Estimating Costs for a Custom Home

Estimating Costs for a Custom Home

Estimating Costs for a Custom Home

When building a custom home in Maryland, many people think that a basic set of drawings and specifications is adequate to get bids and pricing for their project.  However, this approach often ends up with bids that are widely varied because each builder is allowed to interpret or substitute specifications that may or may not align with the client’s vision.  This is one of the biggest mistakes homeowners can make when building a custom home and we have watched many people go for the lower price, without realizing what they were compromising.  The Estimating, Specifications and Allowances (ESA) process is the most critical and complex area of the home building process, for client expectations, satisfaction, and the ultimate home building experience.   In this article, we highlight what you need to know about Estimating Costs for a Custom Home building project and how to compare apples to apples.

Don’t Choose a Builder Based on Price

For many consumers, the process of building a custom home and choosing a builder comes down to the numbers.  Although there are many other factors to consider, for some people, it just comes down to price.  While there is nothing inherently wrong with being cost-conscious, it’s important to fully understand the ESA process and it’s impact on estimating costs for a custom home. We have met with hundreds of clients over the years.  We have certainly met with homeowners who ‘got a lower bid’ or ‘a bid that was significantly less than ours’ and chose to go with another builder.  In some cases, this worked out.  But, in many cases, there was something wrong and it usually came down to the ESA process.  In several cases, the homeowner not realize the magnitude of this problem until they were well into the actual construction – a point at which it is too late to remedy the situation.

Detailed Specifications are Critical

You can opt to pay a design fee to an architect or builder to create a detailed set of specifications, but you must have detailed specifications to get an accurate ‘apples to apples’ estimate.  We believe there are no cutting corners in this regard.  We have seen many homeowners get several price quotes, that are not equal, and get lured down a slippery slope.  The level of detail included in an estimate has a direct correlation to estimating costs for a custom home.  Just as you choose a trim package for a car, this selection process is vastly more complicated when building a custom home because every detail (lighting and plumbing fixtures, roof material, insulation, appliances, cabinet hardware, etc.) is driven by you and your builder.  One builder may estimate low in this regard to obtain the bid and then later, you’ll have to pay for upgrades.  Another builder may include a higher level of trim, based on understanding your desired quality and expectations.  If both builders have the same detailed specifications, the chances of surprises later is far reduced.

Estimating Construction Costs is all about the Details

A reputable builder cannot possibly give you accurate pricing without a detailed set of drawings and specifications.  This is often a timely and thought-provoking process that requires a considerable amount of time and effort by you and the builder.  These discussions are collaborative with the builder providing you ideas for consideration along the way.  For example, do you prefer vinyl siding or Hardi-plank siding?  Do you prefer high quality custom cabinetry or stock cabinetry?  Do you want your stair treads to match the rest of your flooring?   It is these personal preferences and details that truly make a custom home uniquely yours.  In addition, a detailed estimate provides benchmarks for every single item so that as you make your final selections, you will understand any cost variations.  This level of detail provides a much better home building experience, for a number of reasons.

Don’t Allow Bidders to Substitute

Assuming you have a detailed set of specifications, it is important to require the bidders to bid the project as specified.  Builders can submit addendums showing proposed substitutions or value-engineering ideas, but the moment that one builder takes liberties with your specifications, the project will evolve into an apples to oranges comparison.  Builders should always adhere to an industry standard for any specifications [learn more about Residential Construction Performance Guidelines from the NAHB.]

Why These Details Matter the Most

You have likely taken the time to carefully consider the design and quality you want to utilize in every aspect of your home.  Later on, you may consider design changes as the project progresses.  The former process will help you understand the associated costs and make an informed decision.  For example, sometimes a homeowner will agree to one set of specifications during the design process, but as the home building project progresses, they may decide they want something different.  Perhaps you chose a mid-range lighting package with a nickel finish during the design specifications phase.  But, during the actual building process, you realize that the lighting in the great room could be enhanced with a different style or design, perhaps to be used as a focal point.  Because you created detailed specifications at the outset of the project, you know that the lighting budget included in your original specifications was $20,000.  But, to add the new lighting features you desire will cost an additional $6000.  You can easily understand the $6000 cost difference so that when a change order is processed, you have a frame of reference for what you were originally budgeted and what you are now spending.  Or, perhaps you choose to upgrade all of the lighting to a different design with a rubbed bronze finish, and the cost to upgrade the entire lighting package is determined to be $30,000.  You now can make an educated decision about whether or not this the direction you want to go, and if you have the cash or finances to make up the difference since it would not have been included as part of your original financing.

We strongly advise every potential client to consider the value of a detailed specifications process, unless you are considering a Cost Plus build model [see Ch. 14 of our book for more details on this type of contract] for your project.  This important process is what will truly allow you to compare apples to apples and ensure your price includes all of the creature comforts you desire.

If you want to be fully educated on this topic, be sure to download or get your FREE ebook: “Designing & Building Your Custom Dream Home: How to Create an Experience You’ll Love to Remember.”

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

 

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