Kitset homes: things you need to know before you build

September 1, 2020

Last month we talked to NZCB’s Regional Presidents about why first-home buyers should consider building instead of buying their first home. They had heaps of valuable advice, so this month we’ve talked to them about what to look out for when building a kitset home and how to find the right builder for your architecturally designed home.

With bank interest rates forecast to continue dropping and Covid-19 meaning we’re all doing our bit to restart the economy, there’s never been a better time to build. The increase of kitset homes on the market can make them an attractive, seemingly easier building option.

Kitset homes are manufactured in a factory and usually arrive flat packed or are transported on back of truck to site. You then get a builder to put them together. These are “labour only” jobs for builders.

NZCB Member Richard Poff of RTP Builders in Canterbury says kitset homes have their place. “If they come from a reputable manufacturer, they can be a good option. From the homeowner position they can be good, however, there are a few things to note,” he says.

“While there are quite a few different types, each home is generally made as a ‘one-off’. All things must be sorted before the house goes into the ‘factory’ stage. I am currently involved in a ‘Fraemohs’ house. This is a modern take on the log house style. They have been around for many years and I would consider their designs and manufacturing processes to be very good. However, everything has to be finalised before it hits the factory, for example, the lighting and wiring layout. As it is all solid wall, all the wire ducts are pre-drilled as part of the manufacturing process and it is very difficult to add an extra powerpoint later. Variations are often unable to be done as an afterthought.”

He also says kitset homes come with a specific build ‘process’ that may not be what many builders are used to, so it pays to check with your builder if the home you want is something they’re comfortable building. You can find your local NZCB builder here.

NZCB Member Dave Gunter of Coastal Designs Ltd in Motueka says it’s important to check what is included in your kitset. “You might come unstuck when you think everything is included and you find that in fact there are a lot of little components required to meet building code requirements. If, for example, the kitset is closed in stage only (not including foundation) there will be many other things to include in your costing – foundation material costs, engineers, designers, plumber, roofers, sparky, drain-layers, brick-layers, internal material costs. It’s always good to get the professional opinion of a Licensed Building Practitioner if you’re unsure.”

NZCB Member Mike Craig, of MC Builders in Waikanae, says kitset homes usually come with only shell only and you need to source the rest. “You often get quoted for kitset only and have to add transport to site and site services costs. There’s also often really no choice on layout or very limited material choice,” he says.

“Not only that but banks may not lend on kitsets because they are built in factory or flatpack. This creates additional risk for banks because they have no fixed asset sitting on land owned by their client. And you, as homeowner, have the added stress of project management, finding a builder and subtrades.”

Ian Chamberlain, of Chamberlain Carpentry and Joinery in Taupō, says another risk with bank lending is that kitset homes normally have to be paid in two payments. “This doesn’t always suit the banks,” he says.

He adds that the house normally turns up in two deliveries – components at beginning and then final lot halfway through, so you need space to store materials, including your carpets, kitchen fittings etc.

“Even with a kitset home you will still often need a qualified builder/building company to construct the house for you. These are often built on a set design and so may limit options for customisation. And you need to ensure the design you choose works with your site.”

Okay, so now you’re aware of some of the risks with kitset homes, you might be wondering if using an architect or architectural designer is a better path forward. But then you still need to find the right builder, we asked our team of experts what to look for when building an architectural home. They all agreed that checking your potential builder’s references and past clients’ projects is essential.

Dave says it’s important to always ask the builder to provide you with at least four of their past clients’ contact details, so you can contact them independently.

“Ring them and ask about the build process – how was it, any problems, would they do it again with the same builder? Other clients speaking about their experience is a great way of judging the building experience you will receive and whether that builder will match up with the project you are doing.”

Mike says it’s important to check out your builder’s reputation. “Ask your wider group of friends, family or neighbours for their opinions. Look at the builder’s website and see how they present themselves.”

He says the next step is to invite them to your house for an interview and see how they respect your space and property. “Did they take their shoes off, have a card to identify themselves? Did they bring with them references and material for you to study and could they hold a conversation with you which didn’t involve building? Ask if you could look at some of their work. He also recommends asking their references how they found working with the builder – were they on time, was the budget ok, did they get a lot of extra cost they didn’t expect?

Ian agrees, and says ideally you and your builder would then choose your architect together.

