How to Avoid the Top 5 Mistakes in Building Your Custom Dream Home: Mistake #3: Giving The Builder a Blank Check

MISTAKE #3:

Giving the Builder a Blank Check

Can you think of one other industry where the client is willing to give a blank check to the person providing the services?  It is unthinkable.  Yet, the standard for the residential home building industry allows that very thing to happen: the builder provides a “bid,” but then the homebuyer must pay whatever the final price ends up being.  Builders call this a “cost-plus contract.” Your immediate thought should be: cost “plus” what!? 

Let me give you a true-life example: A young married couple building their dream home for their growing family recently relayed their experience with their “cost-plus” contract.  At the closing table, they were shocked to discover that their bottom line price had jumped an unbelievable thirty thousand dollars ($30,000.00) because the builder said the price of lumber had “unexpectedly gone up.”  While the price of lumber had indeed escalated considerably, the builder was under no obligation or duty to make sure he purchased the lumber prior to the prices going up because he knew that at the end of the day, it was not him but the homebuyer who would be paying the cost difference.  Welcome to the unforgiving world of “cost-plus.” 

Tip #3: never give the builder the option to build your home with a “cost-plus” mentality.  Protect your investment, control your investment, get the results you want (including the price of the bottom line!) by refusing to allow the builder to build your home with a blank check. 

How to Avoid the Top 5 Mistakes in Building Your Custom Dream Home: Mistake #2: Getting the Bare Minimum On Your Architectural Plans.

MISTAKE #2:

Getting the Bare Minimum

On Your Architectural Plans

A.)            Getting the Bids.

Tip one leads directly to tip number two: put as many details as possible on the architectural drawing of your custom home.  Most homebuyers are incredibly anxious to begin the home building process.  If you are at this point, then you already feel that you are in a position financially to build a custom home and are ready to take the plunge.  A huge mistake we have seen countless individuals make is having the architect draw the bare outline of their home.  What the homebuyer fails to take into consideration is that when it comes time to getting the builders to provide their bid for the project, the bid is based solely upon those drawings. 

No matter how “experienced” your builder is, they cannot read your mind! What is quality to one individual may not be quality to another.  This tip is especially important in a “bidding war,” when you have multiple builders bidding for the project, and the builder knows that the home buyer will take the lowest bidder. 

B.)            Comparing Apples to Apples.

As you walk through a builder’s featured home at a home show, don’t automatically assume that the quality you see is the quality that the builder is bidding on your plans.  In fact, assume that there are countless “upgrades” that are not included in that builder’s general price.  In speaking with one of the premier homebuilders in the state, the homebuilder griped that generally the only reason he will lose a bid is because he is including in his bid a higher quality craftsmanship and/or materials than the other builder. 

So unbeknownst to the homebuyer, rather than comparing apples to apples, they are comparing apples to oranges.  In the end, in order to get the quality and craftsmanship they had in their minds, their bids will most likely come out much higher than the original bid.

C.)            The Devil is in the Details.

Start taking control of your project from the very beginning by asking your architect to include as many details as possible in your plans.  This includes (but is definitely not limited to): the level of granite you want to use (did you know that depending on the quality and cut of the granite- it can be anywhere from a level 1 to a level 5 with a significant difference in the pricing?); how tall you would like the doors; what type of flooring will be going where (i.e. travertine in the entryway?  Hard wood in the kitchen?); specify what thickness of pad you would like to see in your carpet; what type of material would you like the deck made out of; etc.  Basically, this is the point where you include as many of your due diligence items from Tip #1 as possible. 

Let the builder bidding on your home know that you want your home drawn exactly according to the plans.  That way, when it comes to placing the shutters on the outside of the home at the end, the builder won’t be able to say “I thought those were just something the architect threw on there so those were not included in your bid.” (Trust me…that exact situation has happened countless times!)

I promise you the more detailed your architectural plans are, the more accurate your bidding will be from your builder and the closer to your expected build price you will get. 

