7 Things You Need to Know Before You Build a Custom Home

Bob Hinz, Owner – HomeWrights LLC.

We have representatives in Boulder, Colorado Springs, Denver, Fort Collins, and Pueblo areas. We’re happy to meet at your home, our office, or virtually. Here are some things you should know before building!

HomeWrights by the numbers:

• More than 400 custom homes completed
• Cumulative retail value of completed projects exceeds $350 MILLION
• More than $40,000,000 in lumber purchases
• More than $20,000,000 in window and door purchases
• More than $3,500,000 in Appliance purchases

Our clients have built everything from modest starter homes to magnificent legacy homes.  We’ve been involved in log construction, full concrete construction, and super energy efficient foam block construction as well as common conventional construction.

We’ve tried to boil the lessons from those homes down to a number of memorable points.  Certainly, there are hundreds of minor points for people to consider when preparing to build a new home but we’ve identified these seven as the most useful to think of right up front.

1) Start with a rough home concept based on analysis of your lifestyle and needs and develop a preliminary estimate before you take other steps

Here’s the “Hollywood” scenario we’ve seen over and over again: someone buys a piece of land that they absolutely fall in love with.  They do this without knowing for sure what type of home they’ll build, how big it will be, or what features it will have.  Most importantly, they do this without knowing how much their home will cost.  Occasionally they’ll actually have an architect draw up plans for their dream home before they know the costs associated with the size or design elements.

Sometimes this results in a pleasant surprise.  Sometimes an unpleasant shock.

We feel an estimate is the first essential step.  A competent builder can prepare a preliminary estimate based on simple sketches or drawings and based on a hypothetical piece of land.  At HomeWrights we do this all the time and we do it for free.

Our preliminary estimates are based upon years of experience and an abundance of industry intelligence gathering work.  We constantly reach out to vendors and subcontractors so we have our finger on the pulse of industry pricing.  This preliminary estimate won’t be a precise number to take to the bank, but it’s better to have this knowledge, and thoroughly talk through your needs, finish choices, and size preferences before you spend money on land and plans.  And…this will force you to begin to think of little details, like fireplace mantels, door handles, cabinet species, and stair types.

This exercise will help you to better understand the impact of special finishes, square footages, unique construction features like walk out basements, and it can help you to shop more effectively when looking for land.  Understanding the costs associated with driveways, utilities, wells, land clearing, fencing, etc, will help you to ask better questions of a land seller.

Spend a few hours getting to know the ballpark cost of the type and size of construction you’re interested in.  You’ll make better decisions from that point forward.

2)  Construction financing is different than mortgage financing and you need to know the difference

Because they’re getting a new house, people often think that they can shop for a construction loan the same way they shop for a mortgage.  This can be a very costly mistake.

In fact, a construction loan is nothing more than a short-term loan or line of credit.  The lender will usually expect you to finish construction and pay off the construction loan in 12 to 15 months.  Most people pay off the loan with a mortgage.

Most construction loans have these things in common;

• Interest Rate is linked in some way to the Prime Rate and is variable
• Short term loan – 12 or sometimes 15-month term
• Interest reserve is added to construction costs so you don’t make payments against the loan during construction. The bank adds a reserve amount so they can make the interest payments until the house is complete
• Construction loans will ALWAYS include land payoff.
• Periodic “draws” against the loan will be used to pay construction expenses.
• Most banks inspect the work for completion before they release funds against draws.

When shopping for your construction financing it’s best to contact a local bank or a bank that has community roots.  Large national banks tend to have more rigid terms and more stringent requirements for construction loans, whereas local banks are likely to be flexible and have better knowledge of the project and the market.  You can almost always negotiate a better deal at a local lender.

If you choose to work with a broker for your construction loan be sure to work with someone who has extensive experience structuring CONSTRUCTION loans.   Mortgage expertise does not necessarily translate into construction loan competence.  A poorly structured loan can cost you thousands of dollars or perhaps tens of thousands.

HomeWrights can provide excellent advice on how to shop effectively for a construction loan and how to evaluate the various options available to you. Learn more about construction loans in this video with Bob Hinz. 

There’s no obligation to talk with us at any stage of your custom home-building process. Just call 303-756-8870. 

