There exists an unfortunate reality that permeates much of the building industry, especially custom home building, and it’s often not talked about.
What is this unfortunate reality?
Going over budget. Not just by a little bit, but often by a lot…often even double.
Why is it not talked about? When you’re walking your friends through your new house, who wants to talk about the stress of the project or how much it went over budget? Rarely do the issues come from a lack of effort or unprofessionalism or malice; everyone does their best, but ultimately everyone contributes. We’re all complicit in it: owners, builders, designers.
Strangely enough, in most cases, going way over budget stems from a misunderstanding. A misunderstanding which is deeply ingrained and rarely addressed.
Here’s how it happens:
Rarely is a homeowner an expert project manager, and master builder, and qualified architect, and professional engineer.
Maybe you’re a homeowner and you’re one or two of these, or maybe you’re none!
So you start with a design. Where else would you start, right? Maybe you communicate your “budget” to a designer. What’s the budget based on? Maybe you communicate your “needs” and “wants”.
Once you have “plans” and feel you’re “ready to build”,you get estimates from builders. Is it a quote or an estimate? What does it include? What does it not include? What aspects of design or cost are TBD?
To keep markets fair and competitive, maybe you collect multiple quotes. Or are they estimates? What’s the difference?
You pick your favourite builder. You get financing for the number the builder gave you. You choose things along the way that you like.
You end up with a really nice house. But it takes longer than you wanted it to. And you “budget” has doubled.
So where did the misunderstanding happen??
When designers and builders talk about cost it’s usually about the construction costs – or what’s also known as “hard costs.” But this is only part of the cost of your project (typically 65-80%). Builders’ estimates usually won’t include things like Design, Permits, or Course of Construction Insurance. These are known as “soft costs.” It’s up to the owner to plan and manage these costs. Estimates also often don’t include Landscaping and many Fixtures like Blinds, BBQs, etc that are very much part of completing your home. Also excluded when most designers and builders talk about budget is the ever-so-important contingency.
Some degree of uncertainty is normal and expected with building projects. Even after you have design plans, you will still have hundreds of choices to make. And we all like nice things. And nice things are usually more expensive. This would all be fine if you had a “wish list” contingency in your budget.
Although this misunderstanding around how costs accumulate and from where has been entrenched and unaddressed in the building industry for so long, there is a simple solution:
The one key to staying on budget is to create a Cost Plan before design.
This way you can know how much of your budget you can use for building, and you can design to your budget, rather than the other way around. Also, once you have a Cost Plan in place, you will be able to compare estimates from builders much more easily and effectively. Your Cost Plan will allow you to budget for the project overall, as well as figure out where you have some room to adjust and reallocate funds for various pieces.
YourBuildCoach.com gives you a free Cost Plan to help you avoid losing control of your budget.
Your Cost Plan is a list of ALL regular items involved in a new build or large renovation and the approximate cost of each category. Since you don’t yet have a design it may not be an accurate estimate but it allows to design to a budget instead of budget to a design. It can also be used to evaluate estimates from builders and evaluate alternatives. With a Cost Plan it’s easy to see how spending in one area may require saving in another. Used properly, your Cost Plan helps you plan, design, and manage your project successfully.
Read more here about the different categories in your Cost Plan
Read more here about how to use your Wish-list/Contingency to stay on budget.