Q: We recently purchased at lot in a new development. While excavating for the foundation, our builder informed us:
“We ran into a problem with the soil on the back of your lot. It requires over -digging the footers and installing gravel back up to the bottom of footer. Unfortunately, this was an unforeseen expense that isn’t covered per your contract. Obviously, there will be no markup on this and we will be happy to provide you with the bills and the reports from our soils engineer once they are complete. We just wanted to give you a heads-up. Rest assured there won’t be any other surprises. When it comes to the soil, we have no way of knowing short of doing pre soils engineering which would be thousands of dollars. Sorry for the bad news.”
We’re feeling both duped and naive for not researching what to consider when building new construction. The developer is very engaged in this ongoing project and I wish we were given a heads-up on the possibility of this happening on what appeared to be a perfect building lot. We also have no idea how much money this will cost. Needless to say, we’re very upset and question if the developers should have known. — DV
A: There are almost always some added costs during the course of a construction project, which is why banks typically add a 5% to 10% contingency reserve to your construction budget. Unfortunately, excessive cost overruns are a common problem on construction jobs and a source of many disputes.
Some of these extra costs are driven by the owner requesting changes to the work, some are driven by code officials (for example, requiring an electrical upgrade), and some are due to unforeseen “hidden conditions,” as in your case.
The important question is whether the contractor should have reasonably expected these soil conditions, based on his knowledge and experience, or whether he was taken completely by surprise. For example, did other projects in the same development have similar problems? If he thought that there was a reasonable chance of running into this problem, he should have alerted you to the possibility, and possibly added an allowance for the extra work in the contract price.
I am curious as to what the problem was: natural poor soil such as peat, buried debris that needed to be removed, or something else? Was this a filled site? In that case, you should have been informed about the possibility of problems and soil testing would have been justified. Building on filled sites is always risky. I would suggest getting a copy of the engineer’s report to gain further insight.
If you believe that the contractor knew, or should have known about this problem, then you have reason to contest the charges. If you believe that he was as surprised as you, then you would be responsible for the extra costs, as long as they are reasonable.
These sorts of issues are typically covered in your construction contract in a “hidden conditions” clause. This describes how these job-site surprises will be handled. If there is no such language in your contract, then you have a stronger case to refuse payment for additional work if you feel the charges are unjustified.
It’s true that some unscrupulous contractors intentionally omit items from the contract to keep the price down, knowing that they can make up their missing profits on extras or change orders. However, this does not appear to the case here. The contractor said “Sorry for the bad news” and assured you that there won’t be “other surprises.” That’s a good sign. If there are other surprises, he will have to eat his words and maybe eat the added costs of these surprises.
Every project involves a certain amount of negotiation, give-and-take, and good faith on the part of both parties. There will always be a few bumps along the road – that’s the nature of construction. If you end up with well-built home that you are happy with, with relatively few surprises and few extra costs, then you are doing well.
At the end of the day, a lot depends on the integrity and competence of the general contractor. Hopefully you have chosen carefully and things will go smoothly from here.
Best of luck with the rest of your project and your new home! – Steve Bliss, Editor, BuildingAdvisor.com
DV says
Thank you so much for your reply. We have complete confidence in our builder (one of seven approved builders) and there is a Bad Soil Clause in our contract, but no one explained what this meant. Given that the land was formerly a tulip farm and our lot is a short distance away and backed up by Interstate I 40 and not on a hill or other obvious problematic location, we didn’t even think about soil issues. In our search for a new home, we decided to have a buyer’s representative and as it happens, our agent was also building a new home in this development. We could of purchased directly from the agents on site, but felt we had good representation in those matters we wouldn’t have considered. So, when this problem arose we were blindsided because as mentioned, no one disclosed the possibility of “Bad Soil”. According to our builder he too was surprised and said some lots experienced this issue, however he didn’t specify if it was lots in general, or in our development. I’m waiting to hear back from our realtor as he will be in contact with the developer. If we had known the potential cost to remedy bad soil, we could have better planned financially, thankfully the issue is only at the back portion of the lot and the builder will pull from the CTP, we will pay at the end of the build, after my boyfriend and I have sold our respective homes. After reviewing the Lot Purchase Agreement, the first line said we could bring in a third party for soil analysis at our expense, so it’s on us.
Below is the only comment from an inspection report, Soil Engineers will be brought on site. At the end of the day, I’m grateful the problem is being addressed early on and we will enjoy our retirement in a beautiful home in a great community.
Report:
False: Footings not Approved. Requires soils analysis to verify soil will
support 2000 PSF bearing.
Inspector was able to bury soil probe up to handle in left rear
corner.
buildingadvisor says
As you have discovered, having a buyer’s representative (buyer’s broker) involved is no guarantee that you won’t get burned. Their main responsibility is to represent your interests in financial negotiations — for example, not to disclose how much you might be willing to offer. Expecting them to offer technical or legal advice is wishful thinking.
Real estate transactions are still governed largely by the principle of Caveat Emptor — let the buyer beware.
A “Bad Soil” clause is not a standard contract clause in most areas and a indicator that this was a known risk in this area. I’m still curious as to what the “bad soil” was that could not support a standard footing.
Should the broker or contractor have explained this to you? In an ideal world, yes. But even in states with strong real estate disclosure laws they would not be required to disclose every possible problem, just known hazards or defects (like buried toxic waste on the site).
The moral of this story is to read all contracts carefully when buying real estate or starting a construction project. If anything is unclear, ask a lot of questions. A lot of money is at stake and you are the only one truly looking out for your interests.