Understanding the Risks of Becoming an Owner-Builder

Understanding the Risks of Becoming an Owner-Builder

When it comes to construction, owner-builders face their own set of risks. Before starting any project, it is important to understand these risks and compare them against the potential benefits.

What Is An Owner-Builder?
As the term implies, an owner-builder is an individual who owns a property and acts as his or her own contractor on a job. The individual may do his or her own work or have subcontractors complete the project. In order to be classified as an owner-builder, the project at hand must be on the site of the owner-builder’s principal residence. In addition to this, the individual must have lived in the home for at least 12 months prior to the project’s completion. During a three-year period, the owner may not build more than two structures to sell.

Responsibilities Of Owner-Builders
When owner-builders sign building permits, they must assume all responsibility for the entire project. In addition to this, they are required to pull all building permits. Projects must pass all of the necessary inspections and meet all relevant codes. Owner-builders must order all of their own materials and pay their suppliers. They are also responsible for overseeing the work of subcontractors. However, they must be careful about who they select as workers. Unless workers are licensed subcontractors or family members, owner-builders may be classified as employers by hiring them. This classification brings even more responsibilities and work. Anyone who is considered an employer must register with the federal government and his or her state government. In addition to this, employers must withhold taxes from employees’ paychecks. They must also cooperate in the areas of disability insurance, unemployment contributions and workers’ compensation insurance.

Owner-Builder Potential Risks
Before deciding to become an owner-builder, it is important to carefully consider all of the risks and benefits. Since mistakes can be costly, people who are not knowledgeable about construction should avoid taking on such tasks alone. In addition to the expenses of repairs for mistakes, some types of damage may take a great deal of time to fix. If suppliers or subcontractors are not paid on schedule, they can file liens against the owner-builder’s property. Another risk to think about is injured workers. Some subcontractors do not carry the workers’ compensation insurance or liability coverage they should be using. If a worker sustains injuries on the property, the owner-builder could be required to pay for medical costs.

All homeowners should be cautious of people who claim to be contractors and offer to guide a person through the owner-builder process for a fee. In most cases, such individuals are not licensed. The results can be disastrous for any family’s budget. To avoid such scams and to learn more about the risks or advantages, discuss concerns with an agent.