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How do I select a custom home builder?
During the course of construction you will have a series of homework
assignments. Selecting a builder is one of your most important
tasks. The problem is there is no foolproof way of making the right
choice. Ultimately, it comes down to trust. Do not get involved
with a home builder you do not trust, regardless of how attractive
the price. Trust alone is not enough, but it is the starting point.
You also want experience, competence, service, and value for your
money. Referrals are good, but they can be misleading. Some people
just don't know a good job from a bad one, and every builder, even
a poor one, usually has at least a couple of decent jobs for referrals.
It is best to visit some previous projects, to see the workmanship
first hand. Ask questions of past clients. Don't be shy. This is
your hard earned money at stake. Ask your potential builder tough
questions. You are turning over a lot of money to a stranger.
No information should be withheld.
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Should I competitively bid my project to several builders or negotiate
with one builder?
There is no right way. I prefer negotiating with a builder whom I
have researched thoroughly and believe to be reputable and trustworthy.
Obviously, the danger with this method is that if your judgment is
wrong, you could end up paying way too much for your project. Your
home builder might be a great craftsman but overpriced. Your home
builder might be very fair on pricing but incredibly inefficient,
which could end up costing you more than dishonesty.
On paper, a competitive bid makes a lot of sense; however in reality
it is intrinsically flawed. A competitive bid on a residential construction
project is essentially a game. The bid is based on a set of plans
which usually have mistakes and are generally incomplete. Competitive
bids are never apples to apples: each builder is calculating on a
different level of quality and service. Some builders bid low and
make it up on extras. Some builders bid sloppily and make it up on
crummy workmanship. Some builders scrutinize the plans for errors
and omissions, areas that they can exploit to their advantage. Sometimes
you can win the competitive bid game, but you can also lose. The
more you do your homework and find out what things should cost, the
more likely it is that you will get value for your money. If you
find a good builder whom you can trust, and he or she has a reputation
for pleasing clients, being efficient and fair on pricing, this is
the builder you probably want.
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How do I analyze competitive bids on
home construction projects?
Let's say you have three bids for $90,000, $100,000, and $110,000.
The first thing you want to do is make sure the bids are as close
to apples to apples as possible. The problem is that every home builder
has his own way of estimating and may use different categories than
his competitors. When the plans are given out to bid, an outline
should be given to each builder, breaking down the job the same way.
Each builder is then required to fill out the outline with his bid.
Now you can compare the electrical price and the plumbing, etc. It
is also helpful if you can get information from each builder as to
how much overhead and profit or any other markups there might be
in the bid. Choosing a home builder should never be based on price
alone, but the more clear information you can obtain about how the
bid prices were reached, the better chance you have of making the
right decision.
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Should I insist on a fixed lump sum
or is it OK to have a time and materials contract?
Both systems are flawed. A cost plus contract with an unethical or
inefficient builder can be tragically costly, but even with a fixed
price, the cost can go up dramatically. Latent conditions (hard digs,
termites in the wood, etc.) are usually not covered in a fixed price,
nor are changes and extras. Another major problem with a fixed price
is that it puts you and the home builder on opposite sides of the
table. Every quality decision the builder makes costs more or less
money, so while the price is fixed, the house is not, and the builder
could be compromising the quality of the home. A cost plus job creates
more of a team atmosphere. In general, a cost plus contract will
cost you more money, but you will have a better quality job. Either
way, be careful.
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Why do so many people have home construction nightmares?
For most people, a major home addition or renovation or the building
of a new house represents one of the largest purchases of their
life. However, you cannot approach construction the way you would
approach buying an oven or car or television. First of all we are
talking about much more money. Secondly, it is an entirely different
type of purchase. You pay for most of it before it is finished.
Unlike a product you can buy and touch or test drive, your construction
project is built after you decide to purchase, not before. If it
is a custom home design, then in all likelihood, the product has
never been built before. In other industries when they build a
new product, they make samples, models, and prototypes which they
test, debug and discard. In construction, your custom designed
house is the prototype.
If you analyze most construction nightmares you will find a common
theme: the consumer was seduced by a low bid. If you are buying a
television and you shop at different stores and you are accurately
comparing the same model, size, year, features and one store has
a lower price, not much should go wrong if you buy the less expensive
television. However, when purchasing construction, you are never
comparing apples with apples. Every builder builds differently. If
you get seduced by a low bid and then have a construction nightmare
you are not an innocent bystander in the story. You are spending
your hard earned money on a very expensive purchase. Take it seriously.
Do your homework!
I have a theory which I call the construction theory of relativity
(SP=M2): Smart People Make Mistakes. When it comes to construction,
no matter how smart you are, how rich you are, how successful you
are, it is amazingly simple to screw up. A high bidder can create
just as many problems for you as a low bidder. You have to be willing
to work hard to understand what is in the estimate. What is a fair
price? What level of quality can you afford? What kind of person
are you dealing with? You must the take the time to comprehensively
answer these questions.
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Why are there so many problems on a construction project?
Even when you are involved with a good home builder, there often
are numerous problems. The reasons are many. Quite often there
are mistakes on the construction plans. Most builders sub out the
various trades. Each one of the subcontractors is a separate business
that the builder does not directly control. Many of the subs are
good mechanics, but they don't necessarily know how to run a business.
Many of the materials used in construction are continually changing
because of competition or new technology or environmental issues.
Many of these changes are not fully tested in the real world before
they come on the market. A new rubber gasket or window caulking
or water base paint may not work properly or fail entirely when
the weather changes. The more custom your project is, the more
vulnerable you become to the unknown and the vicissitudes of the
construction world. A good builder can shield you from a lot of
problems, but construction is inherently problematic. The good
news is that almost every problem has a solution.
