Are you considering a barndominium? Here’s how to protect yourself from bad builders

It’s been nine months since Charlet and Kamian Steele hired a contractor to build their barndominium, and they have nothing to show for it but a 2,000-square-foot concrete slab.

They’re out about $40,000, and they haven’t heard from their builder since May, they said.

When you build a regular home, you have to comply with city standards, and usually find a lender and secure a loan.

But barndo customers typically pay with cash, as many banks don’t finance barndominiums. Because cities often prohibit steel buildings, people build barndominiums in rural areas with fewer land use limitations.

While the absence of bureaucratic red tape can make barndo-building easier and cheaper than building a regular home, it can also leave customers vulnerable to bad actors.

If you’re considering building a barndominium, here are some tips for protecting your investment.

With the rising cost of homes in Fort Worth, customers are drawn to barndominiums as a cheaper way to fulfill the dream of simple country life. But, caution is worth the investment.

“You don’t have to be a sophisticated client to do this. It’s just putting some things in place,” said Eason Maykus, chairman of the Fort Worth Builders Association.

Due diligence

When the Steeles found a builder, they did their research; they found examples of the builder’s work and spoke to former customers who provided rave reviews.

Talking to other customers is a critical element of the due diligence process, said said Amy Razor, the former Fort Worth regional director with the Better Business Bureau.

She also recommends potential customers check reviews of the builder or company on Better Business Bureau, Google and Yelp.

“It’s important to see what that reputation is, what other customers have been through to make sure that you know what you’re getting into ahead of time,” said Razor.

If you do get scammed, Razor recommends reporting the incident to the Better Business Bureau, which tracks fraudulent business activity on its Scam Tracker.

This tool allows customers to read about scam trends. BBB can also open an investigation or try to mediate the issue.

Financing red flags

The Star-Telegram spoke with nine customers of three builders operating throughout the state.

Their stories are similar. Most report the builder required a 40% down payment, 40% of the cost midway and 20% upon completion.

“You should not pay ahead of time for the work,” said Razor.

Any changes to the job or scope of the work should require a written change order request signed by both parties, she added. And, critically, customers should always have a paper trail, she said.

For some guidance, Maykus recommends borrowing language from a regular residential contract, like the Texas Association of Builders contract. In these contracts the payment schedules require less money up front and withdrawals are tied to inspections.

“Take those principles of the building up here in the Metroplex and go apply it west of I-20, west of Weatherford,” Maykus said.

Even if a barndo customer isn’t using a bank, they can still devise a payment schedule in which payments are tied to work being completed. Maykus also suggested hiring a third-party inspector to ensure the quality of the build.

Furthermore, if a builder is skeptical of a more sophisticated contract, that can be a red flag or a sign to dig deeper, Maykus said.

Looking ahead

More than 30 states require that contractors be registered or licensed at the state level. Texas is not one of them.

Sriram Villupuram, a professor of finance and real estate at the University of Texas at Arlington, said he’d like to see reforms that hold bad faith builders accountable, like an insurance program.

“At the minimum they need to be able to put up some insurance premium to back their work,” he said.

Because the barndominium trend is so newly popular, there’s still lot of uncertainty about how to properly regulate this building type for use as homes, said Villupuram.

For example, barndominium owners must do research on corrosion of the steel structure as well as risks associated with extreme weather, like hurricanes and tornadoes.

“When the city sets regulations, there’s very little for you to think about,” he said. “When they don’t have that, you need to do a little more homework on your part.”