Building a House

[Corporate ORphan]

DH and I are looking into building our "dream house". The builder who owns the lot can not give us a solid price on the house yet because he says we need an architect to come up with plans based on our design. Nothing they have built comes close to what we want.

The builder uses a "cost plus" approach. They get a set fee to build the house and then every step of the way they tell us what it is going to cost and
do it with our approval. I like this approach because it is transparent but I fear it's going to become a money pit. Meaning their estimates in the beginning are off so when they go to build it, it costs way more. We then have an unfinished house so we are pretty much committed to go ahead at the higher price.

Anyone use this approach before or have done something similar to this? DH helped his father build his house 50 years ago but neither one of us have ever built anything since. We have been in our current house since 1982, so I am really skeptical, not having any experience with this.

Thanks!

 

[braumeister]

The biggest item will be to spend lots of time deciding on every tiny detail up front, or the change orders will balloon the total cost far beyond your expectations.

Other than that, good luck!

 

[Dash man]

I would think with an architect you'd have a pretty complete materials list and project plan to base an upfront cost on. Obviously any changes along the way will add to the cost, but I'd be nervous with it being open ended. If you've checked the guy out and spoken to other homeowners to verify he's an honest builder, maybe it'll work out. But you might want to have the contract checked out with a lawyer.


Sent from my iPhone using Early Retirement Forum

 

[calmloki]

Have a certain level of experience redoing places and a bit on new construction. Short answer: yes, it will become a money pit. Every step of the way you make new decisions, and of course you want the optimal ($) choice. Then several steps along you find that because you made a certain decision in the past you only have the$e more expen$ive options available at this decision point. More steps down the path, and you realize that the upgrades you've plunked down cash for would be cheapened if you don't spring for comparable con$truction or fini$he$. If you get to the end on the process, twice as long as you expected and half again as costly, and you are still speaking as a couple you will love your new place and get a lot of satisfaction from the whole experience.

Or maybe that is just us. More rigorous bookeeper/engineering sorts might hew to exactly what an architect has drawn and insist that the builder build that and only that with no changes and for a set in stone price. HAH! could happen I guess... for someone else, in some other world, with some mythical contractor.

 

[sengsational]

It's the very rare person that says "I'd do that again" after having a house built on those terms. My advice would be find people who have done it and pick their brain about it.

 

[Bamaman]

We built our lake house on a cost plus 10% basis. Had 3 great carpenters, and paid them top wages. We paid all the bills directly--left the contractor out of the paperwork.

We saved a great deal of money by having my father retired. He went to town to pickup supplies 1x or 2x per day. He moved supplies around the job site and handed wood to the carpenters when time allowed. He also cleaned up the job site nightly.

Our only subcontractors were the plumber and the roofer. One carpenter wired the house and built the kitchen cabinets. My father and I did downstairs floors and we painted the house. It's great having a sunset water view 6 miles to the horizon.

We later built my sister's 7500 square foot house on a cost plus basis. She researched contractors in her area and was appalled at the bad customer ratings of many custom home builders and how they paid supplier bills slowly. Sis ended up having to sweet talk all the subcontractors into doing quality, timely work. She should have been a house builder.

I would suggest you try to find a canned house plan that suits your needs--staying away from an architect's custom plan--if possible. And have a contract with the builder prepared by a good real estate attorney--with payments made in stages with penalties for running over on the calendar.

Running over budget? Count on it 10-20%. Make all decisions on front end and try to minimize any changes to those plans.

You don't say where you live. If you're going to be building in a high cost of living place or place with extremely high labor rates, (i.e. California, NY or NJ) I wouldn't begin to build. I'd be out trying to purchase a short sale or foreclosure that needs reconditioning for an advantageous price.

 

[ExFlyBoy5]

Money pit? Guaranteed. Overage of 15% or more? Guaranteed. The DW built a semi-custom house and used contractors that she and her family KNEW. Still ran over by more than 20%. We have considered building our "last forever home", but we are leaning towards NO, NO, and a little more NO.

I am currently doing a contracts course in law school are there are LOTS and LOTS of cases that involve building custom homes and contract issues. The professor's thoughts on building a custom home? "Nothing but trouble."

 

[RE2Boys]

The biggest item will be to spend lots of time deciding on every tiny detail up front, or the change orders will balloon the total cost far beyond your expectations.

Other than that, good luck!

If you wish to control costs, do what braumeister says. EVERY
DETAIL!!

