Most Commonly Asked Question Series- Question #2
Question #2 – What are the Biggest Mistakes Buyers Make When Selecting a Home Builder?
Lingenfelter Custom Homes – In Business to Build Dreams
Written by Adam Lingenfelter
- They focus too much on finish and not enough focus is given to the quality of the structure itself – Contrary to what you may hear from many real estate agents, the most important part of the structure is what you don’t see. What is the foundation like? How is the house framed and what kind of material and size of material did the builder use? How was the house weatherproofed? What type of insulation (and how much) did the builder use? What type of HVAC units did the builder use? Are those units single stage, two stage, variable speed units? Do they have high efficiency units? How energy efficient are the windows? What kind of framing hardware is in the structure? How will the house hold up in a storm? These items are very expensive to fix later so it’s important that the structure itself is built properly. But it is much easier to upgrade finishes later if you choose to do so.
- They get pricing from too many builders – It is important to talk to 2 or 3 builders because this is a big decision and you need to make sure you hire the right one. However, I have seen many times when buyers talk to too many builders and in doing so they don’t spend enough time talking to any of the builders. It will likely take several conversations with each builder before you truly find out who you want to work with.
- They look for the best deal and end up hiring the “cheapest” builder – There are so many ways a builder can develop estimates that it makes it very difficult for someone with limited experience to make the best decision on which builder to use. Buyers often go with the builder with the lowest bottom line but end up paying more in the long run because the builder left out key components or didn’t include things the buyer really wanted done. It is always important to look at pricing but it’s even more important to choose the builder who you feel is the most trustworthy. Sadly, many builders have found ways to deceive their clients in the way they create their budgets. Look for a builder that is transparent in the way they price their projects and transparent with their change order process.
- They don’t ask for references or they don’t call the references – A good way to know how a builder is to work with is to talk to both previous and current clients. Current clients are almost always better to talk to because the build process is fresh in their minds and you will likely hear honest feedback from them (both good and bad). Homes are built by humans so no build process is perfect because humans make mistakes sometimes. It’s how a builder deals with those mistakes that sets them apart from the rest. The best builders pursue excellence in their home builds and their clients will recognize that but there will still be some things that the best clients are frustrated with during the build even if their home is being built by one of the very best builders in a particular market.
- They don’t look at current projects that are in various stages of construction – It’s important to see what the builder’s homes look like in framing, rough-in stages, drywall, finish trim etc. It’s one thing to have a builder tell you what they do but its much better to see it in person. Not all builders do what they say they do so its important to verify it.
- They give the builder too large of a down payment – Home builders need a certain amount down to cover soft costs and payroll at the early stages of a project because they need enough to operate until they can take the first construction draws. However, a home builder does not typically need more than 30-50k (possibly a little more on projects over 1 million). If a builder asks for 100k-200k (or more), they are likely having cash flow issues and that should be a huge red flag. Fairly recently, there was a home builder in our area that was taking deposits over 100k and he eventually filed for bankruptcy. Sadly, many good people lost some or all those deposits.
- They don’t ask enough detailed questions when interviewing builders –
- How many homes have you built? How many do you build per year? It is important to know how many they build per year because smaller builders (10 homes per year or less) may have a more difficult time hanging on to good sub-contractors in a busy market and they also might have to pay a bit more.
- What kind of insurance do you have? This isn’t as big of a deal if you will be getting a construction loan through a bank because they will need copies of the GL policy and Builders Risk Policy anyway. However, it may save you time if you find out they don’t carry the proper insurance or if they aren’t sure what they have.
- What kinds of things do you do that other builders don’t do? It’s good to find out what they are passionate about. How much pride do they have in their homes? If they can’t clearly state what they do better, then it is a good indicator that they really build everything to code minimum. You want to stay clear of this builder.
- What type of warranties do you provide? Most builders will offer a 1-2-10 warranty but when dealing with smaller builders it is good to also have a 3rd party warranty. It doesn’t cost a lot of money and it is added assurance that you will have a warranty if the builder quit building homes at some point. The builder warranties cover things like drywall repair in the first year, equipment components for 2 years and major components like foundation and framing for 10 years.
- What do you do to make your homes safer? This is particularly important when living in areas where earthquakes or tornadoes are more common. It’s shocking how little most builders do to make their homes safer for their clients. If they don’t have a handful of items they do on every house I would be worried about how much they care about their client’s safety.
- What do you do to make your homes more energy efficient? A buyer can afford a lot more home if their builder does a good job building an energy efficient home. Look for builders that build homes with HERS scores of 55 or less. Make sure they can show you 3rd party documentation of their HERS scores from a certified inspector. If they can’t show you documentation, they are likely not doing a very good job building energy efficient homes. It’s worth noting that a home builder that builds more energy efficient homes is typically a builder that is building a better home overall and it will save you money in the long run.
- What are your standard features? It’s good to know what the builders you are talking to do as standard, and what they typically upcharge for. It is hard to determine which builder is giving you a better deal if you don’t know what each builder is including their base package. Some builders have a higher base cost than others, but you will often find that once you make the upgrades, the builder that was originally higher ends up being less money because the upgrades cost quite a bit more with the less expensive builder.
- How are you compensated? Do they make a flat fee? A percentage of the build cost? Or other. How does that fee compare with the other builders? If the fee is higher do they offer more in-house services that will reduce the build cost in other areas? If they offer fixed price projects and cost-plus projects what do they prefer doing and why do they prefer that?
- How do you handle changes/upgrades? It is important to know the process for changes and how the builder is being compensated for those changes. Does the builder get compensated on a flat fee for change orders or is it a percentage similar to the percentage they charge on the overall build?
