standards spell out the minimum acceptable workmanship and product performance. Your personal standards will likely exceed these standards in some areas.

Warranty Service and What Is “Good Enough”?

One perspective taken by guidelines for materials and workmanship is that it is neither realistic nor fair to expect a modular dealer or general contractor to remove blemishes that are not readily visible or noticeable, and can only be seen in unusual light or from very close range. Finished drywall, especially, will almost always show minor blemishes in the right light and from the right angle. For a customer to insist that such small items be addressed under warranty is to create a potentially antagonistic relationship. The customer wants their dealer and GC to take seriously those things that are most important to them. They do not want to create an atmosphere in which the dealer or GC feels compelled to deny assistance by appealing to some technicality in a set of guidelines that relieves them of responsibility. In other words, if the customer can exercise some flexibility over defining what’s “good enough,” they should expect the dealer and GC to adopt a similar attitude. You could ask your dealer to replace a pine bifold closet door with a small dent on the inside, which can only be seen when the closet is open. If you do so, however, do not be surprised if he tries to hide behind a technicality for some other item that’s important to you.

For more information about modular home warranty service, see Warranty Service for a Modular Home in my book The Modular Home.

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Modular Home Warranty Service

Modular Home Warranty Service Expectations                                           

When you buy a modular home, you expect it to arrive without mistakes, defects, or damaged materials. If you discover any, you expect the manufacturer to repair or replace them. You also expect the manufacturer to provide this warranty service at no cost to you. Manufacturers usually understand these expectations, but they have a few of their own. They will accept responsibility for problems found when your home arrives, but they expect your dealer, as well as you and your general contractor (GC), to accept responsibility for any damages incurred after that. This seems fair, and in principle it is. When you purchase your home from a dealer who completes the GC work, your warranty service expectations are likely to be met. When the dealer and GC are separate companies, however, the situation can trigger contention and distrust.

Modular Home Manufacturer’s Quality Inspections

A modular home is typically built with most of its interior complete. Walls, cabinets, tubs, doors, moldings, and electrical outlets are almost always installed at the factory. All of these products can be damaged accidentally, and this can happen as easily at the factory as at your site. Your home will be thoroughly inspected before it leaves the factory. The manufacturer will try to repair or replace any defective or damaged goods before shipping the home. When that is not possible without causing a delay, the manufacturer will document the problem, make plans to fix it at your site, and inform the dealer so that you are not surprised. Either way, the inspection enables the manufacturer to document any warranty problems with your home.The inspection, however, does not preclude disagreements between the manufacturer, dealer, and GC. If you discover any damage to your home after it is delivered and set, it could have been caused by the manufacturer even though it is not listed on the inspection report. But it could also have been caused by someone on your site.

The manufacturer could have missed an item, or an employee could have caused the damage and failed to report it. The same damage, however, could have been caused by one of the GC’s subcontractors, who may or may not have been aware of it. You or a friend could have unknowingly caused the damage.

Modular Home Warranty Service Procedures

A warranty service inspection checklist
The modular home dealer and general contractor will complete a warranty service inspection with the customer after the set.

Under the circumstances, it is not surprising that there are occasional disagreements over who is responsible for damages. The modular industry has developed a procedure for handling these warranty service situations. Modular manufacturers attempt to minimize these misunderstandings by requiring their dealers to identify and report in writing any warranty service issues right after the set. You can expect your dealer to insist that you complete a warranty service inspection, and sign the resulting written report. If the GC is separate from your dealer, ask him to sign the warranty service report along with you. You should receive a copy of the warranty service report that is also signed by the dealer.

The exact time allowed for the inspection varies from manufacturer to manufacturer, with some giving the dealer 24 hours after the set and others allowing him a few days for some items and a few weeks for others. Items that are easily damaged on site, such as installed vinyl floors and carpeting, are less likely to be covered beyond a few days unless there are extenuating circumstances. This warranty service procedure allows the manufacturer to limit its responsibility to preexisting conditions. Consequently, if you find a damaged item after the reporting period expires, the manufacturer will assume that the damage was caused by someone on your site, and will not accept responsibility for correcting it.

Since the set-day activities can cause accidental damage to a home, some manufacturers require the dealer to complete the warranty service inspection as soon as the modules are delivered. This is common with manufacturers who ask their dealers to select an independent set crew. Since the dealer selects the crew, the manufacturer wants the dealer to assume responsibility for any set-day damages. The manufacturer secures this accountability by having the dealer complete its warranty service inspection before the set. While this may seem reasonable, a delivery day inspection is unfair to the dealer and the customer. It is impractical to complete an accurate inspection on delivery day, given the poor lighting available in each plastic-wrapped module. It is also difficult to inspect a module when it is stuffed with ship-loose materials. Waiting until after the modules are set allows for a more accurate inspection. If at all possible, resist a delivery-day inspection.

In my next blog I will discuss disagreements about warranty service coverage.

For more information about modular home warranty service, see Warranty Service for a Modular Home in my book The Modular Home.

