Over Budget
Nail down costs before construction begins.
Source: CUSTOM HOME Magazine
Publication date: September 1, 2007
Publication date: September 1, 2007
By Dennis A. Dixon
All custom builders know that a happy job has all parties—client, architect, and builder—headed for the same goal: the estimated price to build the
house. But sometimes clients can get led in the wrong direction when an outside “expert” misinforms them about what their house should cost. And
when that horse is out of the barn, the results can be disastrous, as these custom home clients learned.
house. But sometimes clients can get led in the wrong direction when an outside “expert” misinforms them about what their house should cost. And
when that horse is out of the barn, the results can be disastrous, as these custom home clients learned.
Samantha and Tom Jackson had been waiting for quite a while to get their custom home project started. The new residential community they
wanted to build in had been slow to get approvals and financing in place. The Jacksons had been waiting 10 months for roads and infrastructure to
be completed before they could select a lot.
wanted to build in had been slow to get approvals and financing in place. The Jacksons had been waiting 10 months for roads and infrastructure to
be completed before they could select a lot.
Their frustration grew as they learned that the opening lots would be offered in a lottery. Buyers could identify their lot or lots of choice, register
with the developer, and then elect to purchase that property at the lottery gathering. If more than one buyer registered for the same lot, then a
bidding process would ensue. The plans were completed and submitted to three custom home builders for a fixed-price-contract quote. The
plans and specifications were well defined and factual for bidding and pricing purposes. The six-week bidding allotment went by quickly and the
bids were then submitted. One of the original bidders dropped out, but that spot was immediately filled by another qualified contractor.
with the developer, and then elect to purchase that property at the lottery gathering. If more than one buyer registered for the same lot, then a
bidding process would ensue. The plans were completed and submitted to three custom home builders for a fixed-price-contract quote. The
plans and specifications were well defined and factual for bidding and pricing purposes. The six-week bidding allotment went by quickly and the
bids were then submitted. One of the original bidders dropped out, but that spot was immediately filled by another qualified contractor.
The bids were submitted by mail to the architect on the specified date. The quotes were $2.32 million, $2.35 million, and $2.38 million
respectively, a $60,000 spread between low and high bid (a 2.5 percent variation). Need I say that the architect and the owners were surprised?
respectively, a $60,000 spread between low and high bid (a 2.5 percent variation). Need I say that the architect and the owners were surprised?
The Jacksons were dumbfounded. How could this be? Tom quickly got out his calculator. “The bids range from $580 to $595 per square foot,”
he stated. “These quotes are just crazy,” the couple blurted in unison. “Those prices aren't even anywhere in the vicinity of what we were
expecting!” “Is the house coated in gold leaf, or is it an unusual design?” Tom asked. “You know we never asked for the Taj Mahal.”
he stated. “These quotes are just crazy,” the couple blurted in unison. “Those prices aren't even anywhere in the vicinity of what we were
expecting!” “Is the house coated in gold leaf, or is it an unusual design?” Tom asked. “You know we never asked for the Taj Mahal.”
“Oh, not at all,” reassured Kyle. “These contractors must be too busy to take on your project. Quoting stratospheric prices like that is way out
of line and borders on unprofessionalism.” And then he added, “They probably don't understand how fundamentally simple the assembly and
efficiency process is for the 65 beams and the curved roof structures.” Then he mumbled to himself, “These guys are making a big mistake by
alienating KK Architecture.”
of line and borders on unprofessionalism.” And then he added, “They probably don't understand how fundamentally simple the assembly and
efficiency process is for the 65 beams and the curved roof structures.” Then he mumbled to himself, “These guys are making a big mistake by
alienating KK Architecture.”
The architect and owners entered a strategy session to identify the best plan of attack. Many questions befuddled the group. Why were the
quotes so beyond their anticipated budget? Was a quote spread of less than 3 percent normal? All the price quotes were so crazy expensive
and so far away from the $175 to $225 per foot estimate. Somebody must be doing something wrong or making too much money. What were
other owners paying for their homes in this new community? Does the 1,435-square-foot, four-door garage have a big cost impact? What
about the raised-seam copper metal roof? All to no conclusion.
quotes so beyond their anticipated budget? Was a quote spread of less than 3 percent normal? All the price quotes were so crazy expensive
and so far away from the $175 to $225 per foot estimate. Somebody must be doing something wrong or making too much money. What were
other owners paying for their homes in this new community? Does the 1,435-square-foot, four-door garage have a big cost impact? What
about the raised-seam copper metal roof? All to no conclusion.
