Custom Home Budgets – Too Good To Be True?

Custom Home Budgets - Too Good To Be True?

When you’re building a custom home, and bidding the project, it is always tempting to go with a lower offer, especially when it is thousands of dollars difference between two builders. But as tempting as this may seem, it is important to consider all the pros and cons of a lower budget.   There may be some hidden surprises when you’re comparing one bid to another.  Many times, these surprises aren’t revealed until you’re well under way with the construction process.  In this article, we will go review how price can be a misleading tool when deciding on a builder.

1. Apples to Apples

You will see the concept of ‘Apples to Apples’ repeated throughout our site because, far too many times, we’ve seen homeowners make decisions based on pricing or specifications that were not apples to apples. The easiest way to ensure you are comparing apples to apples is to begin with a detailed set of specifications. 

Here is one example: 

Jim and Linda were determined to build a house with a budget of $1.5M. They met with an architect who drew up their dream home with all of the designs they desired. Although a preliminary budget was discussed with the architect, the specifications were vague and the architect advised them that detailed specifications would need to be developed and reviewed with the builder. 

We met with Jim and Linda and reviewed their drawings. Since they had not spent the time or money to create a detailed set of specifications with the architect, we provided a price that included many of the materials and specifications we felt would be commonly used for similarly styled homes and budgets. Our estimate was that the home would cost approximately $1.85M to build. Meanwhile, they received a bid from another builder for $1.55M and wanted to know why there was such a price difference – a legitimate question. 

We offered to review the specifications, where it was determined that our bid included an allowance for commercial-grade appliances such as Thermador or Wolf whereas the other builder used a mid-level GE line and this example of “incomparable allowances and specifications” was prevalent through all the other pricing and selections, causing an obvious discrepancy in price, value and overall quality.

Now, while it was not a problem to use GE appliances if that is what the client preferred, it certainly did not provide an apples to apples comparison. Meanwhile, the client expected upper-end selections, so this assumption and inconsistency should have been a big red flag. Instead, they approached the other builder to discuss the discrepancies. The builder indicated that he could provide all of the higher-end selections for the same price. So, we shook hands with the client and parted ways, amicably of course. 

While persistence can be a good thing, it does not override the theory that ‘you get what you pay for.’ They ultimately signed a contract with the builder for the $1.55M price they had in mind. Unfortunately, that was not the end of the story. About eight months into their project, and after $1M had been drawn down from their construction loan, the house was only about half-way finished. By this time, they realized that there was no way the house could be completed for the remaining $550,000. The selected builder (who coincidentally only had about 5 years of experience) informed them that he could not continue the project without additional funds. The bank would not release any more funds until the previous phases had been completed. So, the entire project, half-way done, came to a complete stand-still. What a mess! 

2. Too Good to be True 

The saying “It’s Too Good to be True” is worth its weight in gold. If one builder’s price is more than 5-8% different than another’s – it may be too good to be true or there is something wrong. The reality is that if all things are equal (and this is a BIG if), each builder’s pricing structure should be relatively close. As we discuss in this article, you can avoid a lot of issues, by contracting an architect or builder to prepare a complete set of detailed design specifications.

When detailed specifications aren’t provided, some builders will try to cut corners on price, just to get the business and make it up later. They may provide vague specifications or offer to ‘do it for a better price.’ In most of these cases, the builder cannot finish the project, goes out of business, or the homeowner ends up struggling to find the cash to make up the difference. This reality often hits somewhere in the middle of the construction process when you have few options – either during selections, half-way through the construction process, etc. When your builder tells you that everything is included in their price, be cautious. 

3. Insufficient Allowances

One of the most common ways that an unscrupulous builder will present a price that is too good to be true, is to knowingly or unknowingly include allowances that are insufficient to complete your home as expected. Of course, you won’t realize this until you are knee-deep in the project and the change orders start coming through. 

The allowances provided by your builder should be based on the discussions you’ve had and typically aligned with the finish and specifications throughout the remainder of the home unless purposefully specified otherwise. You should have a good sense of what your allowances will buy. Vague specifications open the door wide for insufficient allowances, so if you notice this occurring, be very wary. 

There are many other factors to consider when comparing prices between builders, such as their experience, insufficient allowances, vague specifications, and value engineering. We will cover each of these in more detail in our next article.  The bottom line is, when you go with a dramatically lower bid, you open yourself up to surprises halfway through the construction process, or the potential to realizing that the finished product is not what you expected.  Are you wondering if your builder is giving you the best price? Are you afraid they may be cutting corners? A second estimate is always good  idea to get and compare them side by side to find where the big differences are and how much they mean to you. 

At Mueller Homes, we stand behind our reputation as an outstanding luxury custom home builder.  We build luxury custom homes with offices in Annapolis and Sykesville, Maryland.  We belong to industry associations like the NAHB and the MBIA, which uphold industry standards and best practices.  We believe that an educated consumer will make the best decision. Our goal is that, armed with this information and knowledge you will be able to make wise decisions that provide an experience that you fondly reflect on for years to come. In our ongoing blog series, we’ll continue to provide you insight and experience we’ve gathered from over 30 years of experience. Stay tuned!

If you are thinking about building your once-in-a-lifetime custom luxury home, be sure to download our FREE ebook: “Designing & Building Your Custom Dream Home: How to Create an Experience You’ll Love to Remember” or visit our website at MuellerHomes.com

Ready to get started? Contact Mueller Homes today, and let’s talk.

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