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
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.
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
- 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
- Home style
- Home specifications
- Modular dealer
- Scope of on-site contracting work
- General contractor
- Purchase or receive as gift
- Zoning board
- Planning board
- Septic design
- Building Permit
- 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.
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.
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.
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!”
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.
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
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.