Why Do New Homes Always Cost More Than The Builder Tells You In The Beginning?

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Why Do New Homes Always Cost More Than The Builder Tells You In The Beginning?

A first contact with a new, home building prospect, usually starts with a phone call. The caller asks quite early in the conversation, “how much do you charge per square foot (SF)?” From a Builder’s perspective, this is the make or break question and the most difficult to answer without a great deal more information. 

Do you own a building lot? The builder may not even build in that area.

Where is the property located? Impact fees can vary widely between Municipalities.

How big is it? Lots of landscaping or down and dirty?

How much fill dirt does the building lot need.

Septic, sewer, County water or well?

How large of a home do you want to build? Smaller homes cost more to build that larger ones.

What style home is it? Queen Ann Victorian with wrap around porches and lots of exterior detail?

What size garage, front porch or Lanai do you want? Price per SF of living area lumps all these into the total price. The smaller these are the lower the price/SF.

Do you want a pool? With an enclosure or without? Spa? Type of pool deck materials?

What type of roof do you want? Shingle or tile? The expensive type or not?

What kind of interior appointments do you have in mind? Hardwood, tile or stone flooring?

Price points for cabinets, appliances, plumbing & electrical fixtures, moulding, counter tops etc.

A Builder can’t ask you enough questions over the phone to provide accurate pricing information. Frankly, even if he  asks a lot of questions of the caller you still won’t know how much your home is going to cost because the caller hasn’t figured out what details they want included in their home yet?

Has the caller provided the same exact information to the other 10 Builders they already called? If not, the prices will vary widely. When a Builder receives this type of phone call they are better off not asking any question and just provide the lowest price/SF possible. After all, the caller is going to meet with the Builder that provides them with the lowest number.

The truth is, Builders never estimate the cost of a new home by the price per square foot of living area. Only people other than Builders price homes by the square foot because it’s an easy way to to roughly compare two different homes. For a Builder to price by the SF is like using a dart board to price homes, it’s not possible.

So the homebuyer schedules a appointment with the Builders that quoted the lowest price per SF over the phone and meets them face to face. Even after meeting with all 5 Builders, nobody really knows how much the home is going to cost. It’s not possible to make all the house specific decisions necessary to provide accurate pricing in one meeting. Really! 

The only way to determine how much a home is going to cost is to have a crystal clear vision, of exactly what the completed home is going to look like. All the site issues addressed and a full set of specifications right down to the door hardware.

So how does a homebuyer figure out if they are getting a good value when buying a home or getting ripped off? Design build. What exactly does design build mean? 

Below is a link to a company that does design build. They provide a great explanation of the process.

http://jlsdesign.net/design-build/

So how do you start the design build process?

1) Interview 5 or less builders that you have researched thoroughly.

2) Select one of the Custom Builders to work with.

3) Use the Architect and Interior Designer he recommends.

4) Have "Selected Builder" produce "Scopes of Work" that detail exactly, what you want included in your home.

5) Using Scopes of Work and Completed plans, Selected Builder provides final pricing.

6) Submit Scopes of Work and Plans to 2nd choice builder for a check price.

7) Select Builder to construct your dream home.

Interviewing 5 Custom Home Builders will provide you with enough information to make a great decision. Don't overly focus on the price per SF as this number is going to change as the plans and scopes of work are developed. The price per SF number just needs to be in the ballpark of what you want to spend. You can count on this SF number increasing!

Select one of the 5 builders to work with (see Blog post, "How to Select a Custom Home Builder" http://actvra.in/4FVr )

Using an Architect the Builder recommends will insure the Architect is qualified to design your dream home and since they are use to working together the process will be smoother. The two of them will work out many issues behind the scenes that you won't have to be involved with. The Builder will help keep the final cost in check and make sure the Architect doesn't design something that can't be built in the field or will be high maintenance.

Have the Builder's, Interior Designer help you specify all the pieces and parts you want included in your dream home.

Don't forget to ask your Builder's, Realtor for their opinion of your plans and specification. After all, one day you will want to sell this palace and it will be too late then to fix floor-plan defects.

The Scopes of work will specify all the building elements and the Interior Designers specification package will provided all the other details, from columns to flooring and appliances. Everything should be included at this point or contain an allowance amount if a final decision hasn't been made. The fewer allowances the better, as you want your Builder and team pricing out a complete package.

Now that the plans and scopes of work are fully developed, your selected builder has a complete vision and so do you. He has bid out the project with his team of suppliers/subcontractors and able to tell you exactly what your dream home will cost.

Submitting the fully developed plans and scopes to your 2nd choice Builder will give you the piece of mind that you are paying a fair price for your home. When you hand him the bid package, make sure the 2nd choice builder understands that no substitutions will be accepted and that all you want him to do is fill in the line that says, price. All the variables between Builder 1 and 2 have been eliminated. This is extremely important, receiving multiple bids with different variables will not allow you to compare apples-apples. Believe me, no matter how capable your are, if the variables are different between the two builders you'll never be able to determine which one is providing the best value.

Make your final Builder selection. By this point you have spent months with your 1st choice Builder. You've had an opportunity to see how he works with you and his team. Do you want to spend the next 12 months working with him? This Builder has spent months working with you and invested a great deal of time and money. Even if you are paying Builder 1 for his time you aren't really compensating him enough for all the help and guidance for the previous months. The fair thing to do is sit down with him and review the two competing bids together. 

If your 2nd choice Builders, check price, is lower, now you have a tough decision. This Builder is a relative unknown entity, as you haven't spent  months developing plans and specifications with him. Perhaps, he's not seeing the project as clearly as Builder 1. After all, Builder 1 by now knows your project from "soup to nuts"'. If you have any doubts, choose Builder 1 as he's the safest bet. He's spent months earning your business, he deserves it!

Remember there's more to consider here besides price.

So when you ask a Builder over the phone or at the first meeting how much do you charge to build a home, now you know why the price at the first meeting is always different from what you actually pay.

Have an awesome day- 

Mike