When DW and I built a custom home in Huntsville, AL, 20 years ago we did ALL of the research up front. While ours was a fixed price contract, we did not go with any "allowances"" that the builder had determined appropriate.

Before contract signing, we had picked out what we wanted and had exact quotes for all plumbing fixtures, lighting fixtures, appliances, all flooring (carpet, hardwood, vinyl), had already planned and had quote for kitchen cabinets and all counter tops, decided on entry doors and cost, specified window brand in contract, etc. We did miss planning for bathroom hardware such as towel bars, mirrors and shower doors, closet shelving, and locksets though. The contract had specified that we wanted stained trim (required upgrade wood grade & labor). I think we came in within 5% of original pricing. We separately contracted final grading and landscaping.

While we had a few change orders as we added extra built in storage, we were very close to original pricing.

To avoid surprises, do all the picking out, trade-offs, and shopping BEFORE signing any contract. It helps that we were paying cash directly to the builder....he had to satisfy us to get his money. At one point the plumber did brain-dead rough-in work (inappropriate placement of water heater, ran a pipe right across floor of storage area, items the general should have caught if properly supervised) and I withheld payment until done correctly, plumber was highly upset, met on a Sat morn and I showed him what was wrong, his man had it corrected in about an hour and he got his check right then and there.

It didn't hurt to be a NASA engineer (retired now for 15 years)...think through and plan the project before ever starting. The more thorough in planning, the less changes needed.

Would I do it again? Probably not, it was our dream home but life goes on and we moved. Not sure I'd want to invest the time to do it right at this stage of life, not as important now.

We bought an existing house in snow country and remodeled in stages. For the remodel, we had a contract for the labor, but for any major choices, DW and I purchased the items and provided them to the contractor for installation. Remember 10pm trip to Lowes for an entry door so as to not hold up the contractor.

 

[hakuna matata]

The biggest item will be to spend lots of time deciding on every tiny detail up front, or the change orders will balloon the total cost far beyond your expectations.

Other than that, good luck!

Ideally this is correct--but rarely happens. I always tell people when they come to me for a custom home 'how strong is your marriage' as I have seen the design of a new home stress many a marriage! The one spouse thinks they have the costs covered but they really haven't discussed it in any detail with the other and their expectations are miles apart and that causes huge stresses on your relationship.

It really depends on your individual personalities and how you communicate in my experience. If you can't decide anything in a timely manner, and/or tend to change your mind a lot, etc. Well if that is the case you should just go buy a home. If you are the personality type that can track items, make decisions, and NOT change your mind then you have a chance. I rarely encounter the second type of person!

For example the drawings say 'tile'...in your mind you are thinking a nice custom porcelain tile, I can guarantee the contractor has 4x4 bath tile from Lowes in the budget. The allowance for lights sounds extravagant at say $2000, but the sconces you want are going to be $500 each, etc.

good luck!

 

[meierlde]

One way is to eliminate the GC and pay the subs directly which will save several percent of the costs becoming the GC and hire the architect to do inspections on the place during construction. I.E. if the architect knows who to select as subs you can act as the GC. Also pays if you are in town to inspect daily. (my folks did this in 1986 when they built their house).

 

[RE2Boys]

If you can't decide anything in a timely manner, and/or tend to change your mind a lot, etc. Well if that is the case you should just go buy a home. If you are the personality type that can track items, make decisions, and NOT change your mind then you have a chance. I rarely encounter the second type of person!

For example the drawings say 'tile'...in your mind you are thinking a nice custom porcelain tile, I can guarantee the contractor has 4x4 bath tile from Lowes in the budget. The allowance for lights sounds extravagant at say $2000, but the sconces you want are going to be $500 each, etc.

good luck!

Very much agree. And we did go with the Lowes tile, both in the custom home and remodeled home. But we wanted accent tiles added, so we shopped, bought what we wanted, and provided them to the contractor with a sketch of how to use them. We knew it wasn't in the contract, so we planned ahead and had them ready. It is good to get with the contractor at least weekly to see what he plans for the next week and be ready with your choices.......not to be blindsided with choices that need to be made immediately! Rework gets very expensive. Worst we had was electrician coming next day to do rough work....had to decide where outlets and switches went and where we wanted three way switches in near real time....another thing we didn't anticipate.....and what color do you want your switches and what style?(we had planned that part). Don't forget to have your paint colors ready. We took advice of some friends who had built and just had whole house neutral color. No point to try to match old furniture since you may decide to replace and too many decisions to work interior decorating at same time. As room need repainting a few years later, then do the colors.

