Every year I work for people building them their dream homes. When we build custom homes for people we start by giving them a budget. In a custom home people have the ability to add or subtract whatever they want, this will affect their budget.
When building sub-division homes builders give you a fixed price and a limited selection of upgrades to pick from with the price clearly stated for each upgrade.
When building a custom home it is the opposite. Because we are not reproducing your custom home multiple times the jobs are priced on a time and material basis. This means that you pay the cost of building the home plus a management fee to your general contractor. If the general contractor is able to build the home for less money then what they budgeted then you pay the lower price, but if the home costs more then what was budgeted originally you will have to pay the higher price.
In residential construction budgeting there is a little bit of educated guess work involved. That guess work is not always perfect, sometimes it’s over budgeted and sometimes it’s under budgeted. Usually on an entire home (once it's completed) the budget is + or – 10% when compared to the original budget you are given before the job started.
Where homeowners get themselves in trouble is when they start upgrading their new home above and beyond what was ever quoted in their new home budget.
Custom homes are exactly what they sound like “custom”, built just for you the client. That means that if you ask me for options on upgrades throughout the home I can give you endless options and endless upgrades as the build process rolls along. This is the reason that people want us to build them a custom home because we are able to offer them those special extra’s that make their home there’s and that means that when the home is completed they end up with something special compared to the normal homes that are built by track builders. That is a good thing but it can also be a bad thing.
People that get carried away with upgrading their homes can easily end up way over budget. I have seen many a homeowner start upgrading their home right after the budget has been completed and approved at a lower cost. What ends up happening is that the homeowner ends up either having to down grade their finishes at the end to get the house completed or find a bank to lend them more money so that they can finish the home.
I have seen people go over the budget on their home by 25%, they endlessly upgraded their home right from the beginning. This extreme situation usually comes about because the homeowner didn’t have realistic expectations when they asked the contractor to do the budget before the build started. I have had people like this look at the budget and ask for the allowance for the kitchen to be lowered because they don’t want to spend that much money on a kitchen. Move forward to after the build and the kitchen ended up costing exactly what the original budget was on the kitchen before the homeowner asked us to lower it.
The moral of the story is that if you want to build a custom home then you should stick to your budget and keep track of your upgrades, they could end up biting you in the end. You should also be reasonable with your contractor when they are setting the budget, don’t ask them to lower allowances when you know in your heart that you will end up spending more on it. You have to pay for it all in the end; you might as well know the cost of it in the first place.
Rob Abbott
Village Builders Inc.
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