The importance of getting your contractor to give you a budget that is realistic.
The general contractor that you contract to build your dream home should be able to give you a proper budget. What I mean when I say a “proper budget” is a budget that is as accurate and as close to what the cost of your home will be when it is completed.
You want to hire a contractor that can give you this kind of budget because you don’t want to get into the situation where the house is 85% complete and you realize that you don’t have enough money to complete the finishing’s and are forced to stop. This could mean that you will not have enough done on the house for you to get an occupancy permit to move in and will be stuck with a house that you can’t afford to finish. This could force you to have to sell the house and start the process all over again. Usually custom homes that are sold only partly finished are sold at a loss.
The contractor should be able to give you an accurate budget with 5%. That leaves a little room for human error. Every time the contractor gives you a bill whether it is monthly or bi-monthly he should give you a copy of the budget that shows where you are in the budget and how each completed stage is coming in compared to the original budget. Because custom homes can take a year or more to build, you as the customer need to be informed as the build proceeds of the budget and your own spending. Home owners will make the biggest changes to the budget over a year and not even realize it. A normal custom home will have anywhere from 15 to 50 change orders. Change orders are changes to the original contract and budget when it comes to personal choices of the house. Some change orders can reduce the price of a house like down grading the type of windows that you want to install, but most change orders increase the cost of the house. These change orders are usually upgrades to the house that you never even thought of at the time that you asked the budget to be completed. If you have designers involved then the cost of certain things can increase greatly as they help you to see the vision of the spaces in the house that you are trying to create.
When securing financing for your home build, you should always acquire more money then you plan to spend. On average you should acquire 10% more money then you plan to spend. So if you plan to build a $500,000.00 house you should acquire at least $550,000.00. This will allow you to finish the house the way you want it without cutting corners and will help insure that you never run into the situation where you are out of money and can’t secure anymore to finish the project.
A good contractor after getting to know you will understand what your tastes are and where you stand financially. After a while he will know what to offer you in upgrades. The one piece of advice I would give you is not to endlessly tell your contractor that you don’t have any money and that you are at your budget when you are not. I have personally worried for a clients finances and helped them finish the house the cheapest way they could because they kept commenting that they were running out of money. But you get what you pay for and when I had to come back a couple of years later to do some repairs that they had to pay for because of the materials they choose, the comments I received from them where “well if I knew that this would happen, I would have gladly paid for the expensive finishes.”
Contractors are human and can only go on what you tell them, so if you tell your contractor that you don’t have a lot of money then he will not show you the high end finishes that will last longer. He will adjust your choices to the middle of the road or low end finishes because he doesn’t want to waste your time or his. He is also worried that you will run out of money and he won’t get paid. No contractor wants to have to wait for his money; he has employee’s and sub contractors to pay. What keeps a contractor up at nights is the thought of having to lien a job or sue a client just to get what is owed to him.
So remember to get a proper budget from your contractor before starting your project and try to stick to it!
Village Builders inc.