In recent months, we’ve encountered a few situations in which a client approved a preliminary design, only to find that estimated costs to build were greater than expected. In some cases, this entailed an overhaul of the design; in others, the project was put on hold or abandoned completely. This led us to assemble a few thoughts on how to build a new home in this time of escalating costs.
Let’s look at the reasons that costs are higher than they used to be. First, building materials are commodities that are in demand globally, and this influences the local market. Standard building components such as lumber, plywood, drywall, cement, etc . have all been subject to price jumps in each of the last few years. Also, the demand for building sub-trades is very strong. Since they’re as busy as they want to be, this has sometimes created a “gold rush” mentality, with higher and higher prices being quoted. Finally, as communities adopt the new STEP Code, this is adding more complexity, more work, and higher insulation costs to the creation of a new home.
There have been instances when clients are confronted with the true cost of their dream home and have chosen to walk away from the project entirely. This can be an emotionally devastating experience. What’s to be done to avoid this?
One builder we know recommends a process that involves a frank discussion at the start of planning, in which the client has to declare their true budget. Right now, this isn’t always happening, often because the client is afraid that estimated costs will be inflated to use up the entire budget, if it is revealed. But we feel that it’s in the client’s interests to start with the builder, who can provide an honest assessment of the client’s preferred style, materials, and mechanical systems against the real budget. Then the builder can estimate an approximate affordable size of the project, and it can go forward to a designer.
That brings up another point: with a few notable exceptions, we’ve found that people planning to build a custom home are reluctant to give way on the size of the house when confronted with financial reality. Often, the builder is expected to make up the difference between the client’s wishes and the true cost of the project.
If high building costs continue to be the reality, then it may be necessary to rethink our expectations regarding the size, complexity, and level of finish on the project. Think of it this way: when car buyers face rising gas prices, they are incentivized to buy a more fuel-efficient car than the one originally planned. It’s time to apply the same perspective to custom home building and renovations. Better to realistically tailor dreams to budget — even if this means making some compromises in size and level of finish — and get a home that works on all levels, than to have to walk away with shattered expectations.
Great to see this post.
Our clients often say other builders won’t even talk to them until they have plans. This is a reflection of the Design – Bid – Build method and in my opinion it simply doesn’t work for custom home building. It’s putting the cart before the horse. The client will spend most of their design budget before they know what their home will cost, and they’re set up for the “shattered expectations” you mention.
The way I see it, the budget is usually the limiting factor in any given project, so it ought to be what is discussed first. I want our clients to keep “dreaming,” but if we can determine their budget and their preferences first, then they will know at least how big they should be dreaming. We call this “planning to a budget” instead of budgeting to a plan. If a client invests in their design first, there’s a risk they will have to redesign once they engage a builder and discover the build cost.
The challenge is everyone wants to know the price of a product before they buy it. So do I. But a custom home is more a service than a product. Much of the value in a custom home, and what makes it unique, is in the service provided by the designer and the builder in the planning stages.
Sure, but how much will it cost?
I often use the metaphor of “how much does it cost to go for dinner?” There’re a lot of questions to precede that answer: Where do you want to eat?, What kind of food? Appies? Wine? Desert? and…how much do you want to spend anyway? Planning a custom home is similar. The designer and the builder need to understand their clients interests and their budget first. Once they know the ingredients, that’s when they can get creative.
The sooner we get involved the better – and ideally at the concept stage. There are many cost variables in custom homes but we have building knowledge and cost records to draw from and can provide valuable feedback on the feasibility of the concept before design work starts. This early collaboration is also an opportunity for the client and the builder to develop the trust and rapport which is absolutely key to successful project delivery.
As construction costs have escalated, there is greater need for feasibility studies. We’ve responded by honing our feasibility tools and processes. Our goal is to understand our client’s vision and bring alignment to their concept and their budget early. That way the design and planning process can run smoothly and be fun and inspiring for the whole team.