We are often asked questions about pricing in our industry. So we thought it might be helpful to arrange a list of frequently asked questions (FAQ’s) about pricing in the custom home industry. These are our top 8 custom home pricing questions.
Q. Do you send every plan out for pricing from the trades before you provide a cost estimate to the client on a custom home?
Answer: No. There are several reasons for this. The primary reason is that residential estimating, unlike commercial, has too many variables. Commercial construction can be specified in a fairly precise manner. Residential cannot, at least not high-end (luxury) residential. High-end residential costs consists of hundreds of different products and product variations, many of which are being used in a unique way. This can result in different labor and material costs for each element. Residential trade partners are not typically willing to provide firm bids until after they’ve been awarded the project. Plus, prices change so fast that the pricing would likely be obsolete if it came during the estimate phase.
Q: How can you be so detailed and precise in your initial estimate to the client (over 500 line items)?
Answer: We select the products that provide the best cost/benefit to the client and then use our extensive cost database to price each item. We also work with vendors/manufacturers to price out specialty items and unique spaces. Because we are both the architect and builder, we communicate early and often to understand exactly what is going into the home and price it accordingly.
Q: Do you know the cost of every option?
Answer: No we don’t. That’s the idea of designing to the budget. Our architects come up with a design concept and then our estimators work with our vendors to get pricing. We then discuss with the vendor(s) the goal of the design element and whether there is a better option than the one we’ve designed. If there is, then we take that back to the design table. We often also get the manufacturer involved to be certain that the product will perform in our Texas heat or whatever the case may be. The idea is that all of our questions get answered before the project leaves the design table. That’s what allows us to be confident and able to provide firm pricing.
Q: Why are there so many different options and variables in residential construction?
Answer: Primarily because clients in the high end are willing to consider the cost-benefit of better products. So manufacturers have provided with a plethora of great products and options. That’s a good thing! When price is all that matters, the less expensive option will always be chosen. However, high-end clients are willing to consider other things. Things like the ongoing maintenance costs of the home, energy costs, and what we call “lifestyle upgrades” such as commercial grade appliances and lifetime roofs, for example, may be considered.
Q: If there is so much variation in the pricing, how can bids be compared from one builder to the next?
Answer: When you’re building a custom home, as opposed to a tract home, you’re looking for a better product. So, the best way to find out the quality of the home you’re getting is to ask for as much detail as you can possibly get. Then, ask questions about the methodologies being employed for each discipline. For example, where concrete is concerned, ask about the type of slab (slab on grade, for example), PSI of the concrete being used, soil testing, engineering of the slab and framing, methods for waterproofing, and keep asking questions until you feel confident in the answers you are getting. “Clarity is kindness” is one of our core values for this reason.
Q: If I find a builder who has less experience and has forgotten to price everything in, haven’t I just found a bargain?
Answer: You might think so. After all, you are signing a contract for a fixed price with your builder and, in concept, you won’t pay a penny more than the contract price. However, that is rarely what happens in reality. One of the reasons you’re building a custom home is to get it the way you want it. If you notice something as it is being built that you missed during design, you are going to inquire about the cost to get it the way you want it. That’s part of the process, and you should get it the way you want it! What typically happens with an inexperienced builder is that they’ll ask for more money throughout the project. Then, if you ask for any changes at all, the sticker shock will be, well, shocking. Building a home is complex. Finding an experienced builder should save you money in the long run.
Q: Is my home builder making the “big bucks”?
Answer: No, and this is probably the area of the most confusion. People think about retail markets such as jewelry where markups can be 50% – 100% and assume our market is similar. However, the custom home building market isn’t a retail market. For instance, the common cost-plus markup in our area is cost plus 18%. Most reputable builders will factor in a reasonable margin similar to this and take into account the risk of building a unique home that has never been built previously. Selling any product or service includes risk, but a more expensive product that is very complex and affects people’s health is extremely high risk. So, that risk must be considered in the cost of the product.
Q: Why is there so much variation in a cost from builder to builder? Don’t they all just build a house; so wouldn’t the costs be pretty much the same from one builder to the next?
Answer: No, it’s actually not even the same house. Different builders will have vastly different products and methodologies for achieving the same finished look. This is because of the many variations in products that can go into the home. This goes back to the answer in #1. Also, there is a difference in labor costs, sometimes rather significant. More skilled labor demands a higher price. That’s another area where an experienced builder can typically save money. Good relationships with trade partners yield the best skilled labor at the best prices.
What are your questions? If these questions have led you to more questions, reach out. We are always glad to help everyone achieve the dream of designing and building a custom home!