Building and Dealing with Contractors – Part 2
Building a home overseas is an adventure. It can be a wonderful experience if we plan ahead, stay focused, and admit that we don’t know what we don’t know. Part one of this article covered the design, engineering, and the selection of a builder. Part two covers rule of law as it relates to contracts with a builder, assumptions we might make as North Americans, and the fun parts of building a home, furnishing it, and getting it ready to enjoy. Part three of the series will cover some of the topics related to moving to a new country and getting your stuff and pets there too. For now, we pick up where we left off last week talking about how to hire a builder.
When it comes to the contract with a builder, or any contract for that matter, please know that in most countries of the region, the legal system is Civil Law. Also, in almost all cases, the official language of the contract and law is Spanish (Portuguese in Brazil). Having a bilingual attorney that you trust is key. In the end, you can and should request an English language translation of the contract, but remember, the Spanish version is the legal version. Your lawyer will be your advocate to make sure you get the terms of the contract you want.
One main difference, and an important fact to always keep in mind when working in Civil Law, is that there is no “spirit of the law.” Anything and everything is either explicitly allowed and included, specifically excluded, or it does not exist and is not relevant to the contract. If you can get a warranty from the builder, then be sure to have it written explicitly in the contract. Make sure that it is very specific. A long list of covered items might seem redundant, but remember, if it’s not specifically included, it is not included or relevant. Redundancy and extra pages are part and parcel of the Civil Law process. Suffice it to say, be careful and make sure you have everything in the agreement that you want before you sign it. This is critically important, so look for an article on Civil law vs. Common Law in the future where I’ll dig a bit further into these differences and the issues they raise.
Payment timelines are important too. Unlike in North America, where a builder has a line of credit (or you have a loan from the bank to finance the construction), in Latin America, typically you are going to fund the construction with pre-payments. As much as everyone would like to stay behind the builder, it probably won’t happen. What this means is that you’ll have paid your builder, at any moment, more than the value of the property under construction. This is not a good thing, but they are depending on your cash to buy materials, pay labor, and put food on their table. Accept this, but keep as tight a leash as possible.
A 30% down, 30% at roof, 20% at dry, and 20% at keys is a best-case scenario. If you can negotiate that, great. Most builders want 30/30/30/10, which keeps them significantly out in front during the whole process – and puts you at risk if they fail or just simply disappear. Understand that this is the nature of the business in the region. Your best protection is an inspector who keeps you posted of progress and holds the builder’s feet to the fire for delivery and milestones.
Needing to hire an outside, independent inspector is a topic that drives right to the heart of the saying, “We don’t know what we don’t know.” In North America, a building inspector’s job is to make sure a building is being built to code. They are not your agent, but instead work for the city or county to verify that the building codes are being met. In Latin America, the local building inspector won’t be coming out to make sure that your home is being built to plan, or to code, or being built at all. Trust me. Chances are, they may never visit the site at all. Sure, your contractor will go by their office and pay the required building permit fee, but no one from the permit office will likely ever visit.
Therefore, having your own building inspector is very important. It is best if they are an engineer themselves, perhaps the one who engineered and/or designed the house. They should have the same agenda as you and make sure the standards designed into the home are what gets built. Your inspector should also help you by identifying the timelines and progress of construction, and be able to spot problems early in the process.
This person should be there at least weekly, but daily is better. Costs for this kind of service range from 1-5% of the cost of the home. Engineers cost more than a layman, but will have an eye for the specifications. As the home moves into the final stages of construction, an engineer becomes less important than someone with an eye for style and finish detail. It may make sense to have a second set of eyes when the painting, cabinetry, and tile work start. Getting photos and video is easy these days, and it also ensures that the inspections are being performed.
Another foreign concept for North Americans building a home in Latin America is to know what is “standard” and included. When building my first home in Nicaragua, my wife and I walked in when the home was nearing completion. We had designed in a large soaking tub/hot tub in the master bathroom. During this walkthrough, we noted that there was still a huge hole in the floor of the bathroom. The sinks were in, toilet was there, and the cabinets were finished.
We asked our sales person, “When will the tub be here?”
She replied, “When did you order the tub?”
“We didn’t,” we replied.
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“Then I don’t know when,” said the agent.
When we pressed for the reason they didn’t order it, when it was clearly shown on the architectural drawings, she replied, “The driveway shows a pickup truck drawn in it, but you aren’t getting that either.”
Wow. We didn’t see that one coming.
Likewise, when our builder asked us to order all the phone and internet cables for the house, we were stunned. But they at least did tell us about that and we did order the wires. The same happened with lights, fixtures, fans, etc. These are things that we may assume are included as they are in the North America, but are probably not included in Latin America. We don’t know what we don’t know. Be thorough and ask a ton of questions. Get the answers in writing. Assume nothing.