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Seeing the Exterior Elevation You’re Getting

Getting the Exterior Elevation You Want            

Last week I pointed out that the marketing literature for most house plans displays a dressed-up exterior elevation. This is significant because the ornate features shown are not usually included in the standard base price for the plans. Many a customer has assumed they were getting everything they saw in the literature drawing, only to find out when the house was built that they were getting a simpler, less adorned version.

I suggested last week that there are two ways to make sure you are getting what you want.  The first is to look closely at the specifications listed in the modular builder’s estimate, and the second is to have the builder provide you with a drawing of the exterior elevation showing exactly what you’re getting.

Three Levels of Exterior Elevation

There are three levels of detail that must be included if you are to get an exact drawing of what your finished home will look like:  the manufacturer must draw what you are ordering, not a generic drawing; the dealer or general contractor must add the site-built structures; and someone must map both of these onto the slopes and contours of your property.   I’ll discuss the first two requirements today and the third in my next post.

The marketing literature for this T-Ranch plan shows the following options: a 12/12 cape roof, one A-Dormer with a hip roof, a reverse gable, gable returns, vinyl clapboard and scalloped siding, cultured stone siding, a front porch, an upgrade front door, and window moldings around the attic window.
The marketing literature for this T-Ranch plan shows the following options: a 12/12 cape roof, one A-Dormer with a hip roof, a reverse gable, gable returns, vinyl clapboard and scalloped siding, cultured stone siding, a front porch, an upgrade front door, and window moldings around the attic window. Your modular dealer and general contractor needs to include whichever options you select in their exterior elevation drawings, since these show what you will get.

Exterior Elevation of the Modules

All modular manufacturers will provide an elevation plan of your home, but not all of them will draw the exact home you are building. They may instead give you a generic plan showing the home without any of the custom touches you’ve added. For example, they may not show the additional windows and sidelights at the front door you selected, and they may leave out the reverse gable you specified for the roof above your front door.

You should not settle for a generic elevation. Ask your modular dealer to provide you with an elevation plan of what you have ordered from the manufacturer before you authorize him to build it. If his manufacturer will not provide the plan and he is unable to create it himself, ask him to have it drawn by someone else. Even if you have to pay extra for an accurate plan, you need to see it. Little things like the spacing of the windows can matter a lot, especially when you have taken a standard plan and lengthen the plan, added windows, or simply moved some windows within a room to accommodate furniture. In addition, if you are dressing up a plan’s no-frills standard look, you will want to see if your vision holds up to your own scrutiny.

Exterior Elevation of Site Built Structures

Asking the dealer to provide plan-specific elevation drawings will not be sufficient when you are having additional structures such as a garage, deck, or porch built on site. Unless your elevation plans include all site-built structures, you will not be able to review what your home will look like.

However, you might not get the needed assistance from your dealer if he is not serving as your GC. Your dealer may feel that since he is not completing the GC work, he does not know what the GC is planning to do. He may point out that the regulations governing modular construction in your state do not allow the manufacturer to include any of these site-built structures in its permit plans. He may correctly insist that state and local officials only allow the manufacturer to draw what it is building. While this is true, some dealers and manufacturers will help you by creating a separate set of plans that show the GC’s work. Before completing the drawings, they will ask you and your GC to provide the details, insist that you take responsibility for their accuracy, and charge you an additional fee for the assistance. You should make this investment.

Exterior Elevation of Modules and Site Built Structures

An alternative to having the dealer complete the elevation plans is to ask your GC to complete his own set of plans. The advantage to this approach is that he will know exactly what he is building. The disadvantage is that you will now have two sets of incomplete plans, one of your modular home and one of your GC-built structures. The only way they will appear on the same page is if the GC recreates the modular plans or another person integrates the details into a third set of plans, an impractical and wasteful step. This is why it is better to pay the dealer to provide a complete set of plans.

Remember, you need your modular dealer and general contractor to include whichever options you select in their exterior elevation drawings, since these, not their marketing literature, show what you will get.

For more information about how to an accurate exterior elevation of how your home will look when finished, see Designing a Modular Home, Modular Home Specifications and Features, and The General Contractor’s Responsibilities for Building a Modular Home

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Modular Home Set Responsibility

Responsibility for hiring the modular home set crew and crane should always be left to the modular dealer or manufacturer. A customer should refuse to hire the modular home set crew and crane, even if a dealer promises it will save substantial money.

A trained modular home set crew is working with an experienced crane operator to set the 4 modules on this two-story modular home.
A trained modular home set crew is working with an experienced crane operator to set the 4 modules on this two-story modular home.

Why You Should Never Hire the Modular Home Set Crew or Crane

The set procedures require a great deal of specialized knowledge, skill, and teamwork that a modular set crew acquires only through training, supervision, and experience.

Because of the size and cost of the modular units, as well as the risks associated with the modular home set procedure, whoever sets a home has substantial liability.

If a modular home set is done poorly, the general contractor’s job will be made substantially more difficult and the quality of the finished home may suffer as a result.

If someone on the modular home set crew is injured, the person or company that hired the crew could be held liable.

Why Would a Dealer Want You to Hire the Modular Home Set Crew and Crane

The goal of a dealer who asks the customer to hire the crane and the modular home set crew is to hold the customer responsible for any problems with how the house goes together. Since he neither built nor set the home, the dealer can disclaim responsibility for any problems. It is best to avoid dealers who operate this way.

