When planning a new custom home, most folks come to me with their builder already in tow. In fact, I'm surprised when a new client doesn't already have a builder as part of their team. The builder is often the single, most important person who will have the longest, closest contact with homeowners throughout the construction process, possibly even years after construction is done.
That's why it puzzles me when homeowners expect builders to jump up and give them a quick bid to build their dream homes, as if they're looking up the best price for the latest technology gadget on Amazon.
In a world where -- in just a few minutes --you can go online, price an item, and order it for next-day delivery, the custom residential construction industry might seem like a dinosaur. In construction, there are no hard, fast rules for how any one part is priced. There's no drop-down menu of options that lets you select, say, the “technology package" where you get the built-in GPS navigation system, Bluetooth connection, satellite radio, and 6-CD changer for an extra $3,000. Golly, if there were such a system for getting bids to build your home -- where you could be sure the end product was nearly identical no matter who built it -- then I'd be able to advise you to get as many bids as you want.
But the residential construction industry doesn't work like that. So take a minute and sit back. Let me take you on a little journey and tell you how things really work.
Is this you? A typical scenario
Maybe this is you: You spent two years hunting and negotiating for the perfect piece of property with the perfect view, the perfect orientation, the perfect trees, the perfect amount of slope, the perfect distance from town, the perfect distance from neighbors. The perfect spot for the rainwater collection tanks, the perfect clear spot so your solar panels aren’t shaded . . . Whatever your perfect happens to be. Plus, lest I forget, the perfect price, or as perfect as possible!
Next, you spent four months working with your design professional, and now have the home of your dreams. And it's right there. On paper. Right in front of you. You’re so excited you can hardly stand it! All those numerous conversations and emails regarding every detail of how you live. The things you hate/love about where you currently live. The things you can and can’t live without. Every tiny detail of what you must have in your new home. Which rooms simply must have tons of sunlight and which one you want to be the cave. The fact you can’t stand those old perfectly square sheet rock edges and if you see anything but a bull nose sheetrock corner in your house you’ll go postal! You’ve shared your ideas and pics from Houzz and Pinterest; even that three-ring binder full of ideas you’ve been collecting since high school. And you don’t care that the ceiling fan you want to use in every room of the house is $350 per fan . . . that’s the fan you want in ten rooms of your home.
On to the next step: Often, one of the first questions I'm asked by clients seeking a builder is, "Debra, how many bids should I get for my project?" Or they simply tell me, "I plan to get a few bids before I select a builder."
Conventional wisdom says you should get a bid from at least three builders and then pick one. Why three? WeIl, because you've been told that’s the only way you will get the best price to build your home. You know -- it’s called comparative shopping. Besides, that’s how it’s always been done. This multiple-bid thinking seems to be the norm. Indeed, early in my career, I told my clients, "You'll want to get three bids." It's what I'd been taught, and it seemed like a good idea way back then.
Suppose you've got three builders in mind. You think, "I'll just talk to them each, real quick, and ask for a ballpark price to build my 4,000 square-foot house, five bedrooms, four baths. How hard could it be? They've been doing this for years and surely they know how much stuff costs."
Okay, let's stop right here! If this were a basketball game, I'd be throwing up my hands and blowing the whistle.
Times have changed. Many builders have changed their business practices. The methods they use to arrive at bids have drastically changed. Asking for multiple, competitive bids will probably work against you. In fact, many builders won't even participate in competitive bidding.
Let's walk through this.
Let's define custom
I'm using "custom home" in the true sense: a one-of-a-kind, unique home that's designed and built to your specifications. Not to be confused with the way some production builders have co-opted the word "custom" to mean pick one of their four floor plans and they'll "customize" it with your picks for tile, carpet, and paint.
This isn't the drive-thru lane
Why would you have spent, say, nearly two-and-a-half years painstakingly hunting for the perfect piece of property and overseeing every detail in the design of your new custom home only to throw the construction out to bid as if you’re ordering lunch from the drive-thru menu board?
What about detailed specifications?
Unless you and your designer have worked out elaborate, detailed specifications about construction materials and finishes, then asking builders for a competitive bid is likely to create a massive headache for yourself. How will you know you're comparing apples to apples?
Do these builders know exactly every detail of every item to be built in your custom home? Do they know about the bullnose sheet rock corners? How about that $350 ceiling fan you want when his ballpark-price fan may be only $150 per fan and there's only two of those in the allowance, not the ten you want for your home? Or how about the garage? Does his ballpark price include that extra feet at the rear of the garage you want for your workshop? Does his ballpark price include the additional 3,000 square foot of covered porch? What kind of insulation does his ballpark price include? What kind of air conditioning system? What about the price for the solar photovoltatic system? Or the rainwater collection system? Or what about the terraced stone planters you want with the built in stone steps down to the lower level with the pool?
Heck, even the fast food restaurants want to know if you want to super size or not.
Speed vs. accuracy -- what's your tolerance level?
By now, you're saying, "Okay, I get your point, Debra. There’s a lot of information I need to give to each builder. But can’t they still give me a quick price?"
Maybe. But is that what you really want?
How accurate a price do you want from the builder you’re considering hiring to build your dream home? Wouldn’t you like them to give you a price that's as close as possible to what you will pay? Or are you okay with signing change orders that might cost you thousands of additional dollars because things weren't included in the original bid? Or maybe, as an example, you’re okay with the possibility of paying for termite treatment every few years because, in order to get the ceiling fans you wanted, the builder decided to cut the Termimesh permanent termite barrier out of the construction budget and failed to tell you until it was too late to add it.
