The Estimating, Specifications and Allowances (ESA) process is the most critical and complex area of the home building process, for client expectations, satisfaction, and ultimate home building experience.  This is the single area where we have watched homeowners go for a lower price, without realizing what they were compromising.  In this article, we highlight what you need to know about estimating construction costs for a custom home and how to compare apples to apples.

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 because it can cause major price variances. 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 the overwhelming majority of cases, there was something wrong and it usually came down to the ESA process.

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 your home building experience.  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, 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.  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 your flooring Standard oak stair treads or custom wood stair treads that 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.

First, you have taken the time to carefully consider the design and quality you want to utilize in every aspect of your home.  Second, when you are considering design changes, you understand the associated costs and can make a very 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.

However, we strongly advise that you do not bypass the design specification 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 read the entire chapter in our 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!