For more information about hiring a modular home set crew, see Selecting a Modular Home Dealer and The General Contractor’s Responsibilities for Building a Modular Home in my book The Modular Home

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Comparing Modular General Contractors

When making an “apples-to-apples” comparison of the proposals from modular general contractors, look closely at four things.

Modular General Contractors: Scope of Work

Make sure the modular general contractors’ proposals list all tasks required to complete your home. If one proposal has a substantially lower price, it probably does not include all the tasks. If you sign a contract that doesn’t include every task, the modular GC will come back to you for more money after he begins construction of your home.
All of the site and foundation tasks shown here - as well as many more - need to be completed by a modular general contractor.
All of the site and foundation tasks shown here - as well as many more - need to be completed by a modular general contractor.

Modular General Contractors: Building Specifications

Look closely at how the modular general contractors’ estimates propose to complete each task. A modular GC can offer a much lower price by selecting less expensive building specifications or by not listing any specifications at all for some tasks. If you sign a contract that doesn’t list the construction specifications for every task, the modular general contractor has the right to select whatever materials he wants when it comes time to build your home.

Modular General Contractors: Exclusions

Ask all of the modular general contractors to document in writing which tasks are not included in their proposal. The most complete estimates include these “exclusions” so you aren’t left guessing what you could be responsible for. (If you were an expert in new home construction, you might not need this list because you would know everything you need.)  For example, it is fine if building permit fees and landscaping are not included, but each proposal should tell you this.
All of the modular button-up tasks shown here - as well as many more - need to be completed by a modular general contractor.
All of the modular button-up tasks shown here - as well as many more - need to be completed by a modular general contractor.

Modular General Contractors: Allowances

Make sure all modular general contractors only use “allowances” when they cannot know the cost of a particular task. An example is the cost for drilling a well, since the GCs can’t know in advance how deep they will need to drill. Many modular general contractors prefer allowances – especially for things like excavation and flooring – for two reasons. With allowances, they don’t have to spend as much time preparing their proposal, since they don’t need to know the price. More importantly, allowances protect the modular GCs’ profits, since they make you responsible for all additional costs. If there are too many allowances, you are at risk for significant cost overruns.

Modular General Contractors: How Compare Proposals

In my experience, most customers have a difficult time sorting through modular general contractors’ proposals. This is not surprising, since there are hundreds and hundreds of details involved in building a home. Comparing proposals is made even more difficult by the fact that each estimate is likely to define the scope of work differently and provide very different levels of detail. But there’s no reason for you to make this comparison on your own. First, make a list of the differences between modular general contractors.  Then ask each of them to explain what’s in their proposal.  This will give you a much better idea of how the proposals compare. You may be surprised at how much is missing from each competitor’s proposal, but it is better to be surprised now than later. If it turns out that one or more of the proposals need to be improved, ask those modular general contractors to make the changes. For more information about how to compare modular general contractors, see Selecting a Modular Home Dealer, Selecting a General Contractor, and The General Contractor’s Responsibilities for Building a Modular Home in my book The Modular Home.
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Your Modular Dealer’s Communications

Miscommunications and Misunderstandings with Your Modular Dealer

Miscommunication, and the misunderstandings they cause, is common in construction projects. It may be asking too much to suggest that the problem can be avoided entirely, but there are steps that customers can take to keep it to a minimum.

First and foremost, a customer should have their modular dealer and general contractor put everything in writing. “Everything” refers to much more than an order form and a contract. Many small details get discussed at sales meetings that do not always find their way into these formal documents. Read a contract and you will likely find that it excludes “oral representations,” which is another way of saying that if a detail was discussed and even agreed to verbally, but did not find its way into some form of written documentation, it has no legal validity.

Your Modular Dealer’s Responsibility for Documenting All Details in Writing

The modular dealer is responsible, with assistance from you, for clearly documenting all details in writing. This is the only fair way to commit both you and the modular dealer to a definite set of specifications and prices.
The modular dealer is responsible, with assistance from you, for clearly documenting all details in writing. This is the only fair way to commit both you and the modular dealer to a definite set of specifications and prices.

One way you can learn a lot about a modular dealer’s facility with details is to observe how he documents your conversations with him. Consistent and clear documentation is critical because every meeting between a modular dealer and a customer will generate a lot of discussion about a home’s floor plan, exterior appearance, building specifications, features, and colors. Meetings also will include discussions about the building site, scheduling, banking, and budget. The only way customers can be sure of getting the house they want, on schedule and on budget, is if the modular dealer listens, understands, and documents all decisions, and then follows through on them. Sales meetings can be a bit chaotic, with discussions sidetracked and interrupted, and decisions agreed to and then discarded after reconsideration. Putting all decisions reached during each meeting into writing is the best way to ensure that they do not get lost in the shuffle.

Your Responsibility for Ensuring All Details are Documented in Writing

The modular dealer does not, and should not, bear all of the responsibility for maintaining this written record. The customer has an even greater interest in seeing that each and every detail relating to their new house comes to fruition. Customers can sometimes send mixed messages to a modular dealer, saying they want one option one day, and a different one the next day. A conscientious customer, therefore, is one who never has to say to a modular dealer, “But don’t you remember the conversation we had about . . . ?” If the conversation was important, put it in writing.