How to Avoid the Top 5 Mistakes in Building Your Custom Dream Home: Mistake #1: Before Beginning Your Build

MISTAKE #1:

Before Beginning Your Build

A.) Home Building: Handing Over a Blank Check

Most of us would never even dream of spending money for a large purchase like a car just by simply looking at the exterior.  We would never purchase it without a thorough investigation of the interior, checking out the ratings by the experts, or getting the opinion of others who have owned the car.  We even usually find it necessary to test-drive the actual car that we will be purchasing.  If the circumstances are such that it turns out we bought a “lemon” car (that is, a car that has defects through no fault of the consumer)[1], then each state has laws to protect the consumer, generally requiring the dealer and/or the manufacturer to reimburse the consumer for all costs associated with the “lemon” vehicle.   In fact, most of us wouldn’t spend more than $40.00 on a shirt or pair of pants from the store without trying it on, making sure it is made of the quality material we are looking for, and that it fits in all the right places (i.e. the legs aren’t too long, the rear end isn’t too baggy).  Finally, there is no way we would hand the auto-dealership or the store clerk a blank check and say, “Go ahead and charge me what you need.”

We would never find ourselves in those circumstances because it is not economically smart, we don’t want to be taken advantage of, and we want to make sure that the purchase is exactly what we need and want for the price we expected.  Yet, for some unknown reason, the residential home building industry is exactly that.[2] 

The industry norm is that average, every day people have an idea or have seen a home they want to build, and then hand what will most likely be the largest purchase they have ever made in their life over to the “professionals.”  Entire television series have developed capitalizing on the nightmare build- where the “professionals” cut corners and/or fail to do their job properly, resulting in sometimes thousands of dollars more than the homeowners had budgeted and years of subsequent problems.[3]   

B.)  The Professional vs. You.

This problem, unique to the residential building industry, occurs because of the incredibly unequal positions of the players: the builder (i.e. the “professionals”) on one side, and the homebuyers on the other.  It is as if Steven Spielberg goes against a high school film student in a competition for “Best Movie Director.”   While most of you may be “professionals” in your own right, you most likely wouldn’t be hiring a builder unless you lacked the skills to build your dream home yourself.

This problem is almost never found in the commercial building industry because there are professionals on both sides of the table.  Before a multi-million dollar airport is built, the attorneys and professionals representing one side, discuss and meet with the attorneys and professionals from the other side, and engage in extensive, lengthy discussions.   The commercial contracts, often dozens of pages long, explain in detail every minute aspect of the build.  Now, while your home build will most likely not be near a multi-million dollar project, to the average homebuyer who has scrimped and saved, it might as well be that amount.  It is just as important to protect your “widow’s mite”[4] as it is for the commercial industry to protect their millions.

C.)  Tip #1: Due Diligence

This leads to tip number one: never begin your home build without doing your own due diligence!!   This step should be completed even before you start with the blue prints of the home.  With the miracle of modern day technology, you have at your fingertips thousands of pictures of homes without even leaving the comfort of your own living room.  For example, there are free websites that allow you to enter specific search terms bringing you to sometimes hundreds of pictures matching that description (i.e. “hardwood kitchen floors, white cabinets”).[5]   Additionally, most home improvement retailers allow you to see pictures of their products on their websites or even eBay lists hundreds of home improvement items. 

When you find a picture you like, save it, print it, bring it to a local retailer and say, “I want this…what do you have?”  If you have a little more time on your hands, drive around to the various home improvement show rooms and see what you like. 

Ask what the difference is between the various priced items.  Do you like solid wood doors or will hollow be sufficient?  Do you like Travertine or does a normal tile work?  Do you like painted cabinets or simply stained? Keep a list of those items you love- know how expensive they are.  The difference between these seemingly insignificant details can lead to significantly larger amounts of money added to your bottom line.

The more prepared you are going into the home building process- the more realistic you can be on how much you can expect to spend on your home and the happier you will be with the process and your builder.

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[1] “A lemon is a car, often new, that is found to be defective only after it has been bought. Any vehicle with numerous, severe issues can be termed a "lemon," and, by extension, any product with flaws too great or severe to serve its purpose can be described as a ‘lemon.’” http://en.wikipedia.org/wiki/Lemon_(car)

[2] http://money.usnews.com/money/personal-finance/articles/2012/04/23/build-or-buy-a-housing-market-dilemma (stating that building a home is not “economically smart”)

[3] See e.g. http://www.hgtv.com/shows/holmes-on-homes

[4] The “widow’s mite” is a Biblical allegory explaining that “the small sacrifices of the poor mean more to God than the extravagant, but proportionately lesser, donations of the rich.” http://en.wikipedia.org/wiki/Lesson_of_the_widow's_mite

[5] See e.g. http://www.houzz.com