After several days, the architect telephoned the owners with some great news. He had found a reputable contractor that was willing to take on
the project for a price of $1.4 million to $1.6 million. Furthermore, the low bidder explained in writing how the owners could potentially save
another $300,000 by making adjustments in a number of areas. But they would only divulge this information if they were awarded the contract
on a cost-plus basis. The owners hired the low-bid contractor using a cost-plus contract in the hopes of saving money and participating in a
portion of the cost-versus-value evaluations that go into any construction project. They envisioned that there would be a joint cooperative
effort between owner, architect, and contractor to deliver the best home for the best price.
the project for a price of $1.4 million to $1.6 million. Furthermore, the low bidder explained in writing how the owners could potentially save
another $300,000 by making adjustments in a number of areas. But they would only divulge this information if they were awarded the contract
on a cost-plus basis. The owners hired the low-bid contractor using a cost-plus contract in the hopes of saving money and participating in a
portion of the cost-versus-value evaluations that go into any construction project. They envisioned that there would be a joint cooperative
effort between owner, architect, and contractor to deliver the best home for the best price.
All three original bidders were incredulous that anyone could build that house for a substantially lower amount. They were frustrated and had
similar questions. They wondered why no one had informed them of the owners' target budget of $175 a square foot. That could have saved
everyone a lot of time, effort, and heartache.
similar questions. They wondered why no one had informed them of the owners' target budget of $175 a square foot. That could have saved
everyone a lot of time, effort, and heartache.
Reality Check. The architect and builder were billing for their administrative time and managerial efforts as the project progressed. After
several short months of this, the owners minimized the architectural supervision to save money. Additional months went by and payment
requests were submitted monthly. Six months into the project, the home was approximately 45 percent complete, and 90 percent of the
budget had been spent. No one was watching the budget because it was cost-plus. This was the “good deal” the clients had naively agreed to.
several short months of this, the owners minimized the architectural supervision to save money. Additional months went by and payment
requests were submitted monthly. Six months into the project, the home was approximately 45 percent complete, and 90 percent of the
budget had been spent. No one was watching the budget because it was cost-plus. This was the “good deal” the clients had naively agreed to.
The contractor had justifications for the exhausted budget: “Concrete and steel costs have gone through the roof, and the excavation outlay
was nearly tripled due to the rock shelf system we encountered.” The owners felt confident that every dollar being billed was well spent and
justified due to receipts, line item invoice listings, etc. But how would they know? Are clients cost experts?
was nearly tripled due to the rock shelf system we encountered.” The owners felt confident that every dollar being billed was well spent and
justified due to receipts, line item invoice listings, etc. But how would they know? Are clients cost experts?
The Jacksons finally scheduled a meeting on site with the contractor. The date came and went, and the contractor's phone was
disconnected. His office was now vacant, and the landlord explained that the tenant owed him four months rent. Subs and suppliers began
calling the owners for payment. It was soon revealed that few, if any, trades or suppliers had been paid by the contractor during the previous
12 weeks.
disconnected. His office was now vacant, and the landlord explained that the tenant owed him four months rent. Subs and suppliers began
calling the owners for payment. It was soon revealed that few, if any, trades or suppliers had been paid by the contractor during the previous
12 weeks.
Epilogue. The owners filed suit against the contractor and entered proceedings to seize his $5,000 bond. The project, already at a halt,
was inventoried, reinspected, and evaluated. Subs' and suppliers' payment claims were noted, verified, and if validated, paid. The
contractor had few assets to be garnered.
was inventoried, reinspected, and evaluated. Subs' and suppliers' payment claims were noted, verified, and if validated, paid. The
contractor had few assets to be garnered.
The owners now needed someone to complete the project. They hired one of the original bidders. The contract to repair and complete the
project was $2.95 million. This was in addition to what had already been paid out. And by the way, total square footage under roof
(house, garage, porches, barbecue area) was 7,435 square feet, which translates to $329 a square foot, excluding $165,000 in excavation
work and a $95,000 driveway.
project was $2.95 million. This was in addition to what had already been paid out. And by the way, total square footage under roof
(house, garage, porches, barbecue area) was 7,435 square feet, which translates to $329 a square foot, excluding $165,000 in excavation
work and a $95,000 driveway.
Guessing costs without facts, figures, and market feedback can be very misleading and unprofessional. Quoting cost per square foot in
today's marketplace, without an assembly of footnotes, is risky at best, irresponsible at worst. It's akin to me quoting the cost of a heart
transplant to someone I've met at a cocktail party! —Dennis A. Dixon is an author, contractor, and speaker with 23 years of
experience in the building industry.
today's marketplace, without an assembly of footnotes, is risky at best, irresponsible at worst. It's akin to me quoting the cost of a heart
transplant to someone I've met at a cocktail party! —Dennis A. Dixon is an author, contractor, and speaker with 23 years of
experience in the building industry.
I am often asked by potential customers "What is the cost per square foot to build a home these days?"
I really don't want to answer that question because I can't give them a good answer. So I hem and haw and try to explain to
them why I can't. If you are considering building, read the article below. It is the best explanation I have read.
I don't like surprises and I know my customers don't.
I really don't want to answer that question because I can't give them a good answer. So I hem and haw and try to explain to
them why I can't. If you are considering building, read the article below. It is the best explanation I have read.
I don't like surprises and I know my customers don't.