To give you that value accurate pricing, as Wayne Jeansonne of Solluna Builders would say, takes time. What he and every builder out there needs from you is a complete list of things you want in your home. Every item you select has a cost associated with it -- both material and labor.
How it works
The builder takes all the detailed information you give him, plus house and engineering plans, and puts together an estimate.
Much of the builder's effort requires him to pass most of this same information to his subcontractors for their bids. This means that every subcontractor and vendor who will build your home or order materials for it uses the same detailed information. Each subcontractor figures his material and labor costs and gives the builder a price to do his portion of the work. The builder must wait for all of these different entities to send in their estimates. Sometimes it takes a while, because they're busy out there.
For each step to build your home -- from clearing the lot to final cleanup -- the builder inputs detailed costs into his own spreadsheets or into the builder software he uses. Each builder has his own methods, of course; but in the end, all the information is tallied to arrive at a final estimate for you. You hope nothing has been left out and that everything is as “value accurate” as possible.
"That’s an awful lot of work just for an estimate!"
Yes, it is a lot of work. But that's what you're asking for when you want to know the cost to build your home.
Some builders tell me they might spend 40 hours or more putting together an estimate, with varying degrees or accuracy. And that doesn’t count the time their subcontractors put into their portion of the bid process.
That’s a lot of time for a builder to invest if he doesn't get the job. And, you might truthfully say, it's just one of those “cost of doing business” items.
Builders who don't do competitive bids
More and more builders tell me they don't do competitive bids.
- Because of the time it takes. No one likes to spend that much time and not get reimbursed for it.
- Because they think homeowners don't get a fair shake if there aren't clear, detailed specifications. Without them, you're at the mercy of each builder's interpretation and building methods. How can you make a fair comparison that way?
- Because they have another business model. Some builders prefer to operate as a design/build firm -- they work with you and your building designer early on to plan the site prep, determine the construction methods and materials, help you with detailed selections, and write detailed specifications for your home.
Increasingly, I'm hearing from builders who use a "pre-construction agreement." Basically, it's a contract between you and the builder for work they will perform for you to help plan your home and put together a detailed estimate. There's a fee associated with the time and the process, money you pay even if you don't choose them to build your home.
What to do?
Well, one path you can take is to interview builders early on in the design process. See their work. Interview their clients. Ask a thousand questions. If you find a builder you like and trust, stick with them.
Still not sure?
Think you still want to get multiple bids, just to make sure you're getting the best price? Okay, I get that. If you truly must get multiple bids or you won’t sleep at night, then do it. Just make sure you’re prepared.
Here are some things to consider when faced with the decision of selecting your builder and ultimately getting the best price:
1. Don’t be surprised if a builder tells you he doesn’t do competitive bids. That should serve to tell you a few things about the builder and how he works. Things like: He's got confidence in his own abilities and talents. He's thorough. He's going to work hard throughout the entire construction process including giving you a value accurate estimate. He respects his subcontractors because they give him fair prices and do great work. He won’t chintz on something just to keep the price low. His full attention will be on you and building your home.
2. Don’t freak out when a builder tells you it might be a couple of weeks before he can get something to you. Remember -- it takes time to pull all the necessary information together and formulate the estimate. Besides, you’ve been at this whole process for how long? Is it honestly going to ruin the whole thing if you have to wait an extra week or two?
3. Make sure you’ve done your part by giving builders all the necessary information they need from you. And make sure each one gets the same exact information. Here’s where I’m talking about all your selections for everything you want in your home: Specific appliances. Specific light fixtures and light bulbs. Cabinet styles. Countertops. Tile and tile patterns. Cabinet hardware. Faucets. Shower fixtures. Flooring. Security system. Landscape lighting. Interior doors. Front door. Skylights. I could go on and on, but do you get my drift? There’s a lot that must be selected, and every single thing has an associated price! If you don't have all this information yet, you're not ready.If you don't have all this information, you'll make builders guess, make assumptions, and make liberal use of allowances that might not fit your needs.
4. Building on raw land? You will face an abundance of extra costs to prep that land so your house can be built. Things like electricity, water, septic/waste, cable and internet services, clearing and prepping the land for construction, and so forth. Often, there are requirements involving acquiring easements for the utilities to be taken to your property, plus fees for new service customers. A builder who gives you an off-the-cuff estimate might not include these costs; his price might seem cheaper, but trust me, you'll pay these extra costs if you want your home.
5. The most important thing? Be patient. The process takes time. The closer a builder can get to value accurate pricing at this stage, the faster the actual construction will go. How could it not, when most of your decisions will have been made before construction even starts!
I've worked with hundreds of builders during my 30+ year career. Here are a few more thoughts for you:
- If you like a builder and have already formed a good, trusting relationship . . . why go elsewhere?
- If you're totally comfortable telling the builder anything at all, and he understands you . . . why go elsewhere?
- If you already know a builder’s reputation and you know he builds a good home . . . why go elsewhere?
- Don't expect a builder to do your shopping for you. Only you know what you want. Be explicit.
- Builders can almost always get better prices on materials than you can. Let them do that for you.
- Don't be afraid to tell the builder your budget. Let them work with you to meet your budget.
Remember -- this is supposed to be a fun thing. You’ve already spent a lot of time and money going over every detail to get exactly what you want in your dream home. Why take a chance at this point in the process by choosing the cheapest bid? Isn’t the actual construction the most important part of the process?
Pick the builder you like and trust. Allow him the time he needs to give you the value accurate price for your home. And before you know it, you’ll be actually living in your dream home!
If you have questions or comments, post a comment below, or shoot me an email. I'll be happy to talk with you.