Reputable Okanagan construction company. Quality craftsmanship and expert advice on everything from forms to finishing.
12/23/2024
Is my builder ripping me off?
What does a new home actually Cost?
With the increase in costs on materials and services, and unpredictable market volatility, what is the best risk to value contract to pursue when hiring a contractor to build your new home?
What is the best way to navigate the element of financial uncertainty present in every build, presented by lot challenges, changing material costs, your wife's habit of changing her mind, unforseen expenses like a peat bog or a buried oil tank in the middle of the basement uncovered during excavation?
There is a contract arrangement that guarantees you only pay what it costs, plus a fee.
Cost plus contracting.
This contract lays out expected costs, with budget allowances for all aspects of the build, provided to the client prior to construction, plus an agreed upon fee for the builder.
All expenses are passed directly to the client, and complete transparency is required if the contractor is to be reimbursed for expenses.
Pros and cons.
Pros.
You pay exactly what it costs, plus the fee.
You are free to change your mind.
You can track your real time costs against your expected cost projections to see if you are on track. Where you save here, you can spend a little more there.
You don't pay a premium for the uncertain costs. If the rock breaking only takes 4 hours and the contractor thought it might take 4 days, you pay 4 hours.
(Any uncertainty is dealt with in a fixed price contract by limiting options, padding the quote to absorb overruns, and an out for major unforseen costs, built into the contract. You pay insurance costs to the contractor. It has to be this way.)
You directly benefit from your contractors discount pricing, as well as his team of reliable subcontractors sifted and chosen over the years because they will show up and work, do a great job, and return if there is a problem. The fee you pay, is likely close to his discount.
Cons.
You don't have a guarantee what your new home will cost.
Your contractor is not incentivised to save money, and be efficient, the opposite may be true.
Any costs unforeseen by the contractor, are paid for by you, the client.
You may have trouble securing financing without a fixed price contract.
If your wife has expensive taste, you will have to be the one to tell her she's blowing the budget. The builder can point out the allowance, but you may have to work till your 70. At least you'll have an ivory tooth brush holder.
Takeaways
You need to be comfortable with your contractor.
Speak to their last few clients.
Ask if they went over budget.
Expect a proper price breakdown from the beginning with realistic costs for things, including a contingency.
Consider a price cap.
Consider a fixed fee, rather than a percentage, so your contractor does not lose money if he saves you money.
Establish any areas that can easily be fixed price, and which aspects are better variable.
Consider if you need a house that big.
Love grows in small houses.
Ask us to help you with your new home today.
