Builder collapses have shifted due diligence from a box-ticking exercise to a core part of buying new. For house and land buyers and off-the-plan purchasers alike, a builder’s financial stability now carries as much weight as façade options or upgrade lists. The contract you sign may lock in your land, your finance approval and months of progress payments. If the builder cannot finish the job, the disruption is rarely minor.
Understanding how to assess a builder’s financial health is less about forensic accounting and more about reading the right signals before you commit.
Why financial health matters more in a fixed-price world
Most residential building contracts are fixed price. That puts pressure on builders when labour or material costs rise, particularly across multi-stage projects or estates delivered over several years. A financially stable builder will have:
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Adequate cash flow to fund construction between progress payments
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Established trade relationships that don’t rely on extended credit
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Sensible pipelines that match their capacity
Buyers don’t need access to internal accounts to form a view, but they do need to move beyond glossy brochures and display homes.
Start with the public record
In Australia, there are several basic checks every buyer should complete before signing:
1. ASIC company search
A paid ASIC search will confirm:
Whether the company is in administration, liquidation or subject to external management
Frequent company name changes, recently appointed directors, or multiple related entities can warrant closer scrutiny.
2. ABN and licence verification
Check the builder’s ABN status and verify their building licence with the relevant state authority (e.g. VBA in Victoria, NSW Fair Trading, QBCC in Queensland). Confirm:
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The licence class matches the work being undertaken
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There are no current suspensions or significant disciplinary actions
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These checks don’t prove financial strength, but they filter out avoidable risk.
Look at structure, not just size
Volume does not automatically equal stability. Nor does being “boutique” mean vulnerability. Instead, consider:
Years trading under the same entity
A builder operating under the same company structure for a decade signals continuity. Repeated collapses followed by phoenix companies are a red flag.
Pipeline exposure
Ask how many homes they are currently building and in which locations. A builder heavily exposed to one estate or one developer may be vulnerable if sales slow or funding shifts.
Land developer alignment
In house and land estates, check whether the builder is a preferred partner of the developer. Long-term relationships between reputable developers and builders often indicate financial and operational due diligence has already occurred at a higher level.
Read the contract with solvency in mind
The building contract itself reveals how risk is allocated.
Progress payment schedule
Ensure payments align with completed stages, not arbitrary dates. Payments should follow physical progress (base, frame, lock-up, fixing, completion). If deposits or early-stage payments appear front-loaded, question why.
Prime costs and provisional sums
Excessive allowances can expose buyers to variations later. Financially stressed builders sometimes underquote and rely on variations to restore margins.
Sunset clauses and termination rights
Understand under what conditions the builder can terminate the contract. Broad termination rights can increase uncertainty if costs escalate.
Engaging a construction lawyer to review the contract is often a modest cost relative to the value at risk.
Ask direct but practical questions
Buyers are often hesitant to question a builder’s financial position. Framing matters. Instead of asking for bank statements, consider:
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How has your build time changed over the past 12 months?
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What is your current average construction timeframe?
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How many homes are under construction right now?
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Have you had to renegotiate supplier contracts due to cost increases?
Consistent, transparent answers matter more than rehearsed assurances.
Check insurance and warranty protections
In most states, domestic building insurance (DBI or equivalent) covers incomplete work if a builder dies, disappears or becomes insolvent. Confirm:
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The policy will be issued in your name
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It covers the full contract value
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It is in place before significant progress payments
Insurance is not a substitute for a solvent builder, but it is a critical backstop.
Observe operational signals on the ground
Financial stress often shows up operationally before it appears in headlines.
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Display homes closed without explanation
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Slow site activity across multiple builds
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Trades rotating frequently mid-construction
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Persistent material delays not explained by broader supply issues
Speaking with current clients in the same estate can provide insight into build timelines and communication standards.
Understand the market cycle you’re buying into
Builders operating in growth corridors with strong pre-sales and land settlements may have steadier cash flow than those reliant on sporadic custom builds. Conversely, aggressive discounting in soft markets can signal margin pressure.
Buyers in emerging estates should consider how reliant the builder is on continued land sales to fund pipeline work. In slower markets, strong balance sheets and conservative growth strategies tend to matter more than headline incentives.
When to pause
No single factor confirms financial instability. But a combination of the following should prompt caution:
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Recently formed company with limited track record
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History of insolvency linked to current directors
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Unusually low pricing compared to competitors
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Resistance to contract review or transparency
In these cases, independent legal and financial advice is warranted before proceeding.
Due diligence is part of the buying decision
Choosing a builder is no longer just about design or inclusions. Financial resilience underpins delivery. Buyers who approach due diligence methodically, verifying corporate records, reviewing contract structure, assessing operational signals, reduce the risk of disruption mid-build.
In a market where construction timelines and costs have fluctuated, the most competitive quote is not always the safest option. Stability, track record and transparency increasingly define value.
For buyers committing to a new home build, financial health is not an abstract concern. It is central to whether the keys are handed over on time, and at the agreed price.
Publisher Website: www.homeshelf.com.au