Bankrupt?! 6 Signs Your Builder is Going Belly Up

by | Nov 6, 2019 | Building tips

Tip 1: Look at how many houses they typically build

This information is available on the QBCC site and will allow you to see how many homes a builder generally makes and whether they may go bankrupt. What you want to look at is large spikes in how many homes they are completing. Typically, the early warning signs are a huge increase in volume then a substantial drop. Its best to ask the builder why there was such a huge increase and whether this will be consistent.

Tip 2: How long do they take to get back to you?

How you do one thing you do everything, during the quote phase see how long the builder takes to respond. If they are not able to follow through on their commitment, then this might be a warning sign that there may be problems internally.

How they treat you at this stage is a good indicator of how they will be through the build, unless you are happy with constant delays reconsider builders that don’t follow through on what they say.

Frustrated businesswoman sitting in front of her notebook on phone in her office

Tip 3: Are they greater than 15% cheaper than other builders?

This is a big warning sign; most people look at this and think they are getting a good deal on their house however the adage about if it sounds too good to be true it probably is. If there has been a dip in the sale, then the builder needs to win more business to keep the doors open. Sometimes, they might agree to an unprofitable contract. If this happens while they are in a period of financial difficulty, they can become bankrupt. This is where expert advice from your building broker could potentially save you $$ and avoid the headache. 

Tip 4: Is the builder asking for upfront payments?

Generally speaking, a construction contract in Brisbane is broken up into 5 stages. In the deposit stage, the deposit is 5% of the contract price. If your builder is asking for more than 5%, this might be a sign they need cashflow to maintain their business.

If you have already entered into a contract and your builder starts asking for upfront payment so they can order material or pay their subcontractors, this is also a warning that they may soon be bankrupt.

Tip 5: Look at recent customer reviews in the past 3-6 months

You will start noticing some regular unhappy customers expressing their dissatisfaction, this is a key indicator the wheels are about to fall off. We looked at some of the reviews for a builder that went into receivership in Brisbane in 2019 and noticed that in the 12 months to the company shutting it doors they had a massive 11 one star reviews on google. This would be an automatic deterrent. The consistent message we heard in the 1 star rating was that no one cared to return my calls, they were slow with getting problems rectified, they did a poor job with finishes, the staff are incompetent.

Below are some examples of reviews:

Tip 6: Visit a site they are already building and speak to the subcontractors

What most people don’t realise is that when a builder goes bankrupt its not only the clients who are at risk of losing money but also the subcontractors that work for the builder. A tell tale sign would be the subcontractors having to chase up the builder for payment, this indicates that maybe the builder is chasing their tail and could be at risk of going bust.

Another question you can ask the subbies is how is the workload has there been a drop off with work? This is important to understand because typically most business will have a fixed overhead and if they are not making a set amount to cover all their cost they are automatically in the red.

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Building a Home

Knockdown Rebuild

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