Your Modular Dealer’s Responsibility for Communicating Clearly

A modular dealer also has a professional obligation to communicate effectively. He should not resort to industry jargon without making sure you understand it, and he should explain the important details fully. If you find yourself with a modular dealer you cannot understand, even after you ask him to clarify, you should find another candidate. If you ignore this advice and buy a home from this modular dealer, you should be prepared to believe him when he says, “Don’t you remember I told you that?”

Your Modular Dealer’s Responsibility for Managing the Pace of Each Meeting

A modular dealer needs to do a couple of things if he is to protect both of you. Obviously he needs to write down everything of importance. But as the professional, he also has an obligation to you (and to himself) to ask you to slow down and, if necessary, pause a moment so he has the time to finish recording your last point. Many a modular dealer has made a mistake in design or specification because he didn’t want to be impolite to his customer by asking her to hold her thought. You would serve yourself well if you carried a pencil and pad of paper to jot down your questions and comments so you don’t lose your train of thought. A modular dealer would serve himself well if he offered you a pencil and paper and reminded you to do so.

For more information about your modular dealer’s communications, see Selecting a Modular Home Dealer and Selecting a General Contractor in my book The Modular Home.

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Modular Home Financing – Important Information

This is part three of a three part blog that explains what you need to know about your modular home financing. In my last post I explained the significance of the final modular home payment and option of paying either COD or by an assignment of funds agreement. In this post I add more details.

Modular Home Financing: Whose Name Should Be on the Check

Some lenders insist on making the final modular home payment in the name of the customer even though it’s owed to the dealer or manufacturer. Others allow the name of the modular dealer or manufacturer to accompany the customer’s name. When the modular home payment is in the customer’s name, either alone or along with the dealer’s or manufacturer’s name, the customer must endorse the check before the dealer or manufacturer can cash or deposit it. Modular home dealers and manufacturers almost never accept a check in the customer’s name alone for an assignment-of-funds payment, and only some dealers and manufacturers will accept a joint check. The reason is that when the customer’s name is on the check, the customer unilaterally gets to decide if and when the dealer and manufacturer are paid, which defeats the purpose of the assignment. Given that the modules will already be on the foundation when the check is handed over, the dealer and manufacturer do not want to allow the customer to have this much control. Accordingly, most modular dealers and manufacturers insist that the assignment-of-funds letter state that the check will be issued in their names only.

If your dealer insists on receiving the modular home payment only in their or their manufacturer’s name, bring this to the attention of lenders before applying for financing. The best way to ensure that a lender and dealer can work with each other’s policies is to ask the dealer to give you a sample of an acceptable assignment-of-funds letter before you select a lender. You can then ask each lender to approve the letter. If a lender asks for some modifications to the dealer’s letter or proposes their own letter, and the dealer is not agreeable, you will probably need to find a different lender or dealer.

There are a lot of modular home financing details to attend to with your lender. For example, who gets paid, when you pay, uncooperative lenders, disbursement schedules, personal funds, additional COD deposits, etc.
There are a lot of modular home financing details to attend to with your lender. For example, who gets paid, when you pay, disbursement schedules, personal funds, additional COD deposits, etc.

Modular Home Financing: What if Your Lender Won’t Make a COD Payment

If your modular home dealer and their manufacturer require a COD payment and you are unable to find a local lender to assist you, your dealer is likely to know which lenders will comply with this requirement. To avoid a misunderstanding, you and your dealer should ask the lender to write a letter committing to pay for the balance owed on delivery.

Modular Home Financing: Are You Vulnerable after You Pay for the Modules

You might wonder whether paying the modular dealer and manufacturer in full on delivery or immediately after the set compromises your leverage should you subsequently find something wrong with your home. You certainly do lose leverage. This is exactly why you should shop very carefully for a dealer and not just buy from whoever is the least expensive. Just as you should never buy a car from a dealer who has a reputation of not providing good warranty service, you should never buy a modular home from a dealer who you are not confident will honor their warranty obligations. Regardless of when you pay a dealer, your warranty is only as good as the dealer’s integrity and competence.

Modular Home Financing: Why the Disbursement Schedule Is Important

In addition to verifying that a lender will meet your dealer’s modular home payment terms, you also need to ensure that it will agree to an acceptable disbursement schedule. This schedule states how much money will be disbursed at each phase of the construction process. Most of the details are worked out by the customer and their GC, since the general contractor will require several separate disbursements, but the customer and dealer are responsible for ensuring that the schedule disburses the full amount at the correct time for the modules.

A lender may agree to an assignment-of-funds procedure but then offer a disbursement schedule that fails to allocate sufficient funds to pay the balance due on the modules. Since the dealer is unlikely to agree to a partial modular home payment, you need to inform prospective lenders about the dealer’s payment requirement before selecting one. If a lender’s schedule does not provide you with sufficient funds at the right time, and you call this to the loan officer’s attention before you sign the loan agreement, a lender will usually adjust the schedule to accommodate your needs. After you sign the paperwork, however, a lender will usually resist changing the schedule, which will likely force you to find a new lender.

