Angus Luffman on What a Builder Credit Check Actually Shows

Most people hiring a builder do what feels sensible. They check the licence, they ask for references, maybe look at some past work.

But what they don't do and what the industry has never really made easy is look at whether the company is under financial stress, whether it's carrying unresolved court disputes or whether the directors have a history that would give any lender pause. That information exists.

It's just never been assembled in one place in plain English before a contract is signed. And by the time a homeowner discovers it matters, the money is already gone. Angus Luffman spent years at the centre of Australia's shift to positive credit reporting.

He led the release of the first consumer credit score in this country, which means he understands better than most how raw data becomes actionable risk intelligence and how long it takes for an industry to accept that transparency serves everyone.

Now he's applying the same logic to residential construction through Trust Signal and the conversation goes well beyond what a builder report can tell you.

We get into why the warning signs are almost always visible before collapse, what the aggregation of licence, credit, insolvency and court data actually reveals that none of those sources alone will show and where even a well-designed due diligence tool hits its limits. Welcome to the elephant in the room.

This is the podcast where we love to talk about the big things in property that never usually get talked about. I'm Veronica Morgan, real estate agent, buyer's agent and buyer's agent mentor, co-host of Foxtel's Location, Location, Location Australia, author of Auction Ready and co-host of Your First Home Buyer Guide.

Hi, I'm Chris Bates, ex-financial planner and mortgage broker, currently ranked number three in the annual MPA Top 100 Mortgage Broker Awards. Before we get started, everything we talk about today is not personal advice, and we recommend you engage the services of a licensed and experienced professional.

Angus, welcome. With so much money at stake and so many builder insolvencies hitting the headlines over the last five or six years, I can't believe that something like Trust Signal hasn't been developed before now. So we're definitely looking forward to this conversation. So thank you so much for joining us today.

Pleasure. It's great to be here, Veronica and Chris.

Angus, let's just start with just a simple question, to be honest. What is the extent of this problem, I guess?

So I think I'll use my own example, how I uncovered this. So I was helping a family member late last year. They were doing a check on a builder. And obviously, in my background, I helped them do that. And look, we found a provider who could help do that.

But I got this very long, convoluted report. There's a whole bunch of screenshots. And it just seemed a lot more difficult than what it should be.

And the point is the information is there and available about a building entity, and you can understand, and if you can bring that all together in one place, then pretty quickly you can help the consumer, the homeowner, a tradie, an advisor, help understand what that building entity looks like in terms of, and be in a better position to make a due diligence decision or go through a due diligence process.

So that's where it came from. I think there's a whole range of evidence around extent of problem that I'm sure we'll get into. But that's where the idea really came from.

And it's absolutely doable that you can get this information together and ask the right questions, as you should in a due diligence process.

So I'm guessing that you, because of your background, when, you know, if you're going to get a builder, you need to check these things, whereas most people probably wouldn't even think of that, you know.

And so they're going to find out if they've chosen a builder that's in financial difficulty, they're going to find out mid-build at one of the most...

Horrific times to discover that all the materials that you've paid for that were stored not on your site are gone or whatever, or just the fact that your build is stalled, that you've got to then chase for money, you've got a contract hanging in the air.

I mean, there's a lot of issues that would be a horrific situation for an individual home owner or builder or someone who's getting a renovation done. How often does this happen to people?

So we don't know how often it happens to people. And look, it's an industry that is a hugely important industry for Australia. It drives a substantial, a good portion of our GDP. Almost 10% across all construction, about half of that is residential construction.

But inside of that is also, particularly residential construction, a really important economic multiplier. And that's an economic term, but essentially means for every dollar spent, how many additional dollars get spent? And it's about the second highest contributing industry on that front.

So up to $2.90 of incremental created value happens when a builder goes, a residential builder goes and constructs a house. So it's a really important industry and there's 1.3 to 1.4 employees caught up in it. But there's obviously plenty of stories and we all hear them.

And I think one of the contexts of that, and you guys will know this, you're in the game, is that we're talking quite big money here. That's the biggest investment that a consumer, a homeowner is going to make likely in their life.

A major renovation or a new build, it's a very big investment. But it's also the place where we live. It's our sanctuary. It's got an emotional connection.

And so people get caught up in the idea of what it is and wanting to get on with it and may not necessarily just go and ask those good, simple questions that they need to ask and that is useful to ask when you're going to drop six or seven figures on a major renovation or a new build.

And so... That's what we've really tied into and found ways to simplify the aggregation of that information about that builder.

So when you started building it, was there any things that you sort of ended up building into the product that you hadn't even thought of at the start? And was it the problems you thought you were solving, i.e., have any issues with insolvency? Or has it got insurance?

