Today, I discuss the costs of building a home or why our home build keeps me up at night (yup, I woke up at 2 am and wrote this post).
Honestly, to date, the process has been pleasant. The contractor is friendly, and we have worked with his team on permitting and design. Sure we are two months behind schedule, but that is more due to a delay on the architect and structural engineer and not the contractor. We are now days away from getting our permit, and the build can begin.
This is great…but now the big bucks are being spent. As I am sinking more and more money into it, approximately $200,000 at the time of this post, it has become more stressful. I watch my net worth decrease with no home to show for it yet. Plus, there is no guarantee on how much this home will cost, just estimates. While the estimates are reasonable, they are just that…Estimates.
Estimates…a nine-letter word that can end up costing me a lot of money. Let me explain why our current estimates may be inaccurate. It is due to a combination of 5,000 homes needing to be rebuilt around the same time and tariffs. Yup, those tariffs.
Subcontractors
Building in a high-demand area is a tough call. Over 5,000 homes have burned down, and while I write this, approximately 900 homes in Santa Rosa are being either permitted or already built. That is a lot of business for skilled professionals like framers, electricians, plumbers, etc. Thus, demand is high.
High demand = High prices
This is not good for me or any of the other people building their homes currently. We are already seeing prices go up, and I suspect there will be a more significant increase over time; This is one reason I want to build my home quickly.
The other issue is that since demand is high and there is a fixed number of subcontractors, there will be less availability over time. Thus, the first process of building our home is to lock in these subcontractors, demanding payment upfront. Once these costs and timelines are locked in, I will feel a wave of relief, and my estimates will be more accurate.
Tariffs
We have entered an era of new tariffs. Tariff war, anyone! Supposedly we can win it, but I am not interested in being part of the battle. Who knew we would be picking fights with our neighbors to the North, but here we are. This fight is expected to increase the costs of lumber for framing, copper for electrical wiring, and even increases in the materials to make windows. Basically, everything needed to build a home. Ouch!
Once again, until we start the build, the final effect of these increases will be unknown, and our estimate remains incomplete.
Fixed price budget
So what can we do about it? Our current options are to continue with the build and hope we are within 10% of our budget, not build at all and sell the land, or switch contractors and find someone who can offer a fixed price budget
What is a fixed price budget? Well, I am glad you asked.
A fixed price budget is exactly what it sounds like- A budget that guarantees a maximum price. If the contractor goes over that, then he/she eats the cost. It takes out a lot of the risk for the homeowner. Simple and what I will be using if I ever decide to build a home again.
What we are doing
We signed with a reputable and known contractor in the area; This is a good thing. Still, due to the nature of the fires and rebuilding, he refuses to give a fixed price guarantee. We decided that we are okay with this, but it may come around to bite us in the a$$. We are assuming his reputation will keep him honest and prices down. That is a lot of faith we are giving him.
I understand his hesitance with guaranteeing a price. He still is unsure of the cost of subcontractors and materials. There are fluctuations in both, and it will remain uncertain until we lock them down. Additionally, he is scaling his company and does not want to risk a big hit to his capital if he misjudges the prices.
I get it. I am going with him, but I have my reservations and likely many sleepless nights waiting for me in the next two months.
Upfront payment
Another hesitancy I have with our builder is that he is requesting payments upfront; This means that we make a deposit (let’s say $30,000) and that money is used to pay down the build as he goes forward. We replenish the money as it is used.
This sounds logical, but during one of the many information sessions I attended post-fire, I was advised to always sign a contract that withholds a portion of the payment until the work is done. This way, the homeowner has the leverage to ensure everything is completed and working well. Unfortunately, I have heard horror stories of unfinished work by subcontractors.
I will not have this leverage, but again I hope our contractor’s reputation is important enough for him to do an outstanding job. In the future, particularly if I am just renovating one room like a kitchen or bathroom, I will be sure to withhold final payment until the job is complete.
Conclusion
Homebuilding is for the birds. Well, technically, nest building is for the birds. I would not recommend it to most people. We are doing it in a relatively low-stress manner, and I still have sleepless nights.
Regardless, we are pushing forward. Hopefully, at the end of the process, we will have a lovely, new home built and ready to be occupied by May. I am prepared for surprises and expect any build to take 1 to 2 months and $100,000 more than expected.
