🎧 EP 297 - Builder Goes Bust? What First Home Buyers Should Know
Building your first home is exciting. You've signed the contract, watched the slab go down, and finally started seeing the house take shape. But what happens when the site suddenly goes quiet and you discover your builder is in financial trouble?
In this episode, Veronica and Meighan unpack one of the risks first home buyers rarely expect when building a new home: what happens if your builder goes broke. They explain why even large, established builders can collapse, what financial and industry pressures are putting builders under strain, and what buyers can do before and during the build to reduce their own exposure.
Here's what we cover and why it matters:
🏗️ Why Builders Are Going Broke
Builder failure isn't limited to small or inexperienced operators. The episode explores how rising construction costs, labour shortages, fuel and energy costs, fixed-price contracts and undercapitalised businesses can put pressure on builders. A builder can have a strong reputation and years of experience behind them and still face financial difficulties later.
Understanding these pressures matters because you're not just choosing a builder for the quality of their work. You're entering into a long construction process where you need that business to still be operating when your home reaches completion.
💰 Why the Cheapest Building Quote Isn't Always a Bargain
A quote that comes in significantly below every other builder might look like a great deal, especially when you're trying to keep your first home within budget. But the episode explains why an unusually cheap quote can sometimes be a warning sign.
An undercapitalised builder may be pricing aggressively simply to win contracts and keep revenue coming in. If they're already struggling to cover subcontractors, suppliers and rising construction costs, your project could become part of a much bigger financial problem. The goal isn't necessarily to choose the most expensive builder — it's to understand why the price is what it is and whether the business can realistically deliver the project.
🏦 What Happens If Your Build Suddenly Stops?
If your builder collapses halfway through construction, the financial obligations don't simply disappear. You may still owe your lender for the money already drawn down, while the unfinished property may need another builder to complete it.
Finding a replacement builder can also be more expensive because they're taking over someone else's partially completed work. There may be defects to investigate, construction prices may have increased, and the new builder is taking on additional risk by finishing a project they didn't start.
This is why understanding your construction loan and how progress payments work is so important. A properly structured construction loan can provide an additional layer of protection by releasing funds progressively as construction milestones are independently confirmed.
🛡️ Why Building Insurance May Not Be Enough
Many first home buyers assume that building insurance will solve the problem if their builder becomes insolvent. But the reality can be more complicated.
State-based homeowner warranty and building insurance schemes can provide protection when a builder becomes insolvent, disappears or loses their licence. However, there can be delays, claim requirements and limits on what is covered. Insurance may help with deposits, incomplete work and defects, but it doesn't necessarily mean another builder will be able to finish your home for the original contract price.
The episode explains why insurance should be viewed as a last resort, rather than a substitute for proper due diligence.
🚩 The Warning Signs to Watch for During Construction
If you're already building, there are signs that can tell you something may not be going well. A site that suddenly goes quiet for weeks, difficulty getting the builder on the phone, vague explanations about delays, unpaid trades or suppliers, and requests for payments ahead of the agreed construction schedule can all warrant closer attention.
Not every delay means a builder is in financial trouble. Weather, supply issues and other legitimate construction delays can happen. But when explanations become vague or communication starts disappearing, it's worth asking better questions and getting specific answers.
💳 Why You Should Never Pay Ahead of Schedule
Progress payments exist for a reason. Buyers should understand their payment schedule, keep track of which stage the construction has actually reached, and avoid paying for work that hasn't been completed.
If there's any doubt about whether a stage has genuinely been completed, the episode recommends considering an independent inspection before releasing a significant payment. A relatively small inspection cost can provide valuable protection when the payment at stake could be tens of thousands of dollars.
🔍 How to Check Your Builder Before Signing
Good builder due diligence starts before you sign the building contract. The episode recommends checking that the builder's licence is current and that the legal entity on the licence matches the entity signing your contract.
You should also verify the relevant homeowner warranty insurance certificate directly with the insurer, rather than simply accepting the builder's word. State and territory consumer affairs or Office of Fair Trading portals can provide additional information, while tribunal records can reveal previous disputes.
Past client references can also tell you something that a polished testimonial can't. Ask recent clients how long their build took, what went wrong, how the builder communicated during difficult periods, and how problems were resolved.
For companies, an ASIC search can provide further information about the business, including how long it has existed, who the directors are and whether there are patterns involving related companies or previous liquidations.
📋 What to Do If Your Builder Goes Broke
If the worst happens, the episode emphasises the importance of acting carefully rather than reacting emotionally.
Start by going back to your contract and understanding exactly what you're required to do. Don't simply stop payments without checking your contractual obligations and getting appropriate advice. Document everything from that point onwards, including photographs of the site, invoices, emails, phone calls and unanswered communications.
You'll also need to speak with your broker and lender, contact your insurer and understand the relevant claims process. Depending on the circumstances, independent legal, building or specialist advocacy advice may also be worth the cost. Before terminating a contract or making a formal complaint, make sure you understand the correct process and have your documentation in order.
🎯 By the end of this episode, you'll understand the risks of builder failure, know what warning signs to watch for, and have a clearer idea of how to protect yourself when building your first home.
Episode Highlights:
01:49 – Why Builders Are Going Broke
03:34 – Why Builders Are Under Pressure
06:18 – What Happens When Your Build Stops?
08:36 – Why Building Insurance May Not Be Enough
11:36 – Warning Signs Your Builder Is in Trouble
15:15 – How to Check Your Builder Before Signing
19:01 – Your Builder Collapsed: What Should You Do?
23:29 – How to Protect Yourself From Builder Failure
03:34 – Why Builders Are Under Pressure
06:18 – What Happens When Your Build Stops?
08:36 – Why Building Insurance May Not Be Enough
11:36 – Warning Signs Your Builder Is in Trouble
15:15 – How to Check Your Builder Before Signing
19:01 – Your Builder Collapsed: What Should You Do?
23:29 – How to Protect Yourself From Builder Failure
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Co-Founders
Veronica Morgan & Meighan Wells
Veronica & Meighan are both licensed real estate agents who exclusively help buyers. Together they have nearly 40 years experience as property professionals.
Veronica is principal of Sydney based Good Deeds Property Buyers and is also co-host of The Elephant in the Room property podcast as well as Location Location Location Australia on Foxtel and author of Auction Ready: how to buy property at auction even though you're scared s#!tless!
Meighan is the multi award winning principal of Brisbane based Property Pursuit, chairperson of the REIQ Buyers Agent Chapter & a regular media commentator.