Modular Home Financing: Why Using a Lender Takes More Time

Keep in mind that it will take longer to receive your home if you use a construction loan because the modular manufacturer will wait for the lender to write its assignment-of-funds letter before putting your home into the production schedule. And the lender will probably wait to write the letter until you have closed on the loan, which likely cannot happen until you have a building permit. As you approach the closing on your loan, do everything you can to prepare your lender to write the letter immediately after the closing.

A couple of weeks before the delivery and set of your modular home, ask the lender to schedule its representative to inspect and approve the modules and disburse the balance due. The inspection and modular home payment will be required by the lender whether the payment terms are COD or assignment of funds.

Modular Home Financing: Why You Might Need to Pay COD When Using Private Funds

When you use a private source of funds to pay for some part of the balance due on a modular home, the dealer and their modular manufacturer are likely to require you to pay for the modules when they are delivered. A COD modular home payment will need to be made with a bank or certified check made payable to the dealer or manufacturer, as instructed by the dealer. Needless to say, you will not be obligated to pay for the modules if the dealer and manufacturer built you the wrong home, a situation that is very unlikely if you select a reputable dealer.

Modular Home Financing: Why an Additional Deposit May Be Needed If You Are Using Private Funds

If you are paying COD, your dealer may require an additional deposit for each module before they will schedule your home to be built. These additional funds will serve as insurance for the dealer should you fail to pay when the modules are delivered. The dealer will use the additional deposit to defray the expenses they will incur if they have to return the modules to his manufacturer or sell them to another customer at a discount.

For more information about modular home financing, see Financing a Modular Home in my book The Modular Home.

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Modular Payment – COD vs. Assignment of Funds

This is part two of a three part blog that explains several things you need to know about your modular home payment.  Part two explains the difference between a COD modular payment and an “assignment of funds” modular payment.

Why Modular Home and Stick Home Payment Schedules Are So Different

When customers construct a stick-built home, they usually do not wait until their home is framed, insulated, drywalled, wired, plumbed, and finished with cabinetry, doors, moldings, and flooring before paying their builder. But that is likely what you will do when you build a modular home. Your dealer will probably obtain a 10-percent deposit from you, but not receive the balance until he has built and delivered your home. As you can imagine, the many thousands of dollars required to manufacture a home makes the final modular payment a very significant event for the dealer and his manufacturer, who must also wait until you pay your dealer.

Although most dealers and manufacturers require a 10-percent deposit before they will build your home, some dealers require a deposit of 25 percent or more for a true custom design, since it could be more difficult to sell than a standard plan should you not honor your contract. Many dealers also require an additional deposit when you are paying with private funds, as will be explained below.

A few modular dealers will give you priority scheduling or offer a small discount if you prepay for the home. But you will only want to take advantage of that if you are sure the company is financially sound. Normally, you would pay off the balance after the home is delivered to your site or set on the foundation.

Why the Final Modular Payment Is So Important to the Manufacturer

When a dealer and manufacturer build a home after having received only a small percentage of the purchase price, they are taking a risk. After all, the manufacturer must pay its vendors, factory production crew, and delivery crew. The dealer must in turn pay the manufacturer, whether or not you pay him, since he will have a contract with the manufacturer.

When a customer does not pay for a home, the dealer and manufacturer are compelled to sell it to someone else, usually at a substantial discount. That is why the dealer and his manufacturer will be very concerned about receiving their modular payment in full for the balance owed on a home as soon as possible after they build it. That is also why all manufacturers prefer to be paid cash on delivery (COD), and many insist on it. Most lenders, however, prefer to make the final modular payment after the home is set on the foundation.

Why the Manufacturer Prefers A COD Final Modular Payment

The manufacturer wants to be paid COD because once the modules are attached to the foundation they are legally no longer considered personal property, which is what they are when they are sitting on their carriers. If you do not pay the dealer after the modules are on the foundation, the manufacturer cannot remove them and take them back to the factory, something the laws for personal property allow with a car. The modules are now real estate, and that difference gives the homeowner a great deal of protection against creditors. The dealer and manufacturer would need to get a court order to remove the modules, and this could take months and many thousands of dollars.

Why the Lender Prefers an Assignment of Funds Final Modular Payment

When using a construction loan to make your modular payment, the lender will need to give the modular manufacturer an assignment of funds letter agreeing to pay for the modular home.
When using a construction loan to make your modular payment, the lender will need to give the modular manufacturer an assignment of funds letter agreeing to pay for the modular home.

Most lenders take an opposing point of view.  They do not want to disburse funds from a construction loan to pay for the modules until they have been set on the foundation. Their view is that they are lending money for real estate, not personal property resting on a carrier.  Many lenders, dealers, and manufacturers have reconciled their conflicting demands by relying on what is known as an “assignment of funds” procedure, in which an authorized official of the lender writes a letter to the dealer or manufacturer committing to pay one of them an agreed upon sum after the modules are set on the foundation and inspected by a representative of the lender. This protects the lender and its customer by making the modular payment contingent on an inspection that the home is correct and properly set. The dealer and manufacturer in turn get the security they need by receiving a written commitment from the lender to pay the dealer or the manufacturer once the inspection is complete. In effect, the dealer and manufacturer are relying on the lender’s obligation to make good on its assignment rather than the customer’s obligation to honor their contract. When done properly, the letter assigns sufficient funds from the customer’s construction loan, usually equal to the balance owed by the customer for the modules, to the dealer or manufacturer and promises to make the modular payment either by wire transfer or with a bank or certified check.

