How Do I Ensure That Building My Dream Home Won’t Become A Complete Nightmare? – Part 1

After years of work and saving, you are finally ready to build your dream home!  But you’ve heard many scary stories about the building process being a nightmare for homeowners. How do you help ensure a relatively smooth, stress-free experience?  And how do you help ensure that your new home is the home that you want?

The average person with a job, family, and other obligations does not have the time or expertise to directly manage a home build, so hires a ‘builder” or “general contractor.” This is the key person who manages the entire process on your behalf.  Using years of experience, the builder contracts directly with various “trades” (plumbers, framers, electricians, foundation, roofers. etc.) to purchase the materials and coordinate their work on a schedule. By handling the countless details, a builder takes on most of the worry and headaches. Equally important, their expertise means they are better prepared to oversee quality.

Start by choosing your builder as carefully as you would choose a new car. Be sure you are working with a reputable company that can give you the reliability and attention you deserve. Here are some questions that you should consider and discuss with a potential builder.

Are you and your builder on the same page?

You should explain to your builder your needs, expectations and budget you have in mind.

The builder should be able to tell you if your budget and expectations are in line. It’s possible for your builder to price based on your budget but fail to meet your expectations, potentially leaving you disappointed with the final product.

Can you trust your builder’s warranty?

It’s important that you trust your builder. You will be working closely during the build, and you should feel confident that this person would stand behind their work and the warranty.  Ask if you can talk with previous customers about their experiences with this builder.  Also, check with local organizations to learn more about their reliability and reputation, such as the local Builder Industry Association (BIA), or even the Better Business Bureau (BBB).

How did your builder come up with the bid price?  

Did your builder give you an estimate based on exact bids from their trade partners? Or was this an estimate with ballpark figures from historical data, or from past experience? When the builder has specific bids from their trade partners, this takes more time up front, but it reduces the chance of surprises down the road.

Was the quote on your house based on, a full set of construction documents? Or did they use a marketing plan printed from the Internet? The full construction documents have many more details on the construction of your home and these details will eliminate cost surprises if accounted for up front. We get so excited about our interior finishes, such as cabinets, granite’s, flooring, tiles, fixtures etc., but the budget allowance must be based on the selections you have made.

Who is responsible for cost overruns?  

It’s important to understand your builder’s proposal. Many builders will quote “fixed costs.” This means that, regardless of the actual costs, your price won’t change. An experienced builder who is confident in their numbers/costs usually does a “fixed cost” quote.  If the project comes in under budget, the builder will make more money, and if they go over, then the builder will make less profit. On the other side, the entire proposal could be based on “allowances”. This means the builder put in their best guess on what this will cost. For any costs that go over the allowance (called “overages”), the buyer would be responsible for paying this difference. On the other hand, any cost savings will be credited back to the buyer. 

How does a builder get paid?

Quality licensed builders bring years of expertise, established relationships, and a warranty.

Here are 3 ways that a builder might be paid:

  • Percentage fee – They may charge a percentage on top of the total cost. Say your builder estimates that your house can be built for $200,000. A builder who works on a 10% basis would add another $20,000 to the estimate – for a total build cost of $220,000. If the actual build cost ends up being more – say $215,000 – the builder’s fee will be $21,500 with an overall total cost of $236,500.
  • Set fee – Some builders charge a set fee. If the builder’s estimate is $200,000, this builder will say my fee will be $20,000. In the end, you will owe them $20,000, no matter if the house costs more or less than expected.
  • Fixed price – you’re not going to know how much the builder makes, but you know the house will cost exactly $200,000 in the end. If you exceed your allowances, the builder may give you a change order (an extra charge due to changed specifications). If the build comes in under budget, then the builder may not credit you with those funds.

It’s also important to know how you’re going to pay your builder. Some builders will expect a deposit up front, which may be refundable or nonrefundable. The balance due will be paid at closing when you take possession of the property. Other builders will take a deposit up front and ask for periodic payments throughout the construction period. Be sure that you understand up front the points at which you are expected to make payments, and that this is spelled out in the contract.

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