There's some elements there that you just sort of figured out by putting it together that you weren't expecting? Yeah.

Oh, absolutely. So I wasn't really across the administrative tribunals that sit in various states, right? So there's one in each state. In New South Wales, it's called NCAT, and Queensland is called QCAT, and you can do the rest around the country, right?

And these are administrative tribunals that could happen for any type of industry, but obviously they've got a lot of elements that are around the construction industry. And they get recorded.

And if you go, you can go back and look at, we had a look at a builder, a project builder that, you know, failed earlier this year. And there was 70 tribunal records on that builder. And as an example, and so, or 70 plus, I should say, it was more than 70 actually.

And so, yeah.

That is a red flag or at least a reason to ask questions about who have I chosen here, what's going on, et cetera. So for me, Chris, yeah, again, a tribunal you're not going to know about unless you've been involved in it, right?

And there's about 3,000 of these a year that happen in roughly that number. And so unless you've been involved in those, then you don't really know.

many more builders and many more innovations and builds that happen that than happen that than that every year but that's that's an example

So builder insolvencies, I guess they tend to get framed as unpredictable shocks, you know, companies that seemed fine and then they weren't. You've just given an example about there's one definite red flag, you know, one source of a red flag there, and you spend your entire career looking at risk signals.

So I guess beyond that, how predictable are these collapses, you know, and I guess what does that say about companies homeowners' lack of due diligence. I mean, if they're not even, I mean, to be honest, I wouldn't have thought of that. And I think I think about everything, but I obviously don't.

So, you know, and I'm pretty much across that sort of stuff. So what else is there that gives, you know, gives a clear sign that there's trouble ahead?

So I think that one of the things that we don't, despite my background, Veronica, we don't score. We don't rank. We just cite what's in the records and bring all those records together so that the consumer or the reader of the report is then in a position to ask the questions.

And we actually present the report as an ask questions like, how long has this business been registered? How long? You know, is there a valid license, et cetera, et cetera, those sorts of questions.

And our job there is to take, it can be relatively complex information and information if you're not familiar with, you go, what does that mean? So we then attempt to turn it into plain English and say, you might want to ask some questions about this.

But yeah, we don't actually score or rank those elements. I think probably the biggest discovery I've had in this, and obviously I've learned plenty along the way, is that the most common aspect here is to go looking for information that doesn't line up, right?

So that can be as simple as the decal on the SUV doesn't match the business card, doesn't match the name on the contract, You probably got a reason to ask some questions, right? Or if you get some avoidance on some questions, you've probably got some reason to ask questions.

And all those things I've just given you, that's not a complete trusting report, but that's an example of having a curious mind before you make the investment that you're making.

There's a lot of talk around phoenixing, right? And, you know, projects and builders. And does this sort of report sort of highlight if it's like obviously a new entity and, you know, they had a lot of previous other entities in the past?

Does it sort of, you know, is that one of the risks that sort of highlight?

Yeah, look, it's one of those profile ones and it's not necessarily easy to uncover. We certainly pick up some signals on that.

So, for instance, you know, the classic financing is company A goes into liquidation or is liquidated and for company B is formed very quickly with a very similar name afterwards. Assets are transferred at low value, etc., etc., right? Yeah.

So we can pick up, so for instance, Atel is, he's a director that's really experienced in the industry, but has only been a director of this company for two years. That's a question mark. And that's in an industry where 54% of the businesses don't last beyond three years.

So, you know, it's, and that's, again, that's just a question of here's the information I've got. How does it line up? Hang on a minute. This doesn't line up with that information there. So, and that's what due diligence is, right? You're trying to triangulate some information.

Absolutely, you can't perfectly detect financing, but certainly we go looking for affiliations of directors with previously insolvent companies. We obviously pick up on when the company was formed versus what their record might say.

If you go looking, you go, it's ABC Building Proprietary Limited, and then there's another entity of similar directors or overlap, ABC Building in brackets, New South Wales Proprietary Limited, right? Question mark.

And so that doesn't mean, and I've got to say that there are often perfectly legitimate reasons that people are restructuring their organizations, and that's what they do. This is not always the case. That's why we say it's a reason to ask questions.

Yeah, because we know it's common practice in the industry, with developers in particular. I mean, and there's a difference between developers and builders, obviously. And, you know, they'd be foolish not to take advantage of this phoenixing loophole if it's legal and if their lawyer is suggesting that they do it.

You know, I mean, it reduces their risk. It'd be silly not to, right? But the builder and the developer are two different entities. But also we're talking, you know, there's builders that build buildings

large multi-level high-rise complexes or multi-dwelling complexes, then you've got the builder that you just employ to do your own one-off build, or then you've got project builders. There's a number of different types of builders that are out there.

