How Do You Set Realistic Expectations for a Custom Build?

By the time a dispute on a custom home comes to light, most of them do not have to do with substandard work. The great majority of the disputes with custom homes have to do with the gap between what a homeowner or client believed they had agreed to and what the written documents, the contract, actually say.

It is also important to recognize that setting clear expectations is a technical issue and not simply a matter of being friendly. A builder must clearly outline the confidence level he has placed in the numbers, drawings and dates and indicate which items the homeowner can alter to in turn affect other items.

Build the budget around three different kinds of number

In place of presenting the price of custom home construction as a single figure, set clients’ expectations by outlining the contracted fixed cost of the work of others that has been scoped and contracted for, such as the cost of the foundation work, the framing packages, and the mechanical rough-in. Also, outline the ‘allowance’ for items yet to be decided for which monies are placed in the estimate to allow for choices that need to be made by the client and/or contractor. Finally, outline the contingency or reserve for matters that cannot be priced until they are encountered by the contractor, such as subsurface issues, utility connection issues, permit driven design change issues, and cost increases with material on long lead items for which there is no way to anticipate the cost prior to purchase.

In looking at the proposals from custom home builders Lafayette homeowners tend to shortlist, the biggest variation between comparable homes is in how the allowances have been set for the various components of the home and thus the cost of those components. So it is best to show these comparisons to clients in explaining the proposal rather than trying to offer them some discount.

Where contingency actually goes

Carry the contingency as a percentage of the hard costs of the work and clearly list the risks that it is intended to cover. For example, subsurface issues, utility connection issues, permit driven design change issues, and material cost escalation on long lead items. Clearly state that any unspent contingency will be returned to the client.

Floor plan decisions that set cost before any finish is chosen

Square footage does not make for a good predictor of cost. Perimeter, number of roof planes, number of floor changes, and number of plumbing runs against walls are far better indicators of cost. A small two-story home and a large single-story home of similar square footage can often vary by as much as 25% in cost. And this difference becomes fixed at the end of Schematic Design when all of the other selections are still open.

Questions worth resolving before design development

• How many separate roof planes and valleys does the massing create?
• Are wet rooms stacked or clustered, or scattered across the plan?
• Does the structure require steel or engineered members for any clear span?
• How much of the exterior envelope is glazing, and at what performance rating?
• Does the site require retaining, significant fill, or a non-standard foundation?

Treat selections as a dated schedule, not a shopping list

Allowances need to be listed along with their corresponding decision dates and related procurement lead times. This information can then be organized in the same document as the corresponding prices. The critical path for most custom home projects is cabinetry, windows, specialty appliances and plumbing fixtures. The client needs to understand that a delay in a window order will delay the completion of the drywall in that room, not just the installation of the glass.

Setting allowances that survive contact with a showroom

Price out the allowances at the higher end of the stated taste of the homeowner. Specify whether the quoted amount for an allowance includes Freight, Trim and Installation. Present 3 tiers of solutions and let the homeowner select the option that best meets their objectives.

Give the timeline phases, durations, and named dependencies

Instead of listing a single completion date for a home’s construction, create a phased schedule to detail where float exists and who controls it. Issue short written updates on a fixed cadence (i.e. Weekly, every two weeks, etc.) detailing the current phase of construction, what the homeowner needs to decide next and whether the completion date will change.

Reporting against the schedule

The short written update distributed on a fixed time frame should detail the current phase of work, the next action required of the client to move the project forward and any change to the scheduled completion date.

Document the assumptions the estimate depends on

Your estimate is based on a set of conditions which may not actually exist by the time you start the work. Ensure these are listed in your proposal for the customer to read before things change.

1. Site access, staging area, and availability of temporary power and water.
2. Soil conditions consistent with the geotechnical report supplied.
3. Specified products remaining available at quoted pricing for a stated period.
4. No design changes after the permit set is issued without a change order.
5. Working hours and any restrictions imposed by a homeowners association.

However, a change order with explanation of the variable(s) in question is all that is needed to deal with items that have changed from the original list of assumptions. This is key to seeing that all appropriate expectations were set prior to the start of the project.

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