During my time building I have heard more than
one story about runaway building costs.
Stories range from "my Aunt built once and told
me that costs came in $40,000 higher than they
expected". One time, I had an appraiser tell a customer
of mine that they should plan for costs to be 15% higher
than the contract price. That would have added $65,000 to
the cost of this home.
My response to all of that - - - Well, my polite response is NO WAY! Not if you have gone about the process correctly.
I often tell my customers that I can control my costs if you can control your's (allowances).
There are some costs that I cannot control (variable costs), but for the most part I can control over 95% of the costs of building a home. I know how many 2 x 4's we need. I know how much roofing and siding materials are necessary to build the home. I can accurately predict those items. If I can't it still is not your problem. A customer should not have to pay for their builder failing to adequately predict a fixed cost item.
So what is a fixed cost item versus a variable cost item? Look below:
Variable Costs: these items are variable because I do not know the real cost until we dig, drill or install.
- Cost of installing a well
- Cost of the septic system
- Soil Conditions
- Change Orders
Fixed Costs equal pretty much everything else, to include building materials and the labor to install the building materials. Basically, I feel that it is a fixed cost item if I can control it.
For variable cost items, we always estimate the price based on available information. Perhaps we will use the depth of neighboring property wells. For the septic system we will estimate based on the findings of the health department.
When we have good information, we have good estimates which is most of the time.
Nevertheless, these are items that I cannot control and therefore I will not fix the cost.
So how can a customer be confident about how much their home is going to cost? First, you and your builder need to adequately determine what you want during the estimating process. If you want wood floors, let's know that upfront. Get everything on the table. It is OK to have to cut costs later.
Second, your builder should provide you an estimate that is accurate with respect to your allowance items (flooring, lighting, etc...). The allowances should be based on your discussions during the estimating process. You should make your selections early during this process (see other blog entry "Selections - make them early").
Third, when you make your selections live within your means. If you cannot afford quartz counter tops then don't look. If you have just got to have the gold dipped tea leave chandelier (yikes) then that's OK (1) if you can afford it, or (2) you are willing to compromise somewhere else (and spend less). By the way, if you can afford everything you want, that's a great feeling. Congratulations to you. You deserve it.
Fourth, if you want something that costs more than what you have in your budget, plan to pay for the additional cost with cash.
So the bottom line is that there is little reason for runaway building costs. It is rare that soil conditions or the depth of the well are the culprits. It is rare that change orders are the culprit. Control your spending. Make your selections early and I bet you will have a great idea how much your home will cost.
Building a home is great experience. Have fun. Ask lot's of questions. Build with confidence. Live within your means.
If you arrived at our blog from a source other than our website, please visit us at www.heartlandbuilders.com. Further, if you are considering building a home, please contact us. We would welcome the opportunity to be a part of your dream.
If you have any questions, please feel free to email me at rgkogel@comcast.net.
Lastly, please know that we build homes in the Grand Rapids MI area - Forest Hills School District, Rockford School District, Lowell School District and many others. My words above apply no matter if you are building in West Michigan or on the West Coast. The concept is universal. Build on!
one story about runaway building costs.
Stories range from "my Aunt built once and told
me that costs came in $40,000 higher than they
expected". One time, I had an appraiser tell a customer
of mine that they should plan for costs to be 15% higher
than the contract price. That would have added $65,000 to
the cost of this home.
My response to all of that - - - Well, my polite response is NO WAY! Not if you have gone about the process correctly.
I often tell my customers that I can control my costs if you can control your's (allowances).
There are some costs that I cannot control (variable costs), but for the most part I can control over 95% of the costs of building a home. I know how many 2 x 4's we need. I know how much roofing and siding materials are necessary to build the home. I can accurately predict those items. If I can't it still is not your problem. A customer should not have to pay for their builder failing to adequately predict a fixed cost item.
So what is a fixed cost item versus a variable cost item? Look below:
Variable Costs: these items are variable because I do not know the real cost until we dig, drill or install.
- Cost of installing a well
- Cost of the septic system
- Soil Conditions
- Change Orders
Fixed Costs equal pretty much everything else, to include building materials and the labor to install the building materials. Basically, I feel that it is a fixed cost item if I can control it.
For variable cost items, we always estimate the price based on available information. Perhaps we will use the depth of neighboring property wells. For the septic system we will estimate based on the findings of the health department.
When we have good information, we have good estimates which is most of the time.
Nevertheless, these are items that I cannot control and therefore I will not fix the cost.
So how can a customer be confident about how much their home is going to cost? First, you and your builder need to adequately determine what you want during the estimating process. If you want wood floors, let's know that upfront. Get everything on the table. It is OK to have to cut costs later.
Second, your builder should provide you an estimate that is accurate with respect to your allowance items (flooring, lighting, etc...). The allowances should be based on your discussions during the estimating process. You should make your selections early during this process (see other blog entry "Selections - make them early").
Third, when you make your selections live within your means. If you cannot afford quartz counter tops then don't look. If you have just got to have the gold dipped tea leave chandelier (yikes) then that's OK (1) if you can afford it, or (2) you are willing to compromise somewhere else (and spend less). By the way, if you can afford everything you want, that's a great feeling. Congratulations to you. You deserve it.
Fourth, if you want something that costs more than what you have in your budget, plan to pay for the additional cost with cash.
So the bottom line is that there is little reason for runaway building costs. It is rare that soil conditions or the depth of the well are the culprits. It is rare that change orders are the culprit. Control your spending. Make your selections early and I bet you will have a great idea how much your home will cost.
Building a home is great experience. Have fun. Ask lot's of questions. Build with confidence. Live within your means.
If you arrived at our blog from a source other than our website, please visit us at www.heartlandbuilders.com. Further, if you are considering building a home, please contact us. We would welcome the opportunity to be a part of your dream.
If you have any questions, please feel free to email me at rgkogel@comcast.net.
Lastly, please know that we build homes in the Grand Rapids MI area - Forest Hills School District, Rockford School District, Lowell School District and many others. My words above apply no matter if you are building in West Michigan or on the West Coast. The concept is universal. Build on!
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