“A good builder can help guide you through the process to get the best value for money from your designer’s or architect’s design. They can provide good practical input. This helps you get a better grasp on the pricing and practical side of the build. Your engagement is longer with the builder and most of the work is with him.”

Richard says checking your builder’s previous work is absolutely key. “A homeowner looking to build needs to talk with friends and family for a referral. This is where a smart builder will always shine – no matter how big or small a job is, everyone has friends and family, and that is where good referrals come from. Of course, as a backup, finding a local NZCB member is a very good move,” he says.

“If a homeowner is looking for someone to take on their architecturally designed home, they need to check out what that builder has done before. The builder should be able to provide some sort of CV of past work and hopefully happy client references. I have always gone a separate route to this – I tell folks to find a good or recommended builder and work with the builder’s preferred designer. Generally this will produce a good outcome, and more likely to go closer to an affordable budget. It should also end with a design that is straightforward to build. Assuming that the builder and designer have a good working relationship, a workable and realistic design can be sorted quite quickly.”

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12.1	Part G of the Schedule contemplates that the Parties will elect who is responsible for arranging the contract works insurance. If the Parties have not made that election or if their intention is unclear, then the Owner must arrange contract works insurance if the Building Work involves changes, alterations, renovations, restoration, repairs or maintenance to existing structures, and the Builder is responsible for arranging contract works insurance if the Building Work involves constructing an entirely new stand-alone structure. Irrespective of who arranges the contract works insurance, the excess on a contract works claim is payable by the Owner. Given that such insurance typically expires on Practical Completion, the Owner must ensure that the Building is insured from that point onwards.
12.2	The amount insured must be at least as much as the Original Contract Price, plus an allowance for Owner-supplied materials, expediting expenses, removal of debris, professional fees, increased costs during construction, increased costs during reconstruction, and materials in storage (off the Project site). Unless otherwise agreed, the allowances for these items shall be those shown in Part G of the Schedule, and if no allowance is made in that Part for any item then the allowance must be reasonable in the circumstances.
12.3	The Owner must arrange contract works insurance against loss or damage to the Owner’s existing structures made available by the Owner to enable the performance of the Building Work, or existing structures adjacent to the Building, and to the Owner’s contents. This insurance must be for the full replacement value, and for consequential loss arising from loss or damage to those structures and contents.
12.4	The Builder must arrange public liability insurance for loss or damage to any property, or illness, injury or death to any person, that arises from the performance of the Building Work.
12.5*	In the event of loss or damage to any part of the Building which is not caused by the Builder or any party for whom the Builder is responsible:
	a.	The Builder is not required to carry out any restoration work at the Builder’s own expense.
	b.	The Builder will restore all loss or damage to the Building and the restoration work will be treated as a Variation.
	c.	The restoration work will be paid for from the proceeds of the contract works insurance.
	d.	If the delay in confirming insurance cover after loss or damage to the Building has occurred is such that the Builder can no longer reasonably afford to maintain spare capacity to perform the Building Work when required, the Builder may suspend the Building Work as if clause 20.2 applied, and if the Builder has not cancelled the contract in the meantime, the Builder shall not be obliged to resume the Building Work until the Builder’s commitments reasonably allow for a resumption.
12.6	If this Contract is completed on-line, and either Party has selected the option to apply for a contract works policy marketed under the “REDi” brand, then an application for such a policy will be automatically generated from the information entered into the Schedule of this Contract.
12.7	The insurance broker responsible for arranging the REDi contract works policy and the underwriter(s) to whom the application is submitted together with their respective representatives or agents are authorised to obtain from, and disclose to, any other party any information they consider relevant to the assessment of the application for the policy.
12.8	For the purpose of section 12 of the Contract and Commercial Law Act 2017, the provisions in this Part 12 are intended to create obligations enforceable by the insurance broker and the underwriter(s) referred to in clause 12.7 and their respective representatives or agents, whether or not they are parties to this Building Contract.

