Builder liability?

[Carmen]

Greetings -- still not signed up for a class but not because we don't want to take one. It may be a couple years since we're having a baby in about a month. That's going to suck up the $$ like nothing else!

I've been dreaming more lately about our log home plan (take the class, build a smallish home on a construction loan, sell it, then build OUR home without ANY loan) and am wondering about liability. Obviously Skip's method is excellent. But the builders (us) would still be inexperienced. Suppose we mess up somewhere but we don't realize it right away, or something like that. Given the county we're in, we will be playing the building code game, if that makes a difference. Fast forward to the home being finished, someone has bought it, we're finally free--and then a couple years later the home's owner notices something wrong, or something breaks, or ... something. A floor collapses. Something. Are WE liable for that, as the builders? For how long are we liable? A year? Two? Five? Ten?

Sorry if that's a silly question, but I worry.

[rreidnauer]

Good question. Not sure if it would fall into "Caveat emptor" (buyer beware) or not. I imagine, much of that could be written into the contract. (i.e.- 'as is') I'm gambling it would take nothing less than a lawyer to get a definitive (albeit confusing) answer.

Besides, if you follow an engineer's plans, and get inspections for things like the electrical, (even if not sanctioned by the township, but for your own piece of mind) you'd have little to worry yourself about.

But I understand your concern, and an answer would be nice.

[adubar]

This is a very interesting question.
I believe that most locales have defined requirements for when an owner-builder can sell. Usually, the owner-builder permit is issued with the requirement that the homeowner is building for themselves and that they will occupy (or at least not sell) it for a minimum amount of time--otherwise, an owner-builder permit will not be issued.

Depending upon where you live, there may also be a "builder warranty" that is required when selling your owner-built home. This requirement is usually imposed only for a predetermined amount of time after first occupancy-- usually around 1 to 6 years.

I would treat this question like all permitting and building code questions, research what your local and state government require and enforce.

I hope some of our fellow members that may be in the real estate or building professions may be able to shed more light on this.

Another thing to consider if tempted to ???flip this log house,??? are Taxes. I???m not a tax attorney (I never liked accounting classes), but
I would imagine ???timing??? between building and selling can be beneficial at tax time.

Regards,

-A

[the_dude]

you need to live in the house for 2 out of 5 years in order to avoid capital gains tax on the first $250k in gain. definately worth it when you consider how much of your profit will be eaten by taxes.

[Kama]

2 out of 5 years? One must own it for 5 years, but only has to live it in for 2. So one could rent it out the other 3?

[dbtoo]

Confusing though they may be, you might want to review what the IRS says:

http://www.irs.gov/taxtopics/tc409.html

That is, if you intend to 'pay the man' his unfair share.

[dvb]

You only have to live in the home for two of the last five years. If you completed the house and moved into it in June of 2005 and sold it in July of 2007, you have lived in it for two of the last five years. You do not have to own it for five years, only live in it as primary residence for two of the last five years. Be careful of the primary residence restriction if you own two homes. I think IRS pub 523 covers it pretty well.

[the_dude]

You only have to live in the home for two of the last five years.

thanks for clarifying it for me. i was in a rush and didn't offer a full explanation.

[hawkiye]

Unless you have specific laws for your area stating otherwise it is buyer beware as it should be. (People need to learn to do their homework and take responsibility for their choices and and quit expecting government to do it for them in my opinion. whoever buys should have the place inspected) Or unless you warranty the house for a year. In my area most new houses are warrantied for a year. But if you have ever tried to get a builder to fix something after the fact it's like pulling teeth.

If you build using Skips method who ever buys will be getting a far better house then they could ask for. The problem is code folks and others are usually not familair with this style of building. so you may need the plans wet stamped by an engineer. If possible look for an area near you that is not so tight on codes.

Blayne

[adubar]

hawkiye,

Many commercial builders deal with "warranties" via their lawyer(s).
Generally, it takes a lawsuit to get them to act---no lawsuit, no fix--even with an expressed warranty.

The reason is that the terms and diffinitions of the needed fixes are then covered by the legal case and judgment. It limits the buyer from comming back with requests for more "fixes." Good builders tend not to have these type of concerns, as they built it right the first time.


As for selling anything "As-is," in reality it never offers the type of protection one is seeking. In many states there are laws governing these types of transactions. "As-is" in many respects is meaningless, as there are usually many legal recourses a buyer or seller can take. The 'lemon law' is one such type of recourse.

-A