When building a new home, there are a lot of ways that a consumer can get screwed by an unscrupulous builder.
The easiest way to protect yourself is to do business with known entities. Whenever I broker a transaction which involves a builder, I emphatically advise my client about the pros and cons of doing business with that specific builder. Regardless of how strong of a construction contract that is drawn, there will be gray areas where the builder can harm you-or not.
The one minute short course on builder selection involves the following rules:
1. References. Get a completed and unedited list of every person the builder has worked for over the past three years. If you want to be extra thorough, personally go to the building department in the towns where the builder works and ask for that same list (you may need to file a freedom of information act form to get it). If names are omitted from the list which was given to you by the builder, ask why. Contact these references and ask about their experience with the developer.
2. Credit score. This is an excellent measure of the builder's worthiness. If he has a history of not paying his subcontractors, he will be reluctant to to show you his credit score. Do not settle for excuses.
3. Business entity. Reputable builders build under the same name for years. Sleazy builders change their names often. The bad guys go from one LLC to another.
Please be careful. Improper builder selection is a gut-wrenching nightmare.