4.1	This is a building contract in which the total price payable for the Building Work is not fixed, specified, or known at the time of entering into the Contract. Instead, the progress payments and the Final Contract Price are to be calculated by reference to the actual costs incurred by the Builder in carrying out the Building Work, plus a Margin for the Builder’s Off-site Overheads and profit. The Parties may have chosen to enter into this form of building contract for any number of reasons, including that it is too difficult for the Builder and/or the Owner to accurately predict the precise scope of the Building Work at the outset, or the Building Work involves innovative systems or materials the cost of which is largely unknown, or to avoid the administrative burden of having to recalculate a fixed contract price each time a component of the work changes, or simply because it is their preference to do so. While this inevitably involves some uncertainty as to what the Final Contract Price will eventually amount to, it has the advantage that at the conclusion of the Building Work the Owner will have become liable to pay no more and no less than the value of the Building Work and materials the Owner has actually received.
4.2	The progress payments and the Final Contract Price payable to the Builder shall therefore be calculated by reference to the hours of work expended by the Builder and the Builder’s employees and contractors in carrying out the Building Work, plus the materials and other direct costs incurred by the Builder in carrying out the Building Work, using the rates set out in Part F of the Schedule. Onto those amounts shall then be added the Margins for the Builder’s Off-site Overheads and profit, calculated by reference to the percentages shown in Part F of the Schedule.
4.3	The Builder shall be entitled to charge for and recover all costs that the Builder would not have incurred but for the Building Work, and that are reasonably necessary to carry out the Building Work to the standard required by this Contract, plus the relevant Builder’s Margins. Those costs include (without limitation):
	a.	The Builder’s own labour and labour performed by the Builder’s employees and contractors.
	b.	Products or services from subcontractors or specialist trades.
	c.	Professional advice such as architecture and engineering.
	d.	Building materials and consumables.
	e.	Hireage of tools, plant, equipment, appliances or vehicles.
4.4	The cost of labour shall be calculated using the labour rates set out in Part F of the Schedule, or where no rates have been specified in any particular case, at the prevailing market rates for the personnel in question. The labour rates set out in Part F of the Schedule apply to normal working hours and days, and in calculating working hours no deduction shall be made for work breaks that are reasonably necessary for the consumption of food or beverages or to ensure the continued health, safety, productivity and efficiency of the relevant personnel. Where in order to comply with the Builder’s obligations under this Contract it is reasonably necessary for the Builder and/or the Builder’s employees and subcontractors to carry out Building Work outside of normal working hours or on weekends or public holidays, and the Builder is required to pay penal or overtime rates as a result, those penal or overtime rates shall be included in the calculation of the cost of the Building Work.
4.5	All the costs of the Building Work apart from labour shall be calculated by reference to the invoice issued to the Builder for the relevant item, or if no invoice was issued, by reference to what the Builder actually paid. Where such costs cannot be separately identified or accurately ascertained through timesheets, invoices or otherwise, the cost of those items shall be calculated having regard to the prevailing market price for the relevant items.
4.6	The rates set out in Part F of the Schedule shall be adjusted for any increase in the rates charged by subcontractors that could not reasonably have been foreseen by the Builder at the time this Contract is signed by the Builder, and which would otherwise have the effect of eroding the Builder’s profit margin. The Builder must be able to substantiate the increase by reference to written evidence such as quotations, communications or invoices from the relevant subcontractor, clearly demonstrating the rates that were first advised to the Builder when Part F of the Schedule was completed, and the rates subsequently charged. The Builder shall whenever reasonably practicable, resist any rate increases and procure subcontracts on the basis of fixed rates that cannot be increased during the course of the Building Work.
4.7	If any of the subcontractor rates set out in Part F of the Schedule decrease for any reason (other than rebates or discounts provided to the Builder as a result of such factors as loyalty, volume of business, enticement to form a new or long term trading relationship, or membership of a trade association or cooperative company), the decreased rate(s) shall be used in the calculation of all progress payments and the Final Contract Price from the time that the decrease takes effect.
4.8	Either prior or subsequent to the Parties entering into this Contract, the Builder may have given or may give to the Owner or the Owner’s representative(s) an estimate, indication, projection, guess, intimation, prediction or similar communication (together referred to as an “estimate”) as to what the Final Contract Price or any component of it is likely to turn out to be. It is common for building owners to request an estimate and it is common for builders, in good faith and out of a desire to be helpful, to comply with that request, or indeed to offer an estimate unsolicited. The Parties acknowledge that even the most carefully calculated estimate can in hindsight prove to be grossly pessimistic or optimistic, and it is impossible for the Builder to accurately predict what the final outcome of the Project will be, given that so many factors are outside the Builder’s control.
4.9	The Parties have chosen this form of contract rather than a fixed price contract because they have agreed that the Final Contract Price will be determined by the hours of work and the materials and other direct costs that are ultimately involved, and the margin applied to those items. By definition, those hours and those costs cannot be known in advance. The Parties therefore expressly record that any such estimate that may have been or may be provided by the Builder – assuming the Builder used the term “estimate” or some reasonably equivalent expression – shall only represent the Builder’s best guess, based on the Builder’s experience and what the Builder knows about the Project itself to date. The Builder agrees to take reasonable care in calculating any estimate that may be given, and to keep the Owner regularly informed, by the provision of periodic invoices or otherwise, of the amount paid and payable to the Builder in respect of the Building Work at any given time.
4.10	A price estimate is fundamentally different from an undertaking, promise, commitment, statement, assurance, warranty or representation (together referred to as a “representation”) that the total contract price will amount to, or will not exceed, a stated or fixed sum. If the Builder has given such a representation, then that will bind the Builder in accordance with its terms. However the representation must be reasonably inferred from the wording used. For example if either of the Parties has, without full knowledge of the legal significance, mistakenly described an estimate as a “quote” or used some other wording that might suggest a representation that would be enforceable in law, then that will not constitute a representation if the Parties did not intend it to have that effect.