Is this something that you would even recommend people do if they're going to buy off the plan, for example, or if they're going to buy a house and land package?

Obviously, the house and land package, it's well-documented, the builder's folding there, but at every sort of level or size of build, is it something you recommend?

I think at a high level, Veronica, what I'd say is this, is that if you are going to invest six or seven figures into building a property, then doing good due diligence is the right thing for you to do, regardless of who's going to be on the end of the hammer or the trowel.

And how you do that. Now, in the case of Trust Signal, we'd say for a few hundred bucks, you can do that and get a lot of information back. You're still probably going to ask other questions in a very thorough due diligence process.

But I think at a high level, what we're saying here is that, yes, it's an emotional buying decision. Yes, you're committed emotionally. Yes, you want to do it and get on with it. And it's about your family and your place of sanctuary and all those things. Stop, take a breath.

Ask the questions you need to ask. There's plenty of information available that you can get your hands on, and that's what we've sought to bring together.

You mentioned that about 54% of firms don't make it past three years.

Is there like some type of traffic light sort of system that, you know, is going to sort of help people understand whether this is good, bad or risk or, you know, and is there parts of that you're still trying to, you know, figure out ways or parts of data that you're trying to still get access to that you haven't been able to figure a way out yet or...

Yeah. So I think the nature of what you do when you produce these types of services is that you're always looking to iterate and improve the service in terms of the data completeness that you've got.

Obviously, we don't access the financials of the builder and no one really does that, right? We access lots of other information about the builder and that would take a fair bit of change over time to do that and keep the speed of the report.

There are other organizations that you can go and get builder ratings and all those things and there's shared financials to do that. The 54% figure really comes from the company registrar. It just gives you an overview of businesses that start.

How long do they – how many last three years or the last one, two, or three years? And that's how we've computed that stat. I think the other aspect here to be mindful of is that there's – about a bit over 450,000 building businesses in Australia.

And that's out of about 2.7 million active businesses. The construction industry is by far the biggest by number. And there's some sort of just practical realities of why that's the case. There's pretty low barriers to entry. You can get into it pretty easily.

But equally, and you can get licensed pretty easily. You don't have to go and have large capital amounts sitting on balance sheets. And obviously, you've got to have customers, but you can get underway, right? You can get underway pretty quickly. But the other side of that is just the risk.

Someone building your house, that main contractor that's running your house is operating on a margin that's probably less than 10%. And in some cases, it can be well less than 10%. They've got cash flow, which is highly variable and revenue that's variable because you're paying them on milestone payments.

And then in many cases, they'll be fixed price contracts where materials could change. And we've certainly seen that over the recent years. So there's a whole range of elements that sit around this that just goes back to that point of given the nature of what you're working with and what you're investing,

and the potential heartache you have from issues that emerge that you could have possibly seen or at least asked about means just do your due diligence.

So the platform's designed for homeowners, but subcontractors and advisors are also sort of in the frame. Because let's face it, the plumber who's agreed to do the work for the builder, they want to get paid too.

They want to make sure that... And you want to make sure they're solvent. I mean, you could really get the big knock-on effect. But there is a bit of a domino effect here, isn't it? Because... I've known subbies that have gone broke.

They've gone bankrupt because their main builder that they did work for went bankrupt and owed them a lot of money and they couldn't recover from that. So I've known that to happen. Is that something that I guess is, was that in your mind at all when you built this?

Is that something that you're cognizant of?

So again, Veronica, one of those things we've learned along the way. So we started with this classic situation I had, right? And that was really, that's about a consumer.

And then along the way, you get into your talk to the opportunity and talk to the elements that camera and this tradie thing just came up, subcontractors. So absolutely, it's a use case. It's basically the same report or it is the same report. But that tradie who's committed to doing work

often on 60 plus payment terms, day payment terms, right? And is then maybe heavily aligned for their work and contracting to one builder, that's a lot of risk to carry. And so, yeah, absolutely, that's the case.

And then advisors are also pretty logical for us because, you know, if you're going to be signing a contract, you're going to get someone to review it, right? And obviously someone like a lawyer, right? et cetera, is a fairly natural extension of someone getting hold of this report ahead of signing.

I think the other thing, the other key message we'd say around that is for consumers is that up until you sign the contract, you've actually got a lot of control, right? The ball's on your racket.

The moment you sign the contract, there's a lot of elements that are sort of more out of your control. You've got a contract with a set of deliverables, but you've signed a contract and made a commitment, and so the builder's then in a position to want to make a start.

There's a few administrative things like mandatory insurance to do, but that's actually the reality. And so, yeah, there's definitely different use cases, but we certainly see it as the sort of the core principle here is before you sign, before you start work.

