If you’re embarking on a custom-home construction project, whip out that calculator, as there will be a lot of line-item costs. And no matter how vigilant you are, there are always going to be a few surprises that will pop up during the construction process. Keep in mind many cost overruns can be avoided with careful planning. Also, don’t forget to factor in the costs of amenities such as appliances, flooring and fixtures.
Choosing a professional estimator will help you avoid those egregious cost overruns, as it seals the deal with a fixed cost contract. This agreement locks in the total cost of the home, and spells out the line-item costs in an itemized breakdown for each phase of construction.
Contractors come up with their building costs based on estimates for labor and materials, plus whatever profit margin they have built into their estimate. They will be the ones coordinating the work of the masons, plumbers and electricians, as well as the framers and other laborers on the job. A contractor can only effectively price what is specified in the contract. If they underestimate the cost of something specifically called for in the plans, then they will have to absorb the cost.
However, if you suddenly change your mind and decide you want wood flooring instead of carpeting, this is considered a change order. You will be responsible for that cost. If you do change your mind along the way or encounter something that the contractor needs to change, make sure both you and the contractor put it in writing before the change is made.
Here’s another important tip: Make sure the building plans and specifications list every detail right down to the interior finish materials such as ceilings, flooring and walls. Materials, hardware and wood finishes should also be spelled out. Your contract should have a cost breakdown and a line item for all the different materials that will be used in every phase of the project. That way, if you are presented with any overruns, you can see where the blame lies. Otherwise, you are leaving pricing to your contractor’s discretion and you may be stuck paying for work that exceeded the original estimate. And write this rule in stone: Make your design decisions prior to pricing to avoid those unnecessary cost overruns.
At times, changes are unavoidable due to circumstances that arise unforeseen. For example, you might hit an underground spring while digging the foundation. That’s one reason why you should set aside a contingency fund. Ten percent is a good figure to shoot for and ask your lender to include that contingency fund as a budgeted line item in your construction costs. Careful planning will reduce the chances of going over budget on your dream home, so you don’t end up in a homebuilding quagmire.