13.1	Part H of the Schedule contemplates that the Parties will elect who is responsible for arranging the contract works insurance. If the Parties have not made that election or if their intention is unclear, then the Owner must arrange contract works insurance if the Building Work involves changes, alterations, renovations, restoration, repairs or maintenance to existing structures, and the Builder is responsible for arranging contract works insurance if the Building Work involves constructing an entirely new stand-alone structure. Irrespective of who arranges the contract works insurance, the excess on a contract works claim is payable by the Owner. Given that such insurance typically expires on Practical Completion, the Owner must ensure that the Building is insured from that point onwards.
13.2	The amount insured must be at least as much as the Original Contract Price, plus an allowance for Owner-supplied materials, expediting expenses, removal of debris, professional fees, increased costs during construction, increased costs during reconstruction, and materials in storage (off the Project site). Unless otherwise agreed, the allowances for these items shall be those shown in Part H of the Schedule, and if no allowance is made in that Part for any item then the allowance must be reasonable in the circumstances.
13.3	The Owner must arrange contract works insurance against loss or damage to the Owner’s existing structures made available by the Owner to enable the performance of the Building Work, or existing structures adjacent to the Building, and to the Owner’s contents. This insurance must be for the full replacement value, and for consequential loss arising from loss or damage to those structures and contents.
13.4	The Builder must arrange public liability insurance for loss or damage to any property, or illness, injury or death to any person, that arises from the performance of the Building Work.
13.5	In the event of loss or damage to any part of the Building which is not caused by the Builder or any party for whom the Builder is responsible:
		a.	The Builder is not required to carry out any restoration work at the Builder’s own expense.
		b.	The Builder will restore all loss or damage to the Building and the restoration work will be treated as a Variation.
		c.	The restoration work will be paid for from the proceeds of the contract works insurance.
		d.	If the delay in confirming insurance cover after loss or damage to the Building has occurred is such that the Builder can no longer reasonably afford to maintain spare capacity to perform the Building Work when required, the Builder may suspend the Building Work as if clause 20.2 applied, and if the Builder has not cancelled the contract in the meantime, the Builder shall not be obliged to resume the Building Work until the Builder’s commitments reasonably allow for a resumption.
13.6	If this Contract is completed on-line, and either Party has selected the option to apply for a contract works policy marketed under the “REDi” brand, then an application for such a policy will be automatically generated from the information entered into the Schedule of this Contract.
13.7	The insurance broker responsible for arranging the REDi contract works policy and the underwriter(s) to whom the application is submitted together with their respective representatives or agents are authorised to obtain from, and disclose to, any other party any information they consider relevant to the assessment of the application for the policy.
13.8	For the purpose of section 12 of the Contract and Commercial Law Act 2017, the provisions in this Part 13 are intended to create obligations enforceable by the insurance broker and the underwriter(s) referred to in clause 13.7 and their respective representatives or agents, whether or not they are parties to this Building Contract.