And they're the first one is the consumer, the second one is the trading.

Angus, when I did a rental a few years ago, you know, I got my own painter, got the guy to do the windows, got my own landscape. Like, I wouldn't do it again, to be honest, this way.

But, you know, and is it also, you know, when you start to extend and you're looking, you're kind of directly project managing it? Because, you know, it's more than 20 grand often a lot of these builds, right? Is it handy in this situation? Is it just purely for licensed builders?

Yeah. We haven't come across that particular use case at this point, Chris, but in the end, this is information that's available. And so if someone wants to pull one of those reports, they absolutely can.

At the moment, we're only set up really around gathering information on companies, often those painters, et cetera, sole traders. And that's a different set of questions to ask. But it sounds like you went through the 3-2-1 rule of renovation, Chris.

What is that? I don't know what that is.

A mate of mine gave me this one, and it was after his own renovation. It takes three times as long, costs twice as much, and you only ever do it once.

Yeah. Yeah, sounds pretty much it. I wouldn't do it again. But yes, I mean, it's basically, and you're only in New South Wales at the moment, but obviously the plan is to try to go nationally, just sort of figuring out all the data points for across the nation.

Yeah, so that's a bit of an indication of what it's like to put this together. So we actually plan to start to do this nationally. But when we got into doing the data work and the testing, et cetera, it's like every state's got differences. There's differences in licenses.

And then you've got all the technical connections, of course. And so it was like, oh my God, we'll never finish this thing if we go national first. And so we got the convenience of being in New South Wales. It's the biggest state. It's 40 odd percent of the market.

And so we decided to just go with focus so we could get out there and find out about it. Because you're right, there's not a lot of services around this. There's a lot to learn as you go along.

Yeah, it's pretty crazy that banks don't do any of this as well, right? Yeah. You know, when we do a mortgage application, they're not sort of, they might be doing some checks on the builders, I'm not sure actually, but, you know, they don't do a full deep dive like this, right?

How are the banks thinking about this as well?

Yeah, well, I don't, so I think there's a logical thing about construction lending. The question is whether that sits on the side of the construction organisation or

either a lender lending to the builder or a consumer taking out a loan. I think the other thing that you just got to remember, and you guys know this, right? So in the end, mortgage lending is an asset-based lend. A credit card lend is about the individual.

Yes, they both check the credit file and the credit score and all that stuff. But in the end, mortgage lending is really an asset-based lend. And so

And that's just a practical reality of how those two assets work.

This is a, which is this particularly scary bit when you are renovating or if you knock something down to rebuild, where you had something that you could live in beforehand and then you've made it completely unlivable. You generally, you move out of it. It's gutted.

It's, you know, you've had, you've had values stripped out of it and mid build. And I mean, I've come across, I've done three substantial renovations in my life. Thankfully, none of them went bad. But the very first one I did, I remember often going to the house and finding nobody there.

And I'm like, where are they? They were running so many sites and they just would spread it out. It really took about an extra two months longer than it should have taken, probably three months even, because they were running lots and lots of sites. Now, I had no idea about checking that out.

That never occurred to me, right? And so that ended up costing me more. I definitely didn't have that same problem on my last build. It actually was shorter. It was a month shorter than they expected, than they priced. So that was amazing.

And obviously I'd learned along the way, but just picked a better builder. Are those sorts of things in here as well? Like the volume, how many sites that they're running? I mean, what sort of additional things that people wouldn't even think about?

There is a bit of a natural protection. Again, this is a technical thing. So when they go to get their mandatory insurance, so in New South Wales, that's referred to as HBCF, right? So that's the piece of insurance that is used.

They must have in place to protect against insolvency, death, going out of business, whatever that is.

And the insurance policy is there to help the homeowner complete the build. Get another builder in, complete the build. And in doing that, the builder's got to do a process with the organization of iCare. They've got to do a process where they can only have so many of those policies concurrently.

So there is a bit of a natural regulated protection there that they then have to have in place. But Veronica, you're spot on. I mean, it was when we did our renovation and I've done one.

Is that a 3-2-1?

No, it was 1-1-1.

But my wife just did a terrific job. She was on site every day and really enjoyed it and got into it. But we did go through the process of changing builders, changing architects, two years in council, blah, blah, blah, blah, blah.

That was a question that I asked and it was a question that the builder was actually frankly happy to put forward saying, I only do two projects at once. I'll even think tightly if the two projects are super concurrent in terms of the heaviest point of build, what will I actually do there?

That was a classic case of the budget If I went the final budget, it was probably four or five times what we started with, but we started in the wrong place.

