Budgeting is essential with any financial undertaking, especially building a home. Because there are so many areas that can go awry when costing out materials, employing contractors, receiving ordered materials, etc., it is a good idea to include everything, right down to the nails in a complete budget.
Before starting the project, the budget should be decided. That same budget should denote every major to minor component of the home. Naturally, there will be unexpected costs and cost overruns that present themselves as the build progresses, so most experts suggest you add in an extra 15-20% of the total cost.
Only 31% of builders come within 10% of their original cost estimates. So, it is essential to assume that due to some unexpected issues, extra expenses will be encountered. That’s why the homeowner and builder must work closely with the established budget.
Avoid Going Over Budget: Seven Things to Watch
- Plan your building project in the tiniest to the largest detail before beginning
- Be extremely familiar with the contractor and his subcontractors before employing them
- Adhere religiously to your plans
- Utilize and planning tool to keep track of your progress
- Communicate regularly with all the involved parties so you always know what’s going on
- Monitor the progress
- Be prepared to move resources or reapportion expenditures as needed.
Understand your taste level. If you have developed an intense like for more costly finishes, acknowledge that and set your budget accordingly. If this is not possible, be sure you are content to accept imitation-high-end finishes made from less costly materials. These types of substitutions are available to order. Just ask the contractor or interior designer.
Cheaper Versions of High-End Finishes
- Painted wood cabinets versus thermofoil or polyethylene terephthalate
- Wood floors versus vinyl or laminate flooring
- Real wood-burning fireplaces versus an electric or gas fireplace
- A barn door or any prehung fire-rated passage door versus fire-resistant interior doors
Seven Types of Cost Overruns
- Those due to a failure to understand the budgeting fully
- Those caused by bad time management resulting in delays
- Those due to bad estimates and/or uncollected data
- Those due to ineffective on-site management
- Those caused by administrative mistakes
- Those that are the result of project design errors
- Those caused by labor shortages
Keep a Watchful Eye on the Budget
As the project begins and progresses, it’s important that you maintain awareness of the flow of orders and the workflow. If your contractor is competent and you have planned delivery of materials according to the workflow, you should encounter few problems. You’ll want to make sure the delivery of your materials and your workers are scheduled to be in sync. Watch the weather, as it could cause costly delays.
Plan in Detail
Even in lower-cost homes, the budget can be exceeded if an eye is not trained on the costs. By being diligent, you’ll have the best chance at keeping costs within an acceptable range. Design your project, plan your project, and build that project, making sure that each step you take is well planned, researched, costed-out, and discussed in detail with the contractor.
Common Hidden Costs Associated With Building a House
- Contour and soil test costs are necessary to determine if you can build on the site. The site could be on a slope and require a retaining structure to be built into the earth. It could also be rocky, which might make it impossible to build there
- The cost to build on the site includes connecting and maintaining water, gas, electricity, telephone, sewage, and fire control
- A driveway is mandatory. It does not have to be completed right away and it can be of lesser cost or expensive. You decide
- Legal costs, engineering, drafting, and approval costs, penalty clauses, rewiring or restumping costs, land registration fee, extra labor costs, and extra materials costs
Ultimately, your home will be finished. It will be built and if you cannot pay for the cost, your builder may take out a lien on your property. Your best option is to plan for every contingency and be financially able to cover all the possible costs.