Does your builder have a budget?
Have you ever thought about how a builder comes up with the price they charge to build a home? In many areas of the country, the most common practice is to find out ‘What the Average Price Per Square Foot for Construction Costs in an Area’ is and use this amount to figure out the cost to build a home. This method is useful when comparing homes in a given area to see where values are within range of the size, type, and cost of home you want in an area, but this method does not work when building a custom home. It’s scary that many “builders” use this method when coming up with a price to build a home. In fact, in the last few years, I personally know of two cases where this method was used by a “builder” to come up with a price for a homebuyer and in both cases the house ended up more than $40,000 over budget. Unfortunately, in both cases, the homeowner ended up having to figure out how to cover the additional costs just to finish their home.
Most all of us use budgets to run our personal finances and to dictate our daily spending habits. But, when I hear of builders having problems being significantly over budget on their construction projects, it is not a surprise to find that the majority of these issues occurred from one common practice… basing the construction costs strictly on an average price per square foot and NOT using a budget. It is the lazy way to put together one of the most important purchases made in a persons lifetime. Not using a budget puts the homebuyer and the builder in a position where they have no idea if they are being frugal or excessive in their spending; there is no goal or way to keep track of progress. What there is, however, is a great opportunity for failure and surprise costs that will be necessary in order to finish the project. Using a budget safeguards both the homeowner and the builder from this type of failure.
When you contact an experienced builder, they will not just throw a price per square foot at you to see if you like it. An experienced builder will want to see a floor plan, blueprints, and designs PRIOR to putting a number together. An average price per square foot may be given as a bench mark, but an experienced builder will take the time to look over the plans to put together a number based on the specifics of the plans as well as other factors including location, site conditions, amenities, etc. In many cases, this will be the starting point for the budgeted construction costs. Upon approval by the customer, (if it has not already occurred) plans will be purchased, the customer and the builder will sit down and discuss any specifics about the home that need to be known in order to secure correct pricing, and then the plans will be sent out for specific bids. Now the builder should have all the information necessary to put together a budget for the construction of a home. This budget should include every aspect of the construction process as well as specific amounts for customer-selected items like carpet, tile, granite, hardwood, etc. This budget is how the builder comes up with his price to build the home, based on the plans, site conditions, and the customer’s specifications. With this process in place, the customer can be sure that their builder has taken the time, up front, and has a plan in place for the entire construction process, with ALL the costs figured in. ALL OF THIS SHOULD OCCUR BEFORE CONTRACTS ARE SIGNED AND CONSTRUCTION BEGINS.
If you are looking for a builder, ask them if they use a budget. Ask them how they come up with their budget. Ask them if they have set amounts for customer-selected items like tile, carpet, hardwood, granite, etc. If in response to these questions you are given an average price per square foot, or any answer other than ‘yes, we use a budget’, my advice to you would be to walk away. Any “builder” that is not experienced with budgets and how to work within them should NEVER be given control of finances to produce a home with. Having a home built is a very big decision, the people you choose to coordinate the process of bringing it all together should be thorough and organized in their approach to homebuilding. Make sure to do your homework/research before you choose a builder. You will be glad that you did!