And we got a builder that we could ask all those questions of, and they did a terrific job because we said, this is the commitment, this is the time, here's the detail. And then we had someone managing that detail every single day. And it's like, you're going to spend that money?

Pay attention to the detail, right? And I mean, you guys are in the game. You know how much property's worth. And so I think that's the other part of it. So you move out of a due diligence into an active management piece.

Yeah, in terms of some of the things that people wouldn't expect, I mean, obviously insolvency and how many years you're in business. But when you're doing the report, what are some of the things that you've been testing it, that you're starting to highlight issues in sort of builders that you just weren't expecting?

Oh, actually, I would never have thought that. What are some of the things that have popped up?

Yeah, so obviously the tribunal piece was just completely a new use in terms of that. And my background means I know about most of the other data elements.

I think a couple of things, the mandatory insurance is a bit of a process. And so make sure you get in touch with ICARE about that, just so you understand that process. There's kind of a sequence of events that have got to happen.

So for instance, we only put in our report whether they've got eligibility Because you've got to sign a contract and then the contract goes to IK, you get a quote, et cetera, et cetera. And that's what happens. And so that's one.

The other one that we could have come up with along the way, Chris, was, and this is a background in credit reporting, is that there are elements that sit around in credit reports that actually allow you to get a picture of whether this builder has established supply arrangements.

And that's kind of important when you're building. You don't necessarily get the names of those suppliers. It doesn't say Bunnings or something like that, right? But actually understanding that there are established supply arrangements and obviously that they're meeting those supply arrangement in terms of their terms. But that's actually an important element.

So we've got a flag that kind of says, if there's no supply arrangements, you want to ask some questions. as an example. And that was a bit of a discovery along the way.

And interestingly, it was about a data point that I knew quite well, but actually the use of that data was actually more about, can you count on this builder? They've got good supply arrangements in place.

I mean, you came from credit reporting, as you just mentioned, and the industry, I understand, fought transparency hard before accepting it. The building sector has its own vested interest in keeping this information, I guess, difficult to access. Is it difficult to access or just it's disparate?

Is this stuff really quite accessible or is it deliberately hidden?

No, it is accessible if you know where to look, Veronica. Mm. So one of the things we've done with Trust Signal is we've got a public register section of our website. Just go to the knowledgehubonthetrustsignal.com.au website. And we've put there all the public registers.

So if you want to go and check this stuff yourself. Go for your life. You can't get everything, but you can certainly get licenses and insurances and tribunals and all of those things. And so we've just got them there and they link through to the government URL.

About that, we don't try and represent it. We just say, click here and this will take you to where you verify your license, et cetera. But to your point, it's just disparate. And you say, A, it's disparate and B, you've got to know where to look.

And so that's why we created this thing.

about making it just easier for the consumer to really start to understand this stuff and they're going to look frankly if they go and do some of that they're going to understand the report if they get them get the full report from us far better because they've gone and done a bit of learning about it because obviously we give some we give lots of content about this stuff on the on the site as well that's that's really our approach there is just you know you you you're helping to uncover that yes you could do this stuff for free yourself now or mostly for free somebody you'd have to go and buy yourself

But then you've got to think about how much time am I really going to go in putting that together and am I going to get my search right and all that sort of stuff.

It's also the context. I mean, I guess because you don't do a rating system, how does somebody, other than just sort of, well, do you suggest the questions to ask? You know, like, well, we've discovered this, this, this, this, and this.

These are the questions that we recommend that you ask to find out more. Or how would somebody know the difference between a red flag and a red light and an amber light? Because do you have to know enough?

So we do an all clear or something to investigate further is how we present it on the report. So there's some sort of adverse record or some record there. And that's how we present it on the report. We also do, we ask nine questions and then get answers to those nine questions.

In the majority of cases, there's some sort of data presence. Sometimes there's not some data presence about that. That's not necessarily a bad thing, right? So there's no tribunal records. Well, that's actually a good thing. That's an example. So we've tried to make it as plain English as possible.

It is not every due diligence question you should ask, but it likely will lead to other questions that you would want to ask if there's any sort of adverse records in there. Or to my point earlier, something just doesn't line up, right?

There's something that's not making sense here that I've got as best comfort as I can have on this before I make the commitment.

Angus, you've done a bit of work around sort of personal credit reporting as well, right? So we're talking about this is doing when you're signing a contract for a builder, etc.

But, you know, the individual sort of borrowing the money, obviously you're at Equifax for a long time and you understand sort of credit reporting. A lot of Australians just don't really understand the credit file, right? They wouldn't even run a report on themselves. Do you feel like we're...

you know, in the age of data and the age of getting access to information, like these things are going to matter more than ever.