3) Don’t scrimp on house plans

Some people call them blueprints.  They’re not blue these days, so we just call them house plans or Construction Documents (C Ds).  Good house plans are well worth it.  The devil is truly in the details when it comes to construction and a few extra dollars spent on plans can save thousands on mistakes during construction.

A “set” of house plans has two basic components, the architecture and the engineering.  The architecture shows how the house will look, the orientation of the rooms, decorative elements of the house, and the sizes of the rooms and features.  The engineering shows how the various structures will be built and how they will fit together.

While it’s a good idea to use an architect, we’ve seen many excellent home designs prepared by competent draftspersons.  What you really need is someone who can translate your concept to paper.  This must be someone who is a good listener and who shows enough creativity to solve the design problems that inevitably come with every custom home.  Remember you’re trying to balance beauty and utility with some level of economy.  The better the skills of the architect or draftsperson the better you’ll pull this off.

The completed architecture work will be handed to a structural engineer for the final work.  The structural engineer will design the foundation, provide structural drawings to help put the house together, design floor and roof structures, and make the plans ready for the building permit officials.

Take the time to interview and select your architect or draftsperson carefully.  Ask for samples of previous work and look at homes that have been built from their designs.  You don’t have to spend a fortune but don’t jump at the cheapest deal in town.  Good quality design really does pay for itself.

We’ve reviewed hundreds of plans with clients.  We’re happy to help you make good decisions about house plans.

Finally, beware of house plans sold from magazines or over the internet.  They’re seldom complete and they are almost NEVER appropriately designed for Colorado soils, wind, snow, and seismic activity (yes…in Colorado we have to account for seismic activity in house design).  Chances are very good you’ll end up having your bargain house plans re-done at considerable expense.  If you find the “perfect” plan this way: study it carefully, describe it to your architect or draftsperson, and use it for inspiration.

RELATED: Learn how the Owner-Builder Program Saves You a Lot of Money Here. 

4) Building a home is hard work!

When you build a new custom home, you’ll be responsible for the following choices;

• Window Sizes
• Window Types (i.e., Vinyl, Wood, Metal, Fiberglass)
• Window Frame Color
• Roofing Type
• Roofing Color
• Siding, Stucco, Stone, Brick – Types and Colors
• Door Types and Wood Species
• Flooring – Wood Species, Stain Color, Finish Type
• Carpet Colors, Types and Textures
• Tile Colors, Types and Textures
• Plumbing Fixtures – Brand, Design, Types, Colors, Finishes
• Cabinetry – Species, Color, Finish, Type
• Door Knobs and Cabinet Hardware – Type, Color, Finish
• Stair Design and Handrail Design and Profile
• Interior Trim Design and Configuration – Wood Species and Finish
• Appliance Type, Finish, Color
• Fireplaces
• Light Fixtures
• Switch and Receptacle Type
• Garage Door Finish
• Etcetera, etcetera, etcetera…

There are many more choices that need to be made, but this list covers most of the major things.  Keep in mind that if you choose to build yourself, you’ll have unlimited choices with respect to these items.  Your only boundaries will be self- imposed, or budget imposed.

If you choose to have your home built by a custom home builder, you’ll be choosing most of these items from a short menu of choices or from the builder’s preferred vendor.  Almost anything outside of the “normal” list will carry an upcharge.

These choices can be daunting!  And…For most homeowners, the work does not stop there.  Most people simply can not avoid visiting the house often to admire the progress and fantasize about their new life in their new home.  Each visit is usually accompanied by some new discovery of a design issue that was not readily evident on the plans: a too small closet or a door in the wrong place.

Rarely does a custom home get built without dozens of changes.  In a way, this is part of the joy of building your own custom home.   Regardless of who builds the home, you’ll be working on it throughout the process.   It’s very important to recognize this fact up front so you’ll prepare yourself for the 9, 10, or 12 months of hard work.

5) Timing is so important

From the first moment you decide to build, to the day you move in, you’ll learn the importance of making things happen at the right time.

Making the right decisions about when to purchase the land, when to start house plans, when to choose appliances and when to choose your floor tile, can have a tremendous impact on the homebuilding stress factor, and in the cost of construction.

Start with the right expectations.  House plans will take two or three months to complete, sometimes more.  Engineering takes several weeks.  The county or city will take about a month to approve your building permit. 