- How do they create their budgets (methods and means)? Its important to get a feel for how accurate the budget will be. Especially if it is a cost-plus project.
- What types of homes are they currently building and what are the price points? You want to find out if they are proficient building the type of home you will be building. Do they only build smaller homes and your home may be beyond their knowledge and skill level? Do they only build much larger homes and use sub-contractors that are used to getting paid more than is necessary for the type of home you are building? Knowing what they typically build will give you insight to how comfortable they will be building the home you want built.
- How do you determine which subs/vendors you will use on my project? – Smaller builders are typically less selective because its harder to find subs that are regularly available when you they don’t have enough volume of homes being built. Larger builders might need to use multiple subs because one sub-contractor won’t be able to handle all their work. It’s good to know what factors into who they hire. It’s also good to know if they consistently use the same subs or if they change subs depending on price.
Most Commonly Asked Questions Series- Question # 1
Question #1 – How Much Do You Charge Per Square Foot For a New Home in DFW?
Lingenfelter Custom Homes – In Business to Build Dreams
Written by Adam Lingenfelter
This is the most common question we hear from potential clients in early discussions and the answer is rather complex. There are 5 primary items that drive up or down building costs. Without considering all 5 it is extremely difficult to determine how much we need to charge per square foot on a project. We can give a range but without a full set of prints and detailed specs it is extremely difficult to give an accurate cost per square foot. If a home builder is willing to give square foot pricing with limited information, they are likely either inexperienced or they are not very flexible in the way they build. Let me explain in more detail below:
1. Land cost, land size and site-specific conditions – If we are building a home on a customer’s lot the land cost itself won’t factor into the build price but if we are selling one of our lots and the pricing is included in the total cost then the cost of the lot will affect the overall cost per foot greatly. A lot that costs $50,000 will affect the price of a 5000 square foot house by $10 per square foot. However, the price per foot goes up to $50 per square foot if that same 5000 square foot house is built on a $250,000 lot.
The size of the land will also affect how much fencing, irrigation and landscaping we will need so the larger the lot the more we will budget for those items. We also must consider things like how far are utilities from the house? How long and wide will the driveway be? Because that will affect the cost of the driveway. Then we must consider the site conditions as well. For example: Will this lot require retaining walls? Will this foundation need drop beams? Dropped brick ledge? Will the soil require piers? How much excavation is needed?
Other things to consider would be: Will this property require water and sewer connections that are not in front of the property? Will this property need a septic system or a well? What about culvert for driveway? There are many site related costs that need to be considered and all of them can affect the overall cost per foot of the build.
2. Type and complexity of the home – Things such as the shape of the home, vaulted ceilings, tray ceilings, wall heights and steeper roofs affect the cost per foot for a home. A house that is a simple box with 4 corners and has a simple hip or gable roof will be significantly less to build per foot than a home that has 24 corners, multiple hips and gables etc. If a home has 16’ ceilings it will cost more to build than one with 8’ ceilings because those walls will have twice the wood, twice the insulation and twice the drywall and paint. The structure type and style are a big factor in the overall cost per foot.
3. Components – Items such as swimming pools, circular driveways, unfinished attic space or storage, covered patio space, covered porch space and the garage size all affect the cost per foot of the home. Those items all have costs associated to them but none of those items are in the actual AC footage of a home. However, they still drive up the AC cost per foot.
Also, room types affect the price per foot. A seven bathroom, four thousand square foot home will cost more than a four bathroom, four thousand square foot home with the same finishes because bathrooms and kitchens are the most expensive rooms in the house typically (excluding technology such as media rooms). There are items such as countertops, tubs, showers, mirrors, shower glass, tile, plumbing, extra lighting, fans, cabinets etc. which drive up the cost per foot on houses with more bathrooms.
4. Structure Quality – There are many ways to build a home. We will go over these in more detail in future articles and just briefly mention a few things here. Many builders use 2×4 exterior walls. As a standard we use 2×6 exterior walls which has 37% more wood. I will explain in a future article why we do that but for the purpose of this article I just wanted to acknowledge that the additional wood adds an additional cost of roughly 37% to the exterior walls. We also use 7/16 Zip wall as a standard and many other builders use ½” foam or thermo-ply instead. There is a cost per foot increase with these upgrades. We also use additional Simpson safety hardware in our homes that include: bearing plates, hold downs, wall to wall ties and hurricane clips. Many builders don’t use those items or only use some of them. We also do things such as fully encapsulated foam in the walls and rafters which gives us conditioned attic space. There is additional cost in the insulation as well as additional cost in the HVAC system because we need to upgrade the HVAC to a more efficient system because the attic space doesn’t have fresh air because it is conditioned space.
5. Finish Quality – This is probably the item that most buyers would recognize as an item that would affect the price per square foot, so I won’t spend much time discussing it. Countertops for example can be done with Formica, tile, granite, quartz and so on. Formica is much cheaper than quartz so when figuring cost per foot the finish is very important. Items such as doors, windows, stairs, countertops, flooring, roofing, exterior cladding, lighting fixtures, plumbing fixtures, appliances, fireplaces, media (AV) etc. will affect the overall price per square foot in a home build based on selections made.
Asking a home builder what range they build in is not a bad question but just understand that there likely won’t be much value in their answer because it is just a number that isn’t tied to anything concrete. Also, there are builders that will give a starting point price, but that price will likely be much lower than what your actual price would be. Building custom homes is a complex process and many details determine the overall cost per square foot. Instead of asking what price per foot the home builder charges I would recommend asking what price range they typically build in to determine if this is a builder that you want to have deeper discussions with. Once you find one or two you feel comfortable with then you can invest the time needed to get firm pricing.