And we're going to move more to a sort of personalized credit reporting, or maybe there's a risk fee for, you know, banks are going to get access to this stuff.

So we're just starting to get access to joining the data more and more and, you know, risk weighted sort of, you know, credit and sort of lending's going to sort of head in that direction in time.

Credit reporting, I think there's a few pieces in there, Chris. So I'll try and take them one by one. Look at that. Credit reporting at its sort of genesis and how it operates was e-commerce before the word e-commerce existed because mainframes at credit bureaus talk to mainframes at banks.

And that was about data being passed back and forth to help make better decisions. The transition to positive credit reporting that happened in Australia in the middle of the last decade, or started in the middle of the last decade, meant that there was about 20 times the data available for decisioning.

And so a credit report used to be a reason to say no. It is now a reason to say no and yes and decide how much. And so it used to be really a decision in less than 15% of cases, right, where you'd get some sort of adverse.

And now it's a decision in possibly 80% of cases because you can get limits and you can get repayment history and all that good stuff. And what that also means is that you're then in a position to get to faster, more accurate decisions, which is what everyone wants.

And certainly it then can spawn the product innovation that benefits the consumer, whether it's a lending product, different type of product, et cetera. On top of that, that then can also lead to risk-based pricing. I've not seen a lot of that in Australia yet. And we don't have a full data set permitted.

And so maybe until that gets allowed, we don't get balance information, for instance, here. amongst other things. And so until that's allowed, maybe that doesn't really come about.

And in your space, risk-based pricing in mortgages is really done by product variation as against the same product, variable, different rates for different risk profiles. And so I think that's it. But what we certainly saw when we launched the consumer score and then started to distribute that through different channels,

is that people started to actually access their score and understood that there was this thing called a credit report. Because prior to that, you're spot on, Chris. The only time you knew about it was when something was bad about it, right? Yeah, yeah. It impacted you having a decision.

And so you're now in a position to certainly there's been a better job done of people really understanding that this thing exists. It is nothing like what it is in the U.S. You know, scores go on dating sites apparently. We always hear that. Yeah, yeah.

I think that's a good idea personally.

On your Tinder profile. But, I mean, what would you recommend for, like, listeners? I know this isn't to do with your product per se, but, you know, because everyone probably, what do you think is the best way for people to understand their credit score? Like, where would you send them to get it?

you know real good knowledge on their situation look you can get them from the credit bureaus just get a copy of your credit you can get a copy of your credit file well i think they've probably all got scores on them these days then just really understand what's on it right so a bank's going to look at how long have you had that credit files how long have you had a credit relationship

What are the credit relationships you've currently got? What did you put on your application form in terms of the current credit liabilities that you have versus what's on the credit file? And so that's the first point, right?

And then you've got all the usual tips and tricks that come with managing your credit in terms of understanding your terms and conditions. And if you get in trouble, get in touch with your lender, all those sorts of things.

But I think the best place you can start is just go and get your credit file and go and understand it. And I'm sure there's a myriad of YouTube videos that talk you through what's on it and what it means. And you can do far worse than do that.

But the other thing to remember is it's part of a decision a lender makes. It's not the whole decision, right? A bit like what we're providing in terms of trust signal. We're providing, and it's about the world of commercial. It's completely different.

But in the end, we are providing input that allows people to make a better decision and trying to do that at high velocity. And that's what we're trying to do.

Is that part of your longer-term plan, though? I mean, Christy had asked earlier about, are you talking to banks? I mean, it sort of goes to that, doesn't it?

I mean, particularly for – I mean, if you're a big builder building a high-rise complex or a big townhouse complex, for example, then your bank is an intimate part of that because they're going to be – there's a whole – a bunch of financing arrangements that you'd need to be worried about.

But it's smaller builds. They could fly under the radar, right? But at the same time, the bank is lending to an individual or a couple who are then hiring a builder without necessarily understanding the right questions to ask.

And they're making this commitment and potentially devaluing their asset if they get stuck mid-build and they've got to go to insurance and... You know, it's messy and the insurance doesn't always pick up the full tab either. Let's face it. So you can be really caught out there.

So is that part of the sort of big vision for the business?

So I think it's logical to ask the question about what's the play in the financial services generally here. I think to the big build, Veronica, I mean, they're going to be backed by all sorts of analytics that goes above and beyond the report that Trustable currently produces. Yeah.

In terms of the individual build, I think that just comes down to where does the obligation sit and the relationship sits. Obviously, the contract sits between the consumer and the builder, right? And how does that fit in in terms of their due diligence?

I think that, you know, particularly getting into high-risk circumstances, The ability to understand and monitor changes in a profile of a builder for any of the data elements that we look at.