For more information about the difference between a COD modular payment and an “assignment of funds” modular payment, see Financing a Modular Home in my book The Modular Home.

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Modular Home Payment – The Construction Loan

This is part one of a three part blog that explains several things you need to know about your modular home payment.  Part one explains why you need a construction loan if you are using a lender to finance the construction.

Financing Construction of a Modular Home

To build a modular home you will need to pay the dealer for the modules and the general contractor for his services. If you do not own a building lot, you will need to purchase it as well. There are three typical sources of these funds. The first is private funds, such as personal savings, an equity loan on another property, the sale of personal assets, or a family loan. The second is a construction loan from a lending institution, usually a bank, credit union, or mortgage company. The third source is the modular dealer or modular general contractor.

Payment for an Existing Home

There is one very significant difference between paying for an existing home and paying to build a new home – whether it’s built with modules, logs, panels, or “sticks”. When you buy an existing home you pay the seller in full before you take possession of the home. If you use a loan to pay for the existing home, you secure the funds with a mortgage.

Payment for Building a New Home

When you build a home, you make periodic payments as work is completed. You cannot wait until the home is completely finished to pay the modular dealer and modular general contractor in full because they need funds to pay for materials and labor as the project progresses.

Modular Home Construction Loan

You need a construction loan when using a lender to finance construction of a modular home. This allows the lender to make payments as work is completed.
You need a construction loan when using a lender to finance construction of a modular home.

When you use a lender to build a home, they provide these series of payments as work is completed through a “construction loan”. This is a short-term loan usually of four- to twelve-months’ duration. Once the local building inspector issues a certificate of occupancy and the lender agrees that the home is essentially complete, the modular lender pays off the construction loan and issues you a mortgage. Note that the construction loan process protects you and your lender should something prevent the builder, in this case the modular dealer and modular general contractor, from completing the home. Receiving compensation as the job progresses also protects the modular dealer and GC should something prevent you from paying for the finished home.

Although you will still need to obtain a mortgage, you will not need to secure a construction loan if the modular dealer or modular general contractor finances the construction. They are more likely to do this if the modular dealer is completing the GC work, but especially if the dealer or GC own the land. Ownership of the land and responsibility for the construction tasks gives them greater control of the project and reduces their risk should you decide not to purchase the finished home. When you purchase a modular home that is funded in full by the dealer or GC, you are in a sense purchasing an already existing home. In fact, you will not take ownership of it until you pay them when they are done. That is why they are likely to require you to provide evidence that you have secured a mortgage or have the personal funds to pay for the finished home.

For more information about paying for a modular home with a construction loan, see Financing a Modular Home in my book The Modular Home. For a detailed schedule of when each of these tasks must be completed, see Building a Modular Home on Schedule also in my book.

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Preapproval for Modular Home Warranty Work

Sometimes a general contractor with limited modular experience can turn a “couple of hours” fix of some minor modular home warranty work into a “couple of days” project.

Obtain Preapproval for All Modular Home Warranty Work

A stamp approving the modular home warranty work
Always obtain preapproval for modular home warranty work from your dealer before attempting to fix a problem

I had a customer whose master-bedroom ceiling was not level at the marriage wall. My set-day supervisor should have noticed this and told the customer that we would come back to fix it. But he missed it, and my customer, who was acting as his own GC, decided to fix the problem on his own. He ended up tearing down half of the bedroom ceiling before he contacted us for help. The problem, we discovered, was that the ceiling framing on one of the modules was hung up slightly on the other module, preventing the first module from settling all the way down. All that needed to be done was to free up the first module, which we were able to do in two hours. When we finished, the ceiling framing was even, but my customer now had to replace a lot of drywall.

Independent GCs Must Obtain Preapproval for Modular Home Warranty Work from the Dealer

It is very important that your GC understands that they should always obtain preapproval for modular home warranty work from your dealer before they attempt to fix a problem. If they do not obtain proper authorization, both of you are at risk for not being compensated for the GC’s corrective actions.

For more information about why you need preapproval for modular home warranty work, see Warranty Service for a Modular Home in my book The Modular Home.

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Are You Ready Willing and Able to Build a Modular Home

It takes most customers awhile to shop for a new home. When they’re finally ready to build, the last thing they want is to be slowed down by some unanticipated steps. Unfortunately, that’s what usually happens. Most customers are surprised by these delays because they haven’t given enough thought to what they need to do be ready willing and able to build a modular home.