 

[Sarah in SC]

We built a custom home using cost plus 10% with a local builder. I acted as GC on the project, and he hired the major subs and worked as a go-between. Each week I would go to his office and review the invoices with him and pay. This is not for the faint of heart.

We had plans drawn by an architect friend and so were not detailed as to finishes and so forth, which meant I had to decide lots of stuff on the fly. Stressful.

Also, we used salvage material extensively, including exterior and interior doors, fixtures, and cabinets. Much of which we installed ourselves. We also did all the electrical, the flooring (tile and wood), painting, and insulation. Again, not for faint of heart or indecisive, or even those just not keen on spending a lot of time onsite. Our build took 10 months.

On the whole, we got a good house that we like, and a good price, but man, was it a lot of work!

 

[foxfirev5]

Yikes. I'm a licensed builder from a long line of carpenters. A deal like this would make me come out of retirement. Change orders are the gravy that makes the big bucks $$$. As others have suggested pick a plan and get ALL up front. Otherwise you'll be lucky to get a 15% cost overrun.

 

[prudent_one]

I think it's the rare customer who can out-maneuver a builder. The builder wants to bid the project cheap to get the job and then up the profit with change orders, knowing it's extremely likely some of these things will occur:

- The customer will not have thought through every single detail. Something not specified until mid-project costs more than the same thing factored into the initial plans.
- The customer will realize they want something changed in mid-stream.
- The builder will find a flaw in the plans that require something be changed.

Even if you go with a firm fixed price contract instead of cost-plus, you're going to still run into extra costs from change orders.

I think the smart thing is to plan for an extra 15% over your initial price and if you do better, pat yourself on the back.

We never had a custom home built, but I deal with a lot of contracts that end up having to be modified during execution.

 

[Bamaman]

Our church often builds houses for victims of tornadoes and floods--usually one big project per year. We have in house architect, electrical engineer/IBEW contractor, framers and a bunch of retired guys with plenty of time.

We have the foundation laid by professional block layers. Saturday a.m., we'll install the floor joists and flooring. Monday and Tuesday morning we frame the house and get the roof decking installed. The roofers install the roof on Tuesday afternoon while we're pulling wire and the plumbers rough in the pipes. Sheet rock goes in Thursday and they finish it Friday and Saturday morning--while exterior siding goes in. Monday, we're painting and hooking up electrics. By Friday (13 days under construction), we're installing appliances and bringing in the furniture.

Regular contractors just don't hold a candle to us--with such available manpower. These are 1700-1900 square ft. 3 bedroom houses usually. And then we give the house away to the needy families.

 

[calmloki]

Our church often builds houses for victims of tornadoes and floods--usually one big project per year. We have in house architect, electrical engineer/IBEW contractor, framers and a bunch of retired guys with plenty of time.

We have the foundation laid by professional block layers. Saturday a.m., we'll install the floor joists and flooring. Monday and Tuesday morning we frame the house and get the roof decking installed. The roofers install the roof on Tuesday afternoon while we're pulling wire and the plumbers rough in the pipes. Sheet rock goes in Thursday and they finish it Friday and Saturday morning--while exterior siding goes in. Monday, we're painting and hooking up electrics. By Friday (13 days under construction), we're installing appliances and bringing in the furniture.

We took a 5 month break while negotiating betwixt ourselves how cool a dumbwaiter would be vs. legal width of a landing that, if we used the antique swinging french doors in line with the landing would shrink the kitchen width just enough to make stove side cabinets too damn narrow....

Regular contractors just don't hold a candle to us--with such available manpower. These are 1700-1900 square ft. 3 bedroom houses usually. And then we give the house away to the needy families.

Good on you and your church! Great speed can be achieved if the wife isn't looking at the floor deck and thinking that the bedroom is just too small, or that if the livingroom window was moved to the left 19" she could see the big tree or maybe the tv should be on this side of the room and what about traffic flow to the kitchen and did you see this picture of Ben Affleck's freestanding kitchen cabinet with second sink? Meanwhile hubby is thinking if the garage was 36" deeper he could get in a killer end workbench and if it was wider the car doors wouldn't hit and hey! What about a loft above the garage?!! Guy cave!

 

[FreeBear]

CorporateOrphan,

Have you and DH tackled such a massive construction undertaking before or something similar? What about a major remodel on the current house or built/remodel a boat/car/RV/cabin?? Do you work together closely in a family business? Maybe it would be wise to start smaller, such as rehabbing the current home. Perhaps one or both of you have extensive management experience from the business world, but the question is how well do you work as a team under high stress.