Understanding changes in that profile is a logical thing that financial services organizations want to do in terms of managing their overall risk profile. Helping financial services organizations is obviously something we do if that's emerged. It's not currently a focus though.

Because it does amaze me. I mean, I'm often amazed that banks will lend on certain properties. I'll lend on a valuation as opposed to, well, is this a good asset that's likely to go up in value over time versus go backwards?

So I'm forever sort of amazed that they rely on the consumer to be able to make that call. And they don't all make good calls, right? And it's a little bit the same here. There's so much money at stake, but really it's the consumer that carries the can. The bank is...

not that worried about you, their client, really, in the whole scheme of things. And it sounds a little bit like even in this case, you said, you're on your own. We'll lend you the money if everything, if all the numbers add up.

But in terms of you making these big decisions without actually any real experience, because how often, like you've renovated once. You've done it once, Chris, and I've done it three times. So I wouldn't even, and I didn't know to check these things. And I'm the most renovated, experienced person here.

And I used to be married to a builder. So, you know, like you'd think I'd know. I always find that astounding that these huge sums of money and huge amount of risk on the shoulders of individuals. And the banks, that's their major book, is basically property. And yet there's...

they're happy to sort of pass that risk onto the consumer. I find that astounding. Does anyone else share that wonder over that? No?

Well, I think, look, they are making an asset-based lend. They've got all sorts of obligations in terms of responsible lending and including serviceability that they've got to meet and all sorts of processes to do that, and they go through all their layers of risk management.

And the reality is that our mortgage default rates are really low. right? And so that's a practical reality.

They take comfort in that. I mean, I guess it's like regulation of the building industry though, isn't it?

It's like, it's quite hard when you've got 500,000 sort of builders, I think you said, or companies, you know, huge employer, they are very, you know, apprehensive for adding more regulation around the property market, the building market, you know, construction.

You're right though, Ronnie, we've seen clients who have maybe picked the wrong builder. I went for the cheap quote and got burnt. They had to get another builder in.

We've had so many clients that have builders have gone under, have had to sort of, you know, reapply it to, and it's a nightmare with the bank. Sometimes you have to get a new contract and it gets adjustments. And, um, but you're right.

Like it's, it's, it could, they avoided those with a builder check sometimes probably. Right. And, um, you know, and picked a better builder. And so I think that it often does just come to the person borrowing the money, right? They've got the fixed price contracts, which is, you know, the bank's okay with.

They've done the valuation pre and post reno, and then they're happy to sort of engage. And yeah, we've definitely seen issues there where, And it's already so stressful, let alone if something happens to your builder along the way.

It's particularly just cost blowouts, right? Even a fixed price contract today, if they go under, can you renegotiate that same fixed price contract? Probably not, right?

Yeah. I mean, you've only got to look in Facebook rooms to see the many, many cases that happen of fixed price contracts that have got variations, right? Yeah. And so... I mean, that's a reality. But I think all of these elements just come back to it's a big investment. Ask the logical questions.

Try and step back from the fact that you use your home so you're making an emotional buying decision. We're humans. We all understand that, right? And then it's a question of, okay, so what questions do I need to ask? And whether you're, let's say, the average Veronica and you're above average, right?

So let's say it's once that we've all done renovations. We've all got this experience once. And in the course of our lives, there's this narrow time period where we've got a big list of things that we're thinking about on the sanctuaries that we live in.

And we'll step back and say, hang on a minute, I'm going to ask all the questions I need to ask. Not everyone's got that conditioning.

Yeah, they often say, people I've spoken to post-runner, what would you learn out of a year or two? And they usually say, I wish I picked a better builder.

Like they often, is that's the thing, or they're really happy with their builder and the builder came back and fixed the defects and there wasn't many defects.

And, you know, they wish they went for the, maybe the more expensive option or the one that was a bit more experienced, but maybe it's the one with a better credit file and they didn't have these, you know, that did this sort of, um, I find that's the thing.

It's the design or whatever it might be, but it's the quality of the builder that they sort of lease in because that's the one they work with often through the whole process, right, and their craftsmanship. And, yeah, is that sort of your experience there as well, Angus?

Yeah, so the thing that I think about when you talk about that sort of stuff, Chris, is that, and you guys will know this, you're in the game, right? You've got every reason in this game, given the value of the assets and the enduring part of your life, to play the long game.

And play the long game means get the quality in place that you need to execute the work because the vast majority out there do a good job, know what they're doing, et cetera. And I think that's an important aspect to call out. And it's really important.

I think that the topic of regulation came up. I think there's a real balance there that, you know, the government's got its accord, right, of how many new houses to build. And we hear every month how far behind they are and how much further behind they're getting.

