I’m going to be totally honest and say, YES, you are crazy if you decide to build a home! Not really crazy, but honestly, building a home can really be a recipe for disaster, especially these days.
We’ve built and/or undertaken major remodels to about 5 homes in the last 30 years, our last one very recently.
We always forget how challenging it is, but we’ve at least learned some valuable lessons along the way so it actually has gotten a little easier for us. Still stressful, but at least a little easier.
I feel for you as someone who is considering undertaking such a big project for the first time. Odds are, you probably won’t have a good experience, I’m sorry to say.
The problem is that the whole building process is so undefined in terms of the appropriate business model, shrouded in mystery to the homeowner, has very little financial transparency/accountability, and is fraught with so many opportunities for overcharging and/or gouging the homeowner. I hate to sound so paranoid, and I do realize that contractors deserve to make a decent living (we sincerely want to pay them for their appropriate profit/overhead), but it is true what UCGal said about needing to stay on top of every little thing. Otherwise, you can count on the fact that someone is ripping you off…and, unless you have prior major construction experience to be able to oversee every trade and know what they are/should be doing, you WILL be ripped off along the way.
I wish I could list all the major pitfalls that you’re apt to come across, but honestly, there are too many to mention.
Starting with the building department and permit process…do you realize what permits and school fees cost these days? Start there, and your eyes will be opened a bit. You’ll probably need to budget at least $10,000 for that. Your architect will cost at least $25,000, your structural and potentially civil engineer is probably going to be another $5000-10,000 or more, and the list goes on. What about the cost of soils tests and water/sewer/electricity connections? Most of these costs are incurred before you’ve even started digging the foundation.
Your estimate of $230/sf sounds low but potentially may be do-able if you have a relatively straightforward project and can live with lower cost finish materials (which can still be nice), but honestly, you just never know how it will all work out cost-wise. There are so many risks and unknowns that could add, for example, $100/sf to that amount. We’ve had a house built that cost $400/sf and then had a very similar house built for $250/sf (a year when good builders were hungry and available, building supply costs were down, luck was in our favor and all things seemed to go right). You just never really know. Sounds ridiculous, but it’s really true.
I think it’s a shame that there aren’t more resources for homeowners who are undertaking a big construction project and who need some guidance. The Contractors State License Board (CSLB) is about the best resource homeowners have, and that’s not saying much. They mainly only help you if your contractor screws you (and that’s only IF he’s a licensed contractor – don’t even think about hiring an unlicensed contractor!) The CSLB does not help homeowners much, if at all, prior to the process getting started.
So, most people go into building a home kind of blindly, getting a vague idea of what it will cost (like having a contractor quote you an approximate per sq ft price, which is pretty worthless). Many contractors prefer to structure a contract on a “cost plus” basis, marking up everything by their chosen percentage (usually 12-20%), which is another recipe for disaster. They’ll claim that they will work hard to get you the best subs and pass on their good prices to you but that’s not true. They have no incentive to grind subs and shop around for the best price. They’ll also tell you that you’ll make up the difference because they’ll pass on their “contractor discount” to you on materials, but this is also BS. These days, you can walk into just about any tile showroom, plumbing supply store, or appliance store and get the same “contractor pricing” that your contractor would get. Once a supplier realizes you’re doing a whole house and that you’ll be shopping around, you will get the best price possible or you’ll find out at the next place you visit that there are better deals out there.
If you decide to go down this road, you need to get fixed price bids from contractors, and even then, beware of overruns due to so many reasons – like, your contractor will tell you, and perhaps rightly so, that the window trim you envisioned is not what was specified on the plan, and to do that will be X dollars more, plus his mark-up for a change order, or you decide you can’t live without that gorgeous flooring material (after all, your thought process will go, this is your one shot to get it right!), etc, etc. One of the biggest culprits when it comes to cost overruns is ambiguous areas on your plans (either structural or architectural). Your best defense against budget overruns is to have an intricately detailed set of both structural and architectural plans, specifying just about every detail you/they can think of (these plans will be costly), and even then, there are sure to be areas of uncertainty that pop up. Get as close as you can to specifying every single detail and finish material that you can so that not only do you not have surprises, but also you’re bidding absolute “apples to apples” when contractors are bidding off your plans.
Consumers don’t realize the importance of vetting contractors, which involves identifying and then interviewing at least 5 of them. You need to develop and then ask them to respond to a thorough questionnaire (in writing) that you’ve written (after doing tons of research and finding out what all the important areas are to cover). Then, make sure you get contacts from their most recent 10 jobs – not a list of their cherry-picked references, but a contact from each of their last 10 jobs.
As you can tell, the building process is, by far, one of the biggest leaps of faith (and commitment of finances) that you’ll probably ever take. The vast majority of the time, you will probably overspend (and not by a little, but by about 30% if our past experience is any gauge) so make sure you have a giant cushion of funds that you can access should your budget be blown apart because it probably will be…sorry to say!
Also, especially in this economy, you have to be vigilant about the financial stability of the subs and vendors you use. Some of them, regardless of size/prestige, are teetering on the edge of bankruptcy right now, and you don’t want to be giving them large amounts of money only to find that they needed to use it to pay creditors or buy something other than what’s needed on your job.
Pre-fab homes are cool, and the designs are becoming more and more interesting (a few companies have cropped up in the last few years specializing only in pre-fab and offering great designs), but my understanding is that it’s very difficult to get financing for pre-fab homes.
Speaking of financing…have you tried to approach a bank lately for a construction loan? Many are just not making them at all. We did our recent construction with cash, which fortunately was sheltered from the recent major downturn. We frequently wonder what we would’ve done if our money earmarked for construction had been in the market or even in a relatively “safe” investment and starting dropping by 30 or 40% in the past few months…these are the kinds of things you need to think about when you’re doing a building project.
Honestly, I hate to say this, but I would never embark on new home construction as a first-timer right now…I know it’s tempting because you DO eventually get a home you’ll probably love, but in the process, odds are that you’ll spend WAAAAAY more money than you planned and have a very stressful experience. And, sadly, it’s probably a good thing that you’re divorced because you can expect the stress level would be ratcheted up a few more notches if you tried to go through this with a spouse or significant other.
Okay, here’s the only way I’d say you should do this – if you have basically unlimited funds (I’d define this as at least 100% more than you plan to spend) and can make yourself not care much about sticking to the budget, are committed to not letting the stress of the process get to you, AND if you don’t mind dealing with an overwhelming number of choices and details (tile, paint colors, appliances, trim detail, flooring, etc, etc, etc) then it might work out okay. You could hire the “best” (always very subjective) architect, designer, and contractor, over-pay them throughout the process, and look the other way. All you have to do is enjoy your home when it’s done!
Again, I know I sound ridiculously negative but this information is based on years of experience with the process.
There are other good alternatives – like buying a house that needs some relatively minor modifications and making it “your own” by redesigning bits and pieces of it…new windows, moving/removing walls, and opening up spaces can make a big impact. It will probably save you lots of headaches (you’ll still have a few, but less) and you can still feel like you took part in the creative process and put your own stamp on your living space. It may not be the ultimate dream home you wished for, but will bring you happiness and SO MUCH less stress! Best of luck whatever you do.
