What Happens If My Builder Goes Bust?
It's the question every homeowner pushes to the back of their mind. If your builder becomes insolvent partway through your build, what actually happens to your money and your half-finished home? Here's the plain version.
Your contract effectively ends
When a builder is wound up or goes into administration, they can't finish your job. You become one of many creditors owed money, and homeowners usually sit well down the queue behind banks, the tax office and secured lenders. Recovering a deposit or prepaid progress payments through that process is slow and often returns cents in the dollar, if anything.
Your unfinished home is now your problem to solve
You'll need a new builder to take over a partly built home they didn't start. Many won't, or will charge a premium to inherit someone else's work and its risks. Costs almost always rise, because the new builder has to assess, sometimes rectify, and then complete.
This is where insurance matters
Most states require the builder to hold domestic building or home warranty insurance for work above a set value. In Victoria it's domestic building insurance through the VMIA, in New South Wales it's Home Building Compensation cover, in Queensland it's the Queensland Home Warranty Scheme run by the QBCC. These schemes can help cover non-completion or defects if the builder dies, disappears or becomes insolvent, but they have caps, conditions and time limits, and they're not a substitute for choosing a sound builder in the first place. Confirm the cover is actually in place for your project before you pay.
How to reduce the risk before it happens
You can't eliminate the risk, but you can size it up. Checking the builder's financial position, director history and insolvency indicators before you sign is the single most useful thing you can do. Keeping deposits and progress payments to the legal minimum, and never paying ahead of work completed, limits how exposed you are if things go wrong.
Related: Builder Insolvency Check
Related: Should I Pay a Builder Deposit?
Check your builder's insolvency risk first
Size up the risk before it becomes your problem. Independent due diligence, Australia-wide.