And then we hear about new regulation that's coming that kind of gets in the way. And obviously when you add regulation, you add cost. So the cost of building a house was average, and as much as you could do an average on this is very wide ranges, was low 300s.

In 2020, it's now approaching 500 for a like-for-like build. That's a very big difference in cost that's going on, and maybe the property values have gone up by a similar amount. You'll know that.

But at the same time, it's a very material change in the cost that's gone on, and there's been a fair bit of regulation that's come along in that time.

Yes. Well, as we sort of wrap up this conversation, we like to ask our guests for a property Dumbo. So we've been talking about it. I guess we've been skirting around the edges of a few Dumbos.

Do you have a good example of a mistake that you or somebody you know has made that contains a lesson that we could all learn from?

I'm careful about dumbos given who my buyers are, Veronica, but I would say this is just some of the things I've learned and a couple of examples. So again, just part of learning about this is getting in the Facebook groups about building, et cetera.

And you come across a story like one recently, which was, that they'd gone and paid a deposit to the builder because they're an end-to-end builder and they hadn't even cited or known whether they were eligible for mandatory insurance.

And then it was unclear whether they even knew about the maximum deposit rate that you paid, as an example. Another example was actually a recent one on one of the current affairs shows, which is about a renovation that a couple did.

And the builder seemed more interested in showing off his organ pipe arms and his washboard stomach on TikTok than executing the build. And you can find this on YouTube. And anyway, so it went through that.

And, of course, it ended up with a veranda or a deck that just wasn't finished and was left in a mess and all that good stuff that you can put on television. What was really interesting about that piece as a four-odd-minute piece is that

Only right at the end did the journalist, the commenter who was doing the story, manage to say that the builder with the washboard stomach and the organ pipes arms, right, was unlicensed. And that to me was actually probably the most important point of the story to say up front.

And also to ask the question of the consumer, because in both of those stories, there is the classic, you know, I'll use the Latin caveat emptor, or buyer beware, right? There are simple questions that you can ask that they do.

And, you know, so I looked at that story and I went, yeah, okay, done by the builder and all that sort of stuff. But in the end, those consumers could have asked some very basic questions and they It could have been couched up front that in the story, the bill actually wasn't licensed.

And so that to me is a, they're just two examples of just stories about, you know, you can find this stuff out, just be ready to ask the questions because you're spending plenty of money.

Well, you're saying the question, we'll put the link to your website in the show notes, and you're saying just ask the questions. The problem is if you don't know what you don't know, you won't know which questions to ask.

And you've come from a background of credit reporting, of asking questions and knowing and understanding that there is data out there. What data is out there? What can it tell us? And you have to have a certain understanding. to actually even think that way.

If you don't think that way, it wouldn't even occur to you. And, you know, I do think that way and there's certain things that didn't occur to me to check the tribunal, for example. So I think that that is one of the big risks, that this is a very important decision for people.

And it's like buying a property. People will go in there and they'll do it themselves and they will not know. They just do not know the questions to ask. They don't know the risks they're even taking because they have never come across anything things that have gone wrong.

In my business, we've got this ridiculously long due diligence checklist when we help people buy property because we know what can go wrong. We've been around long enough. We've seen it. And we still see things go wrong for the first time after 26 years in the business. I go, wow, there you go.

I hadn't heard that one before. So when you know all the things that can go wrong, you know the questions. So I'm hoping that there's You know, some information on your website. Obviously, people can order a report from you.

But again, and like you said, the report's quite educational in terms of the questions that need to be asked. That's the big issue here, I think, rather than saying, you know, they didn't ask the questions that they wouldn't even know what to ask most of the time.

Yeah, and that's how we've tried to solve this, Veronica, because I'm eminently conscious that particularly in the world of data or credit reporting, those backgrounds, it's quite niche and you learn lots of stuff that is known to yourself.

But in the end, we've tried to focus on making it a really plain English business. ask the question, here's the answer we see in the data, and then gives you a better point to actually understand more about that builder and whether the information you have about that builder actually lines up.

And it's not seeking to be super complex at all because that doesn't help anyone. It's actually seeking to say, there's this information available. We've aggregated into one spot. We can do it quickly. And we've tried to give you a plain English outcome just so you can ask and answer those nine questions.

It's not every question. It's obviously your DD list is much longer, Veronica, but that's what we do.

Totally good. Well, thank you, Angus. It's been a good chat and interesting to think about some of the things that could be asked and should be asked.

Thanks so much, Angus. Yes, terrific. Thank you for having me. If you have a question that you'd like us to answer in an upcoming Q&A episode, you can send us a voicemail or written question via the website, theelephantintheroom.com.au, or you can email us directly at questions at theelephantintheroom.com.au.

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