Are You Be Ready Willing and Able to Build a Modular Home on Schedule

Personal Situation

  • Start a new job
  • Get married
  • Welcome a new baby
  • Say goodbye to your oldest child
  • Receive an inheritance
  • Receive an insurance settlement
  • Close on the sale of your house or have no house to sell
A "sold" home sign indicating that the seller is almost ready willing and able to build a modular home
If you own an existing home, you will likely need to sell it before you are ready willing and able to build a modular home

Selections

  • Home style
  • Home specifications
  • Modular dealer
  • Scope of on-site contracting work
  • General contractor

Building Lot

  • Purchase or receive as gift
  • Survey
  • Subdivide

Town Approvals

  • Zoning board
  • Planning board
  • Wetlands
  • Septic design
  • Building Permit

Financing

  • Lender financing or a sufficient source of private funds
  • Acceptable debt
  • Acceptable credit
  • Cash to cover
    • Mortgage down payment
    • Bank and legal fees
    • Carrying costs during construction
    • Dealer deposit requirements
    • GC deposit requirements

Some of the steps might only add a day or two, but others can delay you months from being ready willing and able to build a modular home. The sooner you identify where you stand with each, the sooner you’ll be able to form a realistic schedule and begin working on overcoming any obstacles.

Don’t Wait Until You Are Ready Willing and Able to Build a Modular Home before Signing with the Dealer

One final word. Even if you’re facing delays, I recommend that you sign a contract with the dealer and contractor as soon as you’ve made your selection. Otherwise, you may unwittingly create even more delays. To protect yourself, make sure your contracts include the contingencies mentioned in my 12/7/11 blog, “What You Need from Your Dealer – Part 1, Legalese”.

For a more detailed answer to the question, are you ready willing and able to build a modular home, see Building a Modular Home on Schedule in my book The Modular Home.

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Modular Home Payment Terms

Modular manufacturers prefer to be paid cash on delivery (COD), and many only accept these modular home payment terms. But most modular home lenders prefer to make the final payment after the home is set on the foundation. The way most manufacturers and lenders reconciled their conflict is by using an “assignment-of-funds” procedure that legally commits the lender to paying for the home after the modules are set on the foundation.

What Can Happen If Your Lender Won’t Accept the Modular Home Payment Terms

When a customer selects a lender we haven’t worked with before, we contact it immediately after the home is ordered to ensure the lender’s modular home payment terms includes our assignment-of-funds procedure. It seems that every year one of our customers completes their application, gets approved for their loan, and is ready to close before we all realize that the lender will not follow the procedure. This is in spite of the fact that we send the lender and customer a copy of the assignment-of-funds letter soon after the customer orders their home. Even our follow-up phone call to the loan officer to review the procedure doesn’t prevent the problem. We’ve found that some loan officers say yes to our procedure without first running it by their manager. So we now ask the officer to discuss it with whoever is empowered to make the decision.

Lender and a couple discussing the modular home payment terms
Make sure you and your lender agree on the modular home payment terms

Sounds simple, right? Well, we once ran into a problem just before the closing when the lender’s manager was overridden by its attorney. Not even giving the lender the names of the many other lenders in the area that were comfortable with the procedure was enough to change its mind. My customers had to start over at another lender, which caused them to fall almost two months behind schedule.

Make Sure the Lender’s Attorney Accepts the Modular Home Payment Terms

Perhaps the lesson to learn from this is to make sure that the lender’s attorney is on board with the assignment-of-funds procedure. But another lesson is that no matter how vigilant you are, you still may be hit with a frustrating surprise. My best advice, if this happens to you, is to follow the example of my customers, who to their credit were able to hold onto their patience and good humor even though they lost six weeks applying with another lender.

For more information about modular home payment terms, see Financing a Modular Home in my book The Modular Home.

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Modular Home Drawings, Scope of Work, and Specifications

In my last post I said you need to receive four things from your dealer:  legalese, modular home drawings, scope of work, and specifications.

Modular Home Drawings

The modular dealer and factory are obligated to build your home to match their drawings. You are obligated to accept what they draw when you “sign-off” on their plans.  If your home matches the drawings but is not what you expected, neither the dealer nor the factory will be responsible for correcting the “mistake” at their expense. They also won’t be receptive to your claim, “But I told you . . .!” or “I’m sure you said that!”

A list of the many optional specifications available for house windows
Make sure you get detailed specifications for each feature you select to be sure you get what you want, since many features have multiple options.

The best way to protect yourself is to look very closely at your floor plans and exterior elevations before approving them with your signature. This means that each detail on the plans needs to be correct and that all important details are entered on the plans. A missing detail is a potential mistake. To save time, you will sometimes have to write notes directly on the final draft to ensure they contain every detail. One example of a detail that is easily missed is the location of a ceiling light fixture. Make sure the plans indicate whether you want it centered in the room or centered over an offset table.

Require the general contractor to provide complete plan and elevation drawings for the on-site work. Knowing what your garage, deck, porch, finished basement, etc. will actually look like is clearly important.

Modular Home Scope of Work

Make sure your contract lists all tasks (scope of work) required to complete your home. If you sign a contract that doesn’t include every task, the dealer will come back to you for more money after they begin construction of your home.  For example, if you want your porch to be stained, make sure this is written into the contract.

Modular Home Specifications

Look closely at how the contract proposes to complete each task.  A dealer can offer a much lower price by selecting a less expensive set of building specifications or by not listing any specifications at all for some tasks.  If you sign a contract that doesn’t list the construction specifications for every task, the dealer has the right to select whatever materials he wants when it comes time to build your home.  For example, if you want two coats of an oil based stain for your porch, make sure this is in writing.