DW and I have never built a house from scratch, but we've done moderate levels of remodeling on a couple of homes. Based on our experience, I'd never agree to a major remodel, let alone build from scratch of anything expensive, especially a house. It would be a huge strain on our marriage; it's just not worth the risk and stress. "Man's got to know his limitations..."

 

[Dawg52]

I built a house once. Hired a guy who worked for a roof truss construction company and who built spec homes on the side. He gave me an estimate of the cost to build plus his fee to oversee the project. I paid all the bills to the contractors and picked up odds and ends for the project. The final cost came in about 10% over the the original estimate, but lower than the going rate for well known builders in the area. So I was pleased on the final product and cost.

I lived there 5 years and sold it for a nice profit. It was a PITA though and would never do it again.

 

[RunningBum]

My overruns were right around 15%. 15 years later I don't really think about that, but every day I do enjoy the custom design and features I wasn't coming close to finding in existing houses this area. Doubt I'd do it again but I'm glad I did this time.

 

[travelover]

It's the very rare person that says "I'd do that again" after having a house built on those terms.......... .

..........The professor's thoughts on building a custom home? "Nothing but trouble."

.........Would I do it again? Probably not, ........

.........On the whole, we got a good house that we like, and a good price, but man, was it a lot of work!

......... Based on our experience, I'd never agree to a major remodel, let alone build from scratch of anything expensive, especially a house..........

....... It was a PITA though and would never do it again.

......... Doubt I'd do it again but I'm glad I did this time.

Is there a pattern here?

 

[Brat]

My husband is an Architect. We had one house built by a contractor. Keep in mind the fact that he is detail oriented, we supplied all the plumbing fixtures and actually did the tile work. [He is an over-educated construction worker.] Only the best contractor in the area was willing to build the house - all the others begged off claiming that Architects were too tough to work with (keep that thought in mind when you read the earlier comments). That said he visited the site almost daily and caught mistakes that could have been costly.

That level of service from an Architect isn't cheap.

If the OP can find a great house in need of work that would be the route I suggest. Remodel in bite-sized chunks.

One of my concerns in 'hot' construction markets is the dearth of skilled craftsmen. Trade connections are very valuable.

 

[athena53]

One of my concerns in 'hot' construction markets is the dearth of skilled craftsmen. Trade connections are very valuable.

You can say that again. DH and I aren't building, but we just went through doing work on one house before selling it and are still (4 months later) trying to wrap up projects on the new house. One of the two biggest trials were the guys who resurfaced the patio around our pool in the old house- left the pool uncovered for weeks in the winter, always had excuses about why no one showed up to work that day, and very nearly didn't finish before we put the house on the market even though they'd known 6 months before what their deadline was. The other- we brought in the company that would enclose our screened-in deck the week after we moved in (mid-July) and just last week the municipality approved the final work. We'd used them before and have no doubts about the end product, but for 2 weeks our second-floor deck had no windows or walls- just some yellow "caution" tape to remind us to stay away from the edge! We also had replacement windows installed but framing not completed in our kitchen and BR for 2 weeks- also a reputable company.

I think the laborers all went to work for those people on HGTV who manage to remodel a house from top to bottom in 7 weeks.

 

[Music Lover]

If the OP can find a great house in need of work that would be the route I suggest. Remodel in bite-sized chunks.

I bought a lot and was going to build...then a good fixer in a great location became available and I bought that instead and sold the lot. I don't regret it one bit.

 

[H2ODude]

Built two additions myself and one house acting as GC but doing a LOT of the work myself. Also presided over hundreds of millions of municipal construction. The problems with acting as GC yourself is that you're a "one only" and trying to find subs responsive to you for reasonable price at coordinated time is really a challenge (why I did a lot of the work myself). Cost plus? My municipal experience pretty much didn't allow it. Had one horrid case where we sued contractor for $16 million (and actually WON!) but had a clause where we could hire replacement contractor (usually bonding company has that right). We had an interim completion mandate that we turned a good contractor loose on cost plus. He did great work but left us scratching our heads how what we thought would cost $5 million ended up 9....and this was with a very competent consulting engineer scanning every line item. It's just not a good way to insure your successful value priced project imo. Good luck, lot of good posts above....

 

[Brat]

I remember the carpenter who built our interior staircase. He was royalty and his employer knew it!