When picking appliances and fixtures, be sure to shop in the local stores. The selections are usually excellent, and product offerings come from all over the world. If you want fancy European faucets, you can get them. Remember though that getting a replacement handle may be nearly impossible. The other issue is to make sure the models in the stores are not left over, discontinued stock. Again, replacement parts will be hard to come by. I know firsthand as there was no way to get a replacement seat for a toilet we had. When it comes to appliances, use the brands that the locals sell, stock, and can maintain. GE might be a favorite brand at home, but if LG or Samsung are what the local technicians know how to fix and stock spare parts for, get that.
The other thing to keep in mind when it comes to appliances, computers, and toys, is the quality and reliability of power. The grid systems of the region are getting better and better for sure. Actual power outages in major population centers are becoming rare. Outside the cities, power can become less reliable and be off from time to time, and the further out you are, the less reliable it can be. Having a backup generator, battery bank, or alternatives like solar or wind probably make sense. Additionally, with the higher cost of electricity, the savings or “payback” for the upfront investment generally occurs quicker than in North America. Note: The utilities generally do not buy back power produced at the home. Size for your needs only.
The real issue with electric power in the region is the variableness and poor quality of the power. Spikes and brown-outs are far more frequent than actual outages. People lose TV and electronics because of the poor quality of the power, so it is important to have all devices on surge protectors. Even better are power conditioners that level the brown-outs. The best solution is a whole house conditioner that can be tied into a battery bank for power reserves when the power goes off, and tied into solar panels to keep them powered up.
The same local brand buying decisions for TVs make sense in this area too. Again, spare parts for the popular brands in your host country will be stocked, and technicians will be trained to do the work. Ordering spare parts for a TV from overseas, even with better shipping via FedEx and others today, will cause time delays and, in many cases, the parts will be subject to customs, duties, and sales taxes upon entry. Stick to local favorites on the TVs and appliances.
As your home nears completion, what people consider the most fun part of the process begins: shopping for furniture and decorating. In the U.S., this is fun. Overseas, it’s a blast! Imagine getting online photos of your favorite expensive furniture and printing out the pages, then taking those pages to a craftsman who will custom make the piece for 10-20 cents on the dollar. Imagine strolling flea markets in Buenos Aires and picking up knick-knacks, stopping at antique stores and stalls along a country roadside, bargaining for cool finds to hang on the wall or adorn a tabletop. Or perhaps you’ll strike up a relationship with a local artist or two and hang original magnificent masterpieces around your home. The affordability and access to real treasures is absolutely incredible, and the discovery process is a true joy.
A few notes to folks considering renting out the house you’ve just built. As mentioned in the previous article, be sure in the process of designing the home that you create an owner’s lock up. And depending on what you plan to store, consider a dehumidifier to condition the air to keep mold and mildew at bay. If the home is going to be rented, you will also want to consider this important factor in the types of furniture, appliances, linens, and housewares you buy. Many property managers have a standard set of products. Many also mandate the brands, make, and model to ensure easy replacement of broken or missing items on the fly. No matter what, you’ll want to keep in mind that renters can be hard on your things, so while it might not be the exact perfect interior design for you, remember the practical side of renting.
One last issue to cover is that of self-reliance. It is always wise to follow the boy scout motto of “Be Prepared.” It is even more so south of the border. In North America, the federal governments have the responsibility, and funding, to respond and provide assistance following a natural disaster. Even with the criticisms post-Katrina and Sandy, the fact is that the agencies showed up with resources and people. In Latin America, these agencies don’t exist at the level they do in North America. They don’t have the resources to help you in a tough situation. Remember, you are a guest in the country and the local government’s responsibility is to take care of its own citizens.
So being prepared is key – have water and food handy. There are plenty of websites to advise you on the quantities one should stock. Notice that you’ll see lots of locals with above ground, elevated cisterns of 500 gallons or more. They know something. They are probably used to having the water go off and are prepared to keep water and pressure intact. You should do the same, and it’s possible to hide the cistern in a roof space if you don’t want it visible. If you have solar and battery storage systems, you’ll keep some power. If you have a fridge, you’ll be glad, especially if the power is off for a long time. Also, have a plan to evacuate for a short period of time. I’ve lived in the aftermath of a hurricane. It’s not fun.
Lastly, hope for the best. The likelihood of a natural disaster is slim. So enjoy your new home and new community. Get out and make friends. Get involved. Join Rotary or a non-profit that is making a difference in the lives of people around you. Be a part of the larger solution and enjoy seeing the smiles of the people you meet and get to know.
Building a home overseas is a large task – and an adventure no less. The more we plan, the better off we will be. Getting it right, or mostly right, the first time is a very worthwhile goal, and a goal that is achievable if we take our time and do as the carpenter says, “Measure twice. Cut once.”
Look for an upcoming article in this series discussing the process of moving, what to bring, what to leave home, and how best to decide. The decision making process is the key. More on that soon.
Did you miss Part 1? Click here to read it now!
Michael K. Cobb is the CEO and co-founder of ECI Developments which has properties throughout Latin America. He speaks all over the world on international real estate and is a board member of the National Association of Realtors.
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