9.1	The Builder shall commence the Building Work within a reasonable time after:
	a.	the Contract has been signed by both parties; and
	b.	any deposit payable in accordance with clause 7.2 has been paid; and
	c.	any necessary Building Consent or resource consent or other requisite consents or licences or consent amendments have been issued.
9.2	Unless otherwise agreed in writing between the Parties, the Owner shall obtain all project information memoranda, Building Consents, resource or other consents or licences, and consent amendments required for the Building Work.
9.3	The Owner shall promptly provide all information reasonably required by the Builder to enable the Builder to comply with the Builder’s obligations under this Contract, whether prior to the commencement of, during the performance of, or after the completion of the Building Work.
9.4	The expected completion date stated in Part B of the Schedule shall be automatically extended by a reasonable time where delays arise due to:
	a.	Variations;
	b.	Any strike, lockout, or other industrial action;
	c.	Loss or damage to the Building Work other than loss or damage caused by the Builder’s breach of its obligations under this Contract;
	d.	Flood, volcanic, or seismic events;
	e.	Inclement weather;
	f.	Failure to obtain consent or approval through no fault of the Builder;
	g.	Failure by the Owner to give timely directions;
	h.	Unforeseen physical conditions;
	i.	The Builder exercising its right to suspend the Building Work under this Contract;
	j.	Act, omission or default by the Owner or any person for whose acts or omissions the Owner is responsible;
	k.	A separate contractor’s act or omission;
	l.	Unavailability or shortage of materials;
	m.	Any other event which is beyond the reasonable control of the Builder and for which the Builder is not responsible.

7.1	The Builder is not obliged to commence the Building Work until any deposit payable in accordance with clause 7.2 has been paid.
7.2	The Deposit shall be paid by the Owner upon signing the Contract. The Deposit shall be held by the Builder and applied towards payment of the final invoice, or as provided by clause 20.9 or clause 21.4. The Deposit is therefore not to be treated as a progress payment. If the final invoice is less than the Deposit then the Builder shall pay the Owner the balance of the Deposit upon issuing the final invoice.
7.3	The Owner shall make progress payments to the Builder for Building Work completed and materials supplied, including any adjustments for Provisional Sums, cost fluctuations or Variations, up to the end of the applicable period or stage of work. The payments shall be made into a bank account provided by the Builder via internet banking or direct deposit, unless the parties agree on a different payment method.
7.4	Where the parties have agreed to progress payments at completion stages (Option A in Part E of the Schedule) the Builder may issue an invoice at any time after a relevant stage of completion is reached. If a completion stage cannot be reached due to matters beyond the Builder’s reasonable control, and one month has elapsed since the previous invoice, the Builder may invoice for the proportion of that completion stage that has been reached.
7.5	Where the parties have agreed to progress payments at the end of defined periods of time (Option B in Part E of the Schedule) the Builder may issue an invoice for the Building Work completed up to the end of each such period. Any invoice issued in advance of the end of the relevant period (other than a final invoice) shall be deemed to have been issued on the last working day of that period.
7.6	The Owner must pay the invoiced amount in full within 5 Working Days of the invoice being delivered or sent to the Owner or such other time as is stated in Part F of the Schedule. If the Owner does not consider that all or any part of the invoiced amount is payable, the Owner must, within 5 Working Days after the invoice was delivered or sent to the Owner:
	a.	reply in writing to the Builder stating the amount that the Owner considers payable (the undisputed amount), and
	b.	specifying the reasons why any part of the invoiced amount is disputed, and the method in which the disputed amount has been calculated; and
	c.	pay the undisputed amount.
7.7	If the Builder’s invoice is or is accompanied by a payment claim made under the CCA, then any payment schedule as defined in section 5 of that Act must be provided to the Builder within 5 Working Days of the payment claim being served on the Owner.
7.8	The Owner shall pay progress payments on the due dates, irrespective of when the Owner’s bank or financier is prepared to advance any monies required by the Owner in order to meet the Owner’s payment obligations under this Contract. It is the Owner’s responsibility to ensure that sufficient funds are available to comply with the Owner’s payment obligations under this Contract. The issue of a Code Compliance Certificate is not a prerequisite to Practical Completion or the Builder’s entitlement to payment of the final invoice.
7.9	The Owner may at any time request the Builder to provide a receipt or statement recording or evidencing the payments received from the Owner.
7.10	The Parties will comply with their obligations (if any) under Subpart 2A of the CCA (which requires certain retention monies to be held on trust or otherwise secured) to the extent that Subpart 2A applies to this Contract. The purpose of this provision is to ensure that an adjudicator appointed under the CCA or an arbitrator appointed under the Arbitration Act 1996 has jurisdiction to make a determination in respect of any such obligations, as if they were expressly incorporated into this Contract.

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