Change Orders When Building a Custom Home

change orders for custom home

Change Orders When Building a Custom Home

The inherent nature of the custom home building process is to accommodate change orders as the home’s construction project progresses. The experienced custom home builder will be able to accommodate these requests and adapt the schedule as needed.  Here’s what you need to know about change orders when building a custom home.

Change Orders – A Service or Profit Center?

The widely held perception, in the industry, is that change orders are an area of high profit to builders. This may be the case for some, especially in the production field, where a home is built and the time schedule is founded upon a routine process, but this is not the case for most reputable custom home builders.   It is important to note that, for most reputable custom home builders, change orders are performed as a service to the client. They are not a profit-making component. Remember, everything in your home is custom, so change orders are a change to the original design or specifications agreed upon by you, your builder, designer, and/or architect.

It’s also important to understand that, some unscrupulous custom builders, may utilize change orders as a profit center or to ‘make up’ costs on low-bid projects.  This can happen when a builder substitutes line items in a bid, provides low or unrealistic allowances, or simply uses inferior products and materials.  This is another reason why it’s important to have a detailed set of specifications and to work with a reputable builder.

Understand the Change Order Process Ahead of Time

In custom home building, and you’ll need to have this discussion with your builder ahead of time, the margin added to a change order rarely recoups all of the associated time and administrative resources required to accommodate the actual change order. As a matter of fact, most builders would prefer to build a home without any change orders, but the nature of the custom home building process is to provide the homeowner with the ability to customize the home to their desired liking, even during construction.

How Change Orders Impact on Your Schedule

While custom home builders are usually adept at accommodating change orders, it’s important to remember that change orders can alter the construction schedule, push production timelines, and may cause a ripple effect in many other areas of the project.  So, it’s imperative to consider each change order’s cost and impact on the overall construction schedule.

For example, one client decided, after the house was under roof, and they were able to walk the space, that they really wanted additional square footage on the main level. Although we were willing and able to accommodate this change, it required a big shift in the schedule – resulting in a set-back by about 6-8 weeks. Why, you may ask?  Additional site work had to be done, another foundation had to be poured, and the framers and roofers would have to be re-engaged to come back out to build the additional space. Additional inspections and permitting were also required.  Construction on the rest of the home would be brought to a stand-still until all of these changes were made, so that construction and inspections could be re-synchronized.

Accommodating this change required good communication, flexibility on the part of the builder and client, and precise execution of this change order to be effective.  Provided the homeowner and builder have good communication, the homeowner makes change orders, with the understanding of it’s impact on the overall project.  Now, this is obviously a dramatic example of a change order and how it impacts the overall construction. However, it’s important for the client to understand that even the smallest changes can have a ripple effect on the construction process and delivery time-frames. Multiple change orders can side-track an otherwise smooth project, so it’s important for the builder and the client to discuss change orders, as they arise, and to make these decisions with discernment and flexibility for its impact on the overall process.

How to Pay for Change Orders

It’s also worth noting that most change orders are not included as part of the original financing of the home. So, in some cases, change orders will require either the homeowner to pay these costs out of pocket or, to communicate with their lender about ways to cover these costs in the financing.

It is common for most custom home projects to have some change orders because the homeowner’s decisions tend to evolve as the project progresses and they begin to see the actual space. In many cases, these changes enhance the project as the homeowner begins to touch and feel this evolution. But, the wise homeowner will carefully consider any change order decisions and their overall impact on the construction process and discuss these changes with the builder to help manage their overall expectations.

If you’re considering building a custom home, download your free copy of our FREE ebook: “Designing & Building Your Custom Dream Home: How to Create an Experience You’ll Love to Remember.”  Or, simply contact Mueller Homes and let’s schedule a discovery meeting.

 

 

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