A quick guide to your next few steps.
One of the hardest things for prospective homeowners to get comfortable with is the whole idea of having thier home built and how to make sure they are making the right choice when it comes to selecting their builder. One of the most common thoughts is to seek multiple competitive bids, thinking this will give them the most “bang for their buck”. This is certainly an option but it can definitely be a double edge sword. An all too often missed element of comparing bids as a potential homeowner, is making sure that what you are comparing is truly “apples to apples.” Below are a few recommended steps to make sure you get the most detailed information you feel comfortable and confident with in order to help with this first big decision.
One thing I would caution all homeowners about is putting too much emphasis any one part of the equation and not enough on another, there is no doubt that the financial cost of the finished home is a huge part of the decision but equally or potentially greater in my opinion is the answers to a couple of relatively simple questions:
1. Is this the person / company that I want to embark on the intimate journey of creating our dream home?
2. Am I confident that they have my best interest at heart above anything else?
3. Are they responsive and do they “want” to build my home?
With that being said, if you are going to seek competitive bids here are a couple of important things to make sure you include. Have a complete set of plans and specs on the home. If you aren’t able to spell out clearly what your expectations are each builder may make different assumptions. These assumptions could be on anything large from siding and roofing products all the way to interior door handle sets or light switch colors and potentially anything in between. These assumptions by the builders can lead to widely different final numbers and even more importantly they can and would likely be different from your thoughts and needs, potentially creating an area of conflict that can easily be avoided.
To make bidding more productive for everyone try to eliminate assumptions and to give each bidder a legitimate chance of succeeding.
As a first step, I would recommend the buyers interview three to five potential builders to see whom they would like to work with. If a buyer is working with an architect, the architect will likely have a list of builders that they think could be a good fit for the project. The purpose of this meeting is to have everyone get a feel for one another, the property, the style and feel of the future home and to outline expectations and desires of both parties. It is always be a good idea to get a list of previous customers of the builder; it sometimes helps to ask people that have been through this journey about the builders process and their experience. These previous clients may help you come up with questions you haven’t even thought of.
Secondly, when you have finished the interview process you can invite two or three builders to submit bids. Another thing to keep in mind is often times builders may want to know who they are bidding against. One of the reasons for this is that more established companies may choose not to compete against a less professional company with a reputation of lowball bidding just to get the work (Buyers should definitely beware of just taking the lowest bid. As with most things this comes with a cost in the long run in money, quality or both. That is a topic for another blog).
One thing that definitely deserves mention is that creating a “bid” for a custom home is large investment of time and energy for a builder and their staff. Conservatively it takes between 50 and 80 hours for our company as well as dozens of hours from all of the potential subcontractors and suppliers who make up the team to take your home from ideation to implementation. The time that is spent bidding represents a financial risk for the builder; those hours that are spent bidding are not spent managing the projects that are making the company money. For this reason I know a lot of different builders who do not “bid” on jobs, instead they prefer to work on a cooperative basis with the homeowner / architect / realtor / homowners representative and anyone else who can bring positive energies and ideas to this exciting yet sometimes overwhelming process.
One of the major things to understand in the process is that a quality builder that has your best intentions in mind prior to coming up with numbers will take time go through your plans in detail to look for any discrepancies, incompleteness or missed needs/wants and to make sure the plans can be built as designed. Another hope is that the builder will be able to value engineer the home to ensure you get the exact home you want and see if there are areas in the plans that may be able to save you some money as well. Sometimes very simple changes to a home plan can save lots of money.
Now on to the numbers – One way to help eliminate assumptions by the builders and to keep things “apples to apples” is to utilize “allowances”. For example, if you have done research and have an idea of the quality level you want for appliances and you know that the level of quality will cost $10,000 let each of the bidders know and ask them to use that specific number. This will help maintain the comparison of apples to apples when you receive the completed bids back. There are some relatively standard areas of a budget for allowances; some examples are appliances, cabinets, light fixtures, floor coverings and countertops. You can certainly have other allowances but this is a great starting point to make sure each bidder knows your number in each of these areas to keep it consistent. The number itself in this case is less important than the consistency among bids. Next set a due date that is agreeable to all parties, three to four weeks is typical for a custom home project. Included in each bid should be price and an estimated completion time. Additionally it should also include the builder policies and costs for making any changes once the project is underway.
Once the bids are in and prior to the final selection it is a good idea for the buyer and the prospective builders to meet to review the bid. Ask for clarification on any unanswered questions and to confirm the numbers. One good question to ask is how did they come up with the number, ie how do they choose their subcontractors and how long have they had those relationships? (Just as I caution homeowners in just taking the lowest bid I would be remiss if I didn’t have the same caution to builders in regards to building there subcontractor team) It would be a mistake to not choose the preferred builder based on a math discrepancy that could have been clarified in a conversation. Another sliding scale number is how the builder is getting paid: overall sum, cost plus % or fee based just to name a few. I am not saying any of these are right or wrong but again the goal is to eliminate as many variables as possible in trying to help you make this decision. (That is why we tend to go with a hybrid a cost + model that roles into a set fee, the reason for this is so a homeowner isn’t “penalized for wanting to upgrade their home and having to put additional markup on said upgrade. Another blog for another time) This meeting is also an appropriate time to give the builder feedback on his process’s and potential areas they could improve. As I mentioned earlier, building a home is an interactive and a very intimate process, your feedback is valuable information to help the builder improve their process.
One final thing to know is – it’s not unheard-of for all bids to be too high. Custom homebuilders say that at least 20 percent of the plans they see are over-designed for the customer’s budget. That’s another reason to potentially skip competitive bidding and instead work with a reputable builder that can be involved in the home’s design from the beginning.
So in conclusion, I know I got long winded
- Interview a few builders and find one or two you are comfortable with.
- Start an open and transparent dialogue about what you want, what you expect, what the builder wants and expects, your budget and your timelines.
- Ask for feedback on your plans and ideas on your home.
- Get competitive bids if that is what you want but make sure everyone has the appropriate information to give you valuable information.
- Evaluate the bids, asking clarifying questions to ensure that you are getting what you want/need.
- Trust your gut feeling and choose a builder that you want by your side though this awesome experience.
- Over communicate and Have Fun!!!!
Thanks for reading and I invite you to share your feedback about this blog or your home building journey. -Mike 503 522 4357, mike@anlon.attome.com