How to Create a Realistic Building Budget
“If the architect and the homeowner have already sat down and designed the house, by the time it gets to us and we price out the construction, if the cost is too high, it’s too late.” Farrell says. “If we price out the build at $1.6 million, and the client only has $800 thousand to spend, we can do some value engineering and cut some things out, but the look of the home is going to change.”
The better strategy? Hire your architect, builder, and interior designer (should you opt for the latter) in tandem. That way, they can work as a team from the outset to ensure all aspects of the work are completed according to a realistic price tag.
Makes sense, right?
Besides hiring a complete team up front, here are six things Farrell says are crucial to setting a realistic budget for your build.
1. Avoid “job creep.”
Before you enter the design phase of your project, make a list of your must-haves for your home. Include things like the number of bedrooms and bathrooms, the square footage, and the spaces your lifestyle requires (think a large master closet, or a finished basement for young kids). That way, you won’t lose sight of top priorities once the design is underway.
“No one ever sets out to build a 10,000-square-foot house,” says Farrell. “They start out saying that they want this number of rooms and this many bathrooms, and then they decide to make this space a little bigger, and add a room over here, and the building keeps getting bigger.”
2. Skip references, get a list.
Instead of giving his clients a reference list, Farrell gives them the info about everyone his firm has worked with, a practice he says is important in uncovering a truly skilled contractor.
“Call the people the firm worked with the longest ago and see how the house is holding up,” Farrell says. “And notice the dates of the projects. If there is big lapse in the dates they give you, they’re probably not giving you everybody, just the people they know are happiest with the work.”
3. Don’t be a comparison shopper.
Hiring someone to build your new home is not the time to shop for a bargain, says Farrell. The reason? “We all pay roughly the same for materials, and most good electricians or plumbers charge about the same. So if there’s a drastic difference between two quotes you got and a third one, there’s a reason, and it’s usually the quality of the labor.”
Instead, says Farrell, choose your builder on the quality of their work, the passion the builder has for the work they do, and their business acumen.
4. Look at the books.
Speaking of business acumen, it’s crucial to ensure that your contractor isn’t just a talented builder, but that he or she is a smart business person, too. Don’t be afraid to ask how your builders manages the financial end of their company, or to do some research into it yourself.
Farrell offers this strategy for the latter. “Go into the local lumber supplier and meet with the head of contract sales, and tell them who you are thinking of working with. Chances are they’ll tell you whether or not they pay their bills. If a builder pays his bills on time, all the good subcontractors will want to work with him, which means you get better-quality work.”
5. Do your homework regarding fixtures and accents.
Knowing what things cost and what you think you can afford will go a long way in understanding how to budget–even when it comes to details like fixtures and finishes, which span a wide price range and can add up quickly.
“If you visit showrooms like Splash, Kohler, or Marvin, you can pick out what you like, and they’ll write up a list for you,” says Farrell. Then, bring it to your initial meeting with your build team, where they’ll be able to tell you how different options will affect your bottom line. “If we’re doing that while the plan is still on paper, then there’s still room to make changes so things fit into the budget,” he says.
6. Add a cushion.
“You should always allow room in your budget for changes or additional expenses,” says Farrell. “As a rule of thumb it should be 10 percent of the price of the build, BUT it can be much lower or higher than that on more expensive homes.”
Not only is this a smart financial move, Farrell says it can ease homeowners’ nerves throughout the process. “It cuts down on the anxiety people have that ‘things have to go 100 percent right in order for me to afford this.’ It’s hard for things to go 100 percent correctly. If you have a bottom line budget, aim to spend 90 percent. Hold something in reserve for a rainy day.”
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