In our first 3 segments of this series we discussed selecting your builder, lot and architect. In this one we will discuss coming up with the elusive “final price”! You thought all the hard work was behind you? Well think again because this process starts from the time the ink dries on the blue prints to the day you move into the house. So here is what to expect and some tips on avoiding the dreaded “cost overruns”!

So you have a plan, agreed on the price with your builder, have closed on the loan, and have all of your permits…you are ready to start construction! Unfortunately the building process is not a science and there are things unforeseen or opportunities that were not discovered in the planning process that will cause you to go over budget. A word to wise… plan on a 5-10% cost overrun contingency during the custom homebuilding process. If you are fortunate enough to not encounter any problems and can avoid all temptations to “add that extra 5 feet to the screen porch” because it is cheap square footage, then you will feel like you just got a raise when you are done!

It will be a little touch and go when you first get started with the site work since this is where you could encounter most overruns. A section in your contract usually referred to as “area or site” costs is worth reading. These costs refer to site clearing, excavating for the foundation and driveways, well and septic and other areas to prepare the homesite for construction. Keep in mind that you may not be able to predict these overruns in the contract stage. They are also not funded in the original loan and are out of pocket expenses that you could incur…thus that contingency fund mentioned above can pay off!

Once you get the foundation in, most costs are pretty predicable except for the “you” factor…this is where self control will determine whether or not you can stay within the budget agreed upon. In your contract you will have allowances that have been factored in to arrive at your final cost. When you go out to the various subs and supplier show rooms during the selection process you will be deluged with sensory overload from all the displays. Brazilian cherry cabinets, concert quality sound system or hand cut Italian marble bath tiles, may be too tempting to turn down!

Knowing what to expect during this process will certainly arm you with plenty of questions for your builder. Be sure to ask them how they handle cost overruns when it comes to “area or site” problems. Also if they have “built in” any cost contingencies in the contract for such potential problems. As far as dealing with the “you” factor, when it comes to controlling costs, ask your builder how they arrived at the various allowances. Sometimes when pressing the builder for the “best price” on the house contract, allowances are given to meet that cost, but may not be the quality you had in mind. A middle of the road approach may be the best way to price your allowances, since you may not know the quality of an item until you go into the showroom. You may find something less expensive that meets your needs and that’s a win for you. However if you can’t live with an item within an allowance allocated, there is always that 5-10% contingency fund that you can tap into!

Stay tuned for our next segment when we discuss “What to expect during the construction process”.