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How can I minimize the problems associated with a home construction
project?
The first step is to understand that all construction problems can
be reduced to issues of money or communication. Money. Either your
money or the builder's. Either the builder's or his subcontractor's.
The $3 tile or the $10 tile. The $10,000 paint job or the $20,000
paint job. Money. If money was not an issue there would be no problems,
because you would simply buy your way out of any mistakes, compromises
or misunderstandings. Money is an issue regardless of your wealth
or budget.
If you are dreaming about a $50,000 renovation, you are probably
designing a $75,000 project. If you are dreaming about a $3 million
home, you are probably designing a $4 million, over-budget gem. People
dream about houses just beyond their means or budgets. If people
swapped dreams then at least some people would build within their
budget. If you want to control the budget, you have to control your
appetite. You have to be disciplined. Set a budget, then set a contingency
over that budget and adhere to it. Budgets usually don't go over
because of one item. They deteriorate incrementally. A $100 extra
here, a $500 unknown condition there. "Now that the doors are
in, we really need better hardware." If you don't control the
budget, no one else will. Nobody is forcing you to buy the limestone.
You are choosing to spend more than you planned. That's okay if you
can afford it; but if you can't, just say no. Document all issues
concerning money.
Before the project begins know what your builder is charging you
for markup, overhead and profit, extras. Know how his subs charge
him. Get a list of hourly rates. Understand fully who pays for what
if something goes wrong, understand your warranties and guarantees,
understand who is responsible when cracks or shrinkage or expansion
occurs months after you have paid the builder. Go over all the money
issues you can think of before you sign the contract. Write them
down and add them to the contract.
Communication. Construction operates in a foreign language called "Plans." Most
likely you are not very fluent in this language, so there is an inherent
communication problem. Even if you are fluent, there is the additional
problem that the plans will have to be translated into a three dimensional
medium called "Construction." It is easy for things to
get lost in translation from English to Plans to Construction. Never
trust verbal communication on a construction project. Document every
conversation that involves something being done to your house. If
you don't, you face an eighty percent chance it will be done differently
than you communicated.
Communication with your designer, with your builder, with the electrician,
is work. You are communicating ideas or feelings which the other
person is hearing though their own unique wiring. They may be nodding,
but that doesn't mean they fully understand you or will remember
what you said. Documenting is not a guarantee, but it vastly improves
the odds of success, as well as creating a trail if things go wrong. "Don't
you remember when I told you" is not very persuasive when you
are arguing who is at fault. Having a formal meeting with the builder
(and architect if one is involved) every week or every other week
is very helpful. Even if you are doing a renovation and talk to the
builder every day, a formal meeting forces people to communicate
about the current issues of money, time, quality, and problems. Meeting
notes should be taken and distributed. The more discipline you impose
on the project the better the communication will be.
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How do I avoid overruns?
Overruns are the amounts spent building your custom home or renovating
your house that go beyond the original budget. This might include
changes, additional work, low estimates, or unforeseen conditions.
It is always good to start a construction project with a contingency.
It is rare that a residential construction project doesn't go over
budget. Changes and additional work can be kept to a minimum by
fully understanding what you are building before you start. If
you can't read plans, then have the architect or builder explain
to you everything that is on the plans. Once you have accepted
the design then you have to maintain the discipline to enforce
the budget. You can always make the house nicer; but that costs
money.
Unforeseen conditions include items like hard dig sites or termite
damage in the house. These are called latent conditions and unless
you pay to do exploratory work before the construction begins, neither
you nor your builder would know these conditions existed. That is
why you have a contingency. The unforeseen will always show up unexpectedly.
So expect it! If you are on a time and materials contract you are
vulnerable to overruns caused by poor estimating by the builder or
changes in material costs. As much as possible have your builder
secure real bids and quotes before the project begins. As soon as
you get a good price, lock it in. It sounds simplistic, but the answer
is similar to other answers I have given you. Do your homework. This
is your house, your money, and regardless of how good your home builder
is, the more homework you do, the more you know about the plans,
the estimates, the bids, the intended subs, the more you will control
the process and reduce the amount of overruns.
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How do I avoid being taken advantage of on change orders?
Changes are inherently inefficient, so even if your builder is honest
you pay a premium for changes because they disrupt the flow of
work. They create inefficiency. Some builders bid jobs low, planning
to make up the money on their change orders. Once you are captive
to a builder or subcontractor who sees changes as a gold mine,
you've got a problem. Obviously, the best strategy is to keep changes
to a minimum. It is important to explain in the contract how changes
are going to be handled. What type of markups and overhead and
profit is your builder going to charge you. If you can get an estimate
of the entire project that is broken down into very detailed categories
before the construction starts, that is very helpful. Then you
will know what each item costs. This forces the builder to give
you proper credit for items you already had in the project. Some
builders may not have this information or may not want to share
it with you. A good, honest, efficient home builder should have
this information and be willing to share it with you. The more
information a builder doesn't want to reveal to you, the more you
should be wary of getting involved with that builder.
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Why are so many builders
and subcontractors evasive?
There is a language spoken by many people in the construction world
that I call "Vaguese." It is an interesting language where
words and phrases are combined to create vague impressions. Sentences
are constructed to avoid any personal responsibility. It is a defensive
language used to shield individuals and companies from financial
liability. Since almost every problem in construction comes down
to who is going to pay for it, and often times there are gray areas
and several entities to blame, many people in the industry learn
to speak Vaguese or risk owning the repair bill. As a consumer, you
should try to find a home builder who doesn't speak this language,
a home builder who is direct and honest. You should also consciously
make sure that all of your communications are direct. If you make
a mistake, admit it. Set the tone. Create a climate where you expect
total honesty and you live by total honesty.
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