Modular Home Exclusions

Require the dealer to include a written list of any tasks that are not included in their contract. This is especially important for those tasks that are needed to obtain a certificate of occupancy , especially if you might reasonably expect them to be included.  The most complete estimates include these “exclusions” so you aren’t left guessing what you could be responsible for.  (If you were an expert in new home construction, you might not need this list because you would know everything you need.)  For example, it’s fine if building permit fees and landscaping are not included, but your contract should tell you this, since both will be needed.

Modular Home Allowances

Pay attention to” allowances”. Make sure the dealer only uses them when he can’t know the cost of a particular task.  An example is the cost for drilling a well, since a dealer can’t know in advance how deep he’ll need to drill.  Builders prefer allowances for two reasons.  First, they don’t have to spend as much time preparing their proposal, since they don’t need to know the price.  Second, and more importantly, allowances protect builders’ profits, since they make you responsible for all additional costs.  If there are too many allowances, you are at risk for significant cost overruns.

The Details Matter for Your Modular Home Drawings, Scope of Work, and Specifications

Finally, make sure you understand the details. It won’t help much if you get what you signed for, but didn’t understand what you were getting.  And when the dealer uses unfamiliar construction jargon, ask him to explain what he means.

For more information about modular home drawings, scope of work, and specifications, see Selecting a Modular Home Dealer in my book The Modular Home.

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Modular Home Legalese

Before buying a modular home you should insist on receiving four things from your dealer:  modular home legalese, drawings, scope of work, and specifications. The details in these documents will protect everyone – you, the dealer, and the factory. It will take a lot of work for your dealer to create the documents for your specific project, and it will take you a lot of time to review the details. But you don’t have a choice if you want to protect yourself.

When the details are unwritten, it is your word against theirs. The only people who win are the lawyers. Let me give you some recommendations that will better protect everyone.

Modular Home Legalese: Cancellation

A man signing the modular home legalese
Have an attorney review the modular home legalese of your contract

You definitely want the contract to state when you are allowed to cancel. The way to do this is with a “contingency” clause that specifies grounds for cancellation. For example, you will certainly want to retain the right to cancel if you don’t obtain financing, a building lot, or a building permit. You may also want that option if you can’t sell your home, your health fails, you lose your job, or you or your partner dies. Make sure the modular home legalese details when you can no longer cancel, as well as how much money the dealer can retain should you exercise your option.

Cancellation clauses are not just advantageous to you. In fact, I included one in my contract within the first month of becoming a modular dealer. What I discovered was that most customers had tasks to complete, obstacles to overcome, or concerns to address about things beyond their control. This made them delay signing a contract and providing a deposit until all their issues were resolved. Adding the contingency clause allowed both of us to move forward more quickly, which reduced the overall construction time by months.

Modular Home Legalese: Payments

Make sure your contract specifies the following payment issues:  (a) the amount and timing of deposits; (b) when price increases are allowed, if at all; (c) whether the modular units will be paid COD or with an assignment of funds by a lender; (d) a disbursement schedule for the contracting work; and (e) a policy for allowable “holdbacks” should some of the work be incomplete or require correction. The modular home legalese should spell out when change orders are allowed, who can authorize them, if additional fees will be incurred, when payment is due, and the effect on the schedule.

Modular Home Legalese: Verbal Discussions

Your contract should exclude any verbal discussions unless they are also incorporated into the written contract. You might think this only benefits the dealer, but in fact neither of you wants to hear, “But I told you!” or “I’m sure you said that!”

Modular Home Legalese: Product Changes

Since product manufacturers often replace their products with new ones that have slightly different specifications, the modular factory and dealer will want to reserve the right to make product changes with reasonable terms. This might happen, for example, with windows, cabinets, shingles, or appliances. From time to time, these product changes will take place after you and the dealer have signed off on the specifications. The fact that you will have to accept a substitute, however, does not mean that you forfeit your right to be notified of these changes. When time allows, you should also be allowed to select a different product than the replacement. Be prepared to pay any increase in cost for selecting an upgrade.

Modular Home Legalese: Insurance

Both you and your dealer need to have insurance. The dealer should be responsible for insuring against any loss until they complete the modular set. To ensure the coverage is sufficient, insist on receiving a “certificate of insurance” directly from the insurance company. In turn, you should have either a “builder’s risk” policy or its equivalent. This will provide better coverage against theft and vandalism than an ordinary homeowner’s policy.

Modular Home Legalese: Warranty

The warranty section of your modular home legalese should include four components: (a) the items covered and not covered, (b) the construction standards that apply to each item, (c) the length of coverage, and (d) the method of dispute resolution. If you have an extended warranty for the modular units, it will cover all four components for the modular home. However, it might not cover the on-site contracting work.

Another source that details warranty coverage and standards is the National Association of Home Builders Guidelines for Professional Builders and Remodelers. I recommend either binding arbitration or mediation for dispute resolution instead of the courts.

For more information about modular home legalese, see Selecting a Modular Home Dealer in my book The Modular Home.

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