Some builders will ask for a deposit, but you should not accept that unquestioningly. Before you sign a contract with a builder, you should find out:

1. Is a deposit required?
2. How much is the deposit?
3. Who will hold the deposit?
4. How will the deposit be applied (ie will it come off the first payment claim, will it be held throughout the project)?

As a general rule, the larger the deposit requested, the more alarm bells should ring.  

There are many business structures that a builder can choose to operate under, ie a limited liability company, a sole trader, a franchise or a partnership. It is important to find out who the builder is so that you can properly check their background, and so that you know who you are dealing with in case something goes wrong. 

If the builder operates as a company, you should find out who actually owns and governs the company by undertaking a company search (using the company name, the names of its directors and shareholders) on the Companies Register website.

If the builder operates as a franchisee, you should find out the nature of the franchise agreement and the extent of the involvement of the franchiser.

A search of the Personal Property Securities Register (PPSR) may help you understand what security interests are registered against the builder and who their creditors are.

If only “second tier” funders (ie credit unions) are registered, you may want to enquire whether “first tier” funders (ie banks) have declined to provide funding and, if so, why. Being declined funding by a bank may be a red flag as to the builder's financial stability.

The costs involved with a PPSR search are minimal - $2.30 (GST inclusive).

We recommend carrying out reference checks for the last three projects completed by the builder. If the builder will not provide references then that should be a significant concern.  

Questions to ask the property owners may include:

• When was the project started and completed? 
• Were you satisfied with the building process and quality?
• Was the project completed on schedule?
• Was communication clear and efficient?
• Were the original cost estimates accurate?
• How did the builder handle unexpected problems?
• Were there any disputes with the builder and, if so, what were they about?
• Were you aware of any disputes between the builder and its subcontractors and, if so, what were they about?
• Would you hire the builder again? If not, why not?

Some referees may be happy to allow you to visit and view the completed works. If a site visit isn't an option, then you could drive past and look at the building from the street.

You should find out how much work the builder will be doing themselves? If somebody else is doing the work, who are they and what are their qualifications?

Checking the experience and qualifications of the builder is vital. Significant problems arise when builders are out of their depth or do not understand the various technical requirements. By contrast, an experienced builder with appropriate qualifications will bring knowledge about the building industry that will generally improve all aspects of your building experience.  

You must use a licensed building practitioner (LBP) to design and carry out restricted building work. You can search the Public Register of LBPs online and check whether your builder is an LBP.

If things go seriously wrong, it is likely to be the builder’s insurer (if they have one) rather than the builder who will be solving them. You should check the details of the builder’s insurance, including:

• Whether it is provided by a major, reputable insurer;  and
• What public liability cover is in place and at what level - cover at a low amount ($1 million or under) may suggest that the builder works on small projects or that they have been denied cover at higher levels.

You can find out a lot about a business by undertaking a Google and social media (including LinkedIn) search. Make sure you search the builder’s business name, the individuals involved, ie directors and shareholders, and any former company names.

Check the online reviews and ask for explanations of negative reviews.

If you are particularly concerned, you can check whether anybody has applied to liquidate the builder’s company or whether the builder has been made bankrupt by searching the Gazette Bankruptcy and Liquidation Notices.

You can also search the Insolvency Register for details of current (and recently discharged) bankruptcies, no asset procedures and Official Assignee administered liquidations.

Make sure you check:

• The builder’s business name and former business names;
• Any individuals involved, ie directors and shareholders; and