Actual construction of an average custom home should take about 9 or 10 months.  It can be done faster (We’ve had a client finish in 6 ½ months) but its best to plan for the longer time frame.  Tradespeople want to move fast and often their work depends upon your readiness.  For example, the plumber can’t do his work until you’ve chosen your bathtub and shower faucets.

To HomeWrights it’s kind of like directing an orchestra.  It’s so important to develop a long “time horizon” so you can make things snap correctly into place.  Plan your work and then work your plan.

Most importantly remember that down time really does cost money.  Your construction loan is accumulating interest every single day whether work is taking place or not.  You or your builder will have to have a very keen sense of this to keep costs under control.

6) Understand the bid process, and the difference between “Cost” and “Retail”

Think for a moment about the process a builder goes through when he or she provides you with an estimate for construction.  They have to walk a fine line.  Unless you’ve given them a strict estimate limit they have to estimate their cost of construction, overhead and profit, and they have to do this while still trying to stay close to the estimate they think you expect.

A builder will typically estimate just a little high on certain things, say… flooring.  He’ll also have to pad the estimate a bit just in case commodities like copper, concrete, steel, or lumber go up during construction.

An example that seems to resonate for most people is the cabinetry.  Let’s say the builder estimates the cabinetry for your home at $30,000.  That $30,000 becomes part of the RETAIL price of your home.  Its part of the construction contract.  If the builder then finds a way to put in the cabinetry for $20,000 he or she gets to pocket the difference.

In most cases if you’re working with the builder’s preferred suppliers you’ll never know the true cost of the cabinets, plumbing fixtures, light fixtures, flooring, windows, or other design items, including your appliances.  You’ll simply choose these items based on the “allowance” in your estimate.  If you go over the allowed amount that will usually become a change order and that costs extra!

Now consider what happens when you’re the builder.  The estimate is simply your guideline.  If $30,000 is estimated for cabinetry, and you buy it for $20,000, the difference goes into your pocket…or back into the home as better flooring, better roofing, nicer tile, or whatever.  If you go over the estimate it still costs you money but there is no change order penalty.

When you are your own builder – the house simply costs what it costs.  And – you’ll be paying every invoice so you’ll know exactly what things cost.  With HomeWrights, our preferred suppliers will sell to you at contractor pricing, so you’ll still enjoy the preferred rates that builders do.  If you find better pricing outside of our preferred network (there are always amazing sales on appliances, flooring, etc.) then you get to benefit from being a wise shopper.

That’s the difference between buying a home at RETAIL and building at COST.

RELATED: Learn how the Turnkey Program Saves You a Lot of Time Here.

7) Even the best builder is usually just a good project manager with good contacts and problem-solving skills

Let’s face it – a home building project is really just a very large project management opportunity.  Nowadays, the major tools used by even the best builders are calculators, calendars, and checkbooks.

If you’ve planned a wedding before you’ve done pretty much the same thing (okay…maybe on a smaller scale).  Methods, materials, scheduling, etc, are pretty much the same for every home built these days.  Codes spell out certain techniques and most major structures and systems are inspected by code officials.  

No matter if you build yourself or choose a top-quality builder the house will present you with dozens of opportunities to be creative, solve problems, overcome challenges, and work toward a goal.   Most of us have these skills.

If you’re building yourself you’ll also have to know how to sequence things, when to order materials, who to call, where to buy, how to pay for things, and who to fall back on to solve problems.  Unless you’ve built before you’ll need a good source for advice on all of these things.

With HomeWrights you’ll have an easy-to-follow sequence, you’ll have great resources to call for labor and materials, and you’ll have dozens of tradespeople on your team trying to help you reach the goal.  And you’ll have our expert advice just a phone call away.  We’ll also be on site frequently so you’ll have an experienced set of eyes and ears checking things out with you.

With HomeWrights as a building partner you’ll have a “safety net”.  Someone with experience, contacts, and resources developed over 20 years in the industry.  With HomeWrights at your side you’ll be completely in charge but you’ll have the security of knowing that someone is watching to keep you on the right track.

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Call us for a no-obligation consultation to discover the best approach for building your dream home! The Owner-Builder Program will save you a lot of money and the Turnkey Program will save you a lot of time. Call with ANY questions! 303-756-8870

THINKING OF BUILDING IN BOULDER COUNTY OR COLORADO SPRINGS? LEARN MORE!