In this article, I’m going to break down the biggest mistake beginner residential property developers make when trying to find townhouse builders in Melbourne.
I’m then going to share with you three tips. Tips that will help you land the right townhouse builder at the right price for your next townhouse project.
First up, let me start with a hot tip. The key to finding the right townhouse builder for your development project in Melbourne isn’t finding the cheapest builder you can.
This is by far the biggest rookie mistake first-time property developers make when looking for builders.
To be fair. They could be forgiven for thinking the cheaper they get a builder the more profit they will make.
But I can tell you from years of experience this can be a trap. It’s definitely not the mindset you want to have to go into a project tender process.
Your mindset straight out of the gate should be to determine the market value of your build. Then work hard to find the best builder you can at that level.
Also, be sure to check out our curated list of Melbourne’s best dual occupancy builders – we’ve broken the list into two categories, the big boys – so the best volume builders and the best independent local subdivision builders.
Let’s get into the article.
1. Bulletproof Construction Documentation
Bulletproof documentation as townhouse developers is non-negotiable. Before you even consider going out to tender, you need to get your construction documentation bulletproof.
By construction documentation. We are talking about everything a builder will need to accurately quote your project without making any assumptions.
Your tender might look like the list below. It’s not limited to it though.
Having your documentation in order will be the first critical step to nailing down the right Melbourne townhouse builder for your project. It’s important when you put your project out to tender, your documentation is watertight. You want to leave your builder with no reason to make any assumptions.
Assumptions Are No Good
Because trust me when I say ASSUMPTIONS ARE NO GOOD. The only person whose assumptions benefit is your builders.
When you tender out to your builders, you need to make sure they are pricing apples against apples. The only way to achieve this is through bulletproof documentation.
You don’t want to get this wrong if you do your docs will be littered with holes. It will become a reoccurring nightmare. It will follow you around for the rest of the project.
Too many first-time property developers are in a hurry to lock in a builder and get the project started. Now …
I’m not saying nothing is wrong with being on a mission to lock down your builder. And get them going onsite BUT …
… what I am saying is that the additional time you put in on the front end to get your documentation watertight is guaranteed to save you countless headaches, time and money…
Don’t outsmart yourself and think if the builder misses something in the tender process that you won’t have to pay. Because you will.
And in most cases, you’ll pay significantly more than what you would have if you got it worked into the overall contract price when the builder was competing to win the work.
So, take your time, get your documentation bulletproof from the beginning and avoid costly variations, time delays and never-ending headaches.
If you are new to the property development game check out the skills we think are needed for property development success.
2. Custom Liquidated Damages
Liquidated damages in a building contract specify a predetermined amount of money paid as damages to the client (or developer) for time overruns on a project.
Liquidated damages are non-negotiable for all of our home build contracts here at Little Fish. No matter how big or small the project or how well we know the builder.
It’s one thing for a builder to tell you they can complete a project in a specific amount of time. BUT it’s another thing getting that builder to back it up in the contract.
It’s easy for the builder to promise you a specific timeframe. Unless they are prepared to back it up in the contract it holds no weight. It doesn’t matter who the builder is or how well you know them.
If your builder isn’t prepared to back it up in the contract it holds zero weight.
Your aim is to get your builder to commit to a time frame in the contract that they are comfortable with. This is where the liquidated damages clause of the contract comes into play.
Significant But Fair
Significant but fair liquidated damages are the only mechanism at your disposal that will hold your builder accountable for their time commitment.
For us here at Little Fish. If we have townhouse builders that aren’t prepared to back up their time commitment in the contract. Then instantly, they aren’t our builder.
It doesn’t matter how good they are. How well we know them or how many projects they have done for us.
It’s standard practice for us and should become standard practice for you on every project you do moving forward.
On a side note. You must not screw your builder down on time and set them up to fail. All you are looking for is a commitment to the timeframe they are comfortable committing to.
In the liquidated damages clause of most contracts, they have a default amount to be paid. Which is usually pretty insignificant.
This amount can and should be changed to reflect how much it will cost you. If and when a time overrun occurs.
The higher the amount set in the contract, the more incentive your builder will have to complete the project in the agreed timeframe.
There are plenty of ways you can work this out. As long as both parties agree and are happy that’s the main thing.
So, your documentation is bulletproof. Your townhouse builder has committed to a timeframe. And you have all the pricing in and it’s time to make a decision.
BUT before you do, there is one more important thing you need to consider first which is …
3. Time Versus Money
It’s no secret that when developing townhouse projects time equals money. The cost of that time will be specific to your development finance setup and your specific project.
You need to work out what that equals per month for your project. Then add or deduct that amount accordingly from the various contracts you have.
You need to understand the true price of each individual contract. For example, …
It may seem obvious. But in the heat of battle and under pressure it’s amazing how many beginner property developers only look at the contract’s price.
And don’t factor in the time and its subsequent cost. You now have no excuses!
By taking on board the three tips we’ve just been through. you should now have a clear understanding of the true value of each contract.
The final piece of the puzzle to help you decide which townhouse builder to select will come down to things such as the builders work history, their experience, business structure, and how they carried themselves throughout the tender process, just to name a few.
In all honesty, there are countless factors you need to be aware of and look out for when selecting townhouse builders in Melbourne. All of which will come with experience. The best way to decide on your builder is by undertaking a detailed building tender process.
At the very least, by having your quantifiable data in order, you’ll give yourself a good chance to land the perfect townhouse builder at the right price for your design.
And finally, think of local builders, such as builders in Highett or a builder in Bentleigh East if that is your area – there are builders that focus on specific areas that can afford efficiencies. Worth exploring!