Avoiding Pitfalls

Avoiding Pitfalls

Why do so many people have home construction nightmares?
For most people, a major home addition or renovation or the building of a new house represents one of the largest purchases of their life. However, you cannot approach construction the way you would approach buying an oven or car or television. First of all we are talking about much more money. Secondly, it is an entirely different type of purchase. You pay for most of it before it is finished. Unlike a product you can buy and touch or test drive, your construction project is built after you decide to purchase, not before. If it is a custom home design, then in all likelihood, the product has never been built before. In other industries when they build a new product, they make samples, models, and prototypes which they test, debug and discard. In construction, your custom designed house is the prototype.

If you analyze most construction nightmares you will find a common theme: the consumer was seduced by a low bid. If you are buying a television and you shop at different stores and you are accurately comparing the same model, size, year, features and one store has a lower price, not much should go wrong if you buy the less expensive television. However, when purchasing construction, you are never comparing apples with apples. Every builder builds differently. If you get seduced by a low bid and then have a construction nightmare you are not an innocent bystander in the story. You are spending your hard earned money on a very expensive purchase. Take it seriously. Do your homework!

I have a theory which I call the construction theory of relativity (SP=M2): Smart People Make Mistakes. When it comes to construction, no matter how smart you are, how rich you are, how successful you are, it is amazingly simple to screw up. A high bidder can create just as many problems for you as a low bidder. You have to be willing to work hard to understand what is in the estimate. What is a fair price? What level of quality can you afford? What kind of person are you dealing with? You must the take the time to comprehensively answer these questions.

Why are there so many problems on a construction project?
Even when you are involved with a good home builder, there often are numerous problems. The reasons are many. Quite often there are mistakes on the construction plans. Most builders sub out the various trades. Each one of the subcontractors is a separate business that the builder does directly control. Many of the subs are good mechanics, but they don't necessarily know how to run a business. Many of the materials used in construction are continually changing because of competition or new technology or environmental issues. Many of these changes are not fully tested in the real world before they come on the market. A new rubber gasket or window caulking or water base paint may not work properly or fail entirely when the weather changes. The more custom your project is, the more vulnerable you become to the unknown and the vicissitudes of the construction world. A good builder can shield you from a lot of problems, but construction is inherently problematic. The good news is that almost every problem has a solution.

How can I minimize the problems associated with a home construction project?
The first step is to understand that all construction problems can be reduced to issues of money or communication. Money. Either your money or the builder's. Either the builder's or his subcontractor's. The $3 tile or the $10 tile. The $10,000 paint job or the $20,000 paint job. Money. If money was not an issue there would be no problems, because you would simply buy your way out of any mistakes, compromises or misunderstandings. Money is an issue regardless of your wealth or budget.

If you are dreaming about a $50,000 renovation, you are probably designing a $75,000 project. If you are dreaming about a $5 million home, you are probably designing a $7 million over-budget gem. People dream about houses just beyond their means or budgets. If people swapped dreams then at least some people would build within their budget. If you want to control the budget, you have to control your appetite. You have to be disciplined. Set a budget, then set a contingency over that budget and adhere to it. Budgets usually don't go over because of one item. They deteriorate incrementally. A $100 extra here, a $500 unknown condition there. "Now that the doors are in, we really need better hardware." If you don't control the budget, no one else will. Nobody is forcing you to buy the limestone. You are choosing to spend more than you planned. That's okay if you can afford it; but if you can't, just say no. Document all issues concerning money.

Before the project begins know what your builder is charging you for markup, overhead and profit, extras. Know how his subs charge him. Get a list of hourly rates. Understand fully who pays for what if something goes wrong, understand your warranties and guarantees, understand who is responsible when cracks or shrinkage or expansion occurs months after you have paid the builder. Go over all the money issues you can think of before you sign the contract. Write them down and add them to the contract.

Communication. Construction operates in a foreign language called "Plans." Most likely you are not very fluent in this language, so there is an inherent communication problem. Even if you are fluent, there is the additional problem that the plans will have to be translated into a three dimensional medium called "Construction." It is easy for things to get lost in translation from English to Plans to Construction. Never trust verbal communication on a construction project. Document every conversation that involves something being done to your house. If you don't, you face an eighty percent chance it will be done differently than you communicated.

Communication with your designer, with your builder, with the electrician, is work. You are communicating ideas or feelings which the other person is hearing though their own unique wiring. They may be nodding, but that doesn't mean they fully understand you or will remember what you said. Documenting is not a guarantee, but it vastly improves the odds of success, as well as creating a trail if things go wrong. "Don't you remember when I told you" is not very persuasive when you are arguing who is at fault. Having a formal meeting with the builder (and architect if one is involved) every week or every other week is very helpful. Even if you are doing a renovation and talk to the builder every day, a formal meeting forces people to communicate about the current issues of money, time, quality, and problems. Meeting notes should be taken and distributed. The more discipline you impose on the project the better the communication will be.

How do I avoid overruns?

Overruns are the amounts spent building your custom home or renovating your house that go beyond the original budget. This might include changes, additional work, low estimates, or unforeseen conditions. It is always good to start a construction project with a contingency. It is rare that a residential construction project doesn't go over budget. Changes and additional work can be kept to a minimum by fully understanding what you are building before you start. If you can't read plans, then have the architect or builder explain to you everything that is on the plans. Once you have accepted the design then you have to maintain the discipline to enforce the budget. You can always make the house nicer and nicer; but that costs money.

Unforeseen conditions include items like ledge in the ground or termite damage in the house. These are called latent conditions and unless you pay to do exploratory work before the construction begins, neither you nor your builder would know these conditions existed. That is why you have a contingency. The unforeseen will always show up unexpectedly. So expect it! If you are on a time and materials contract you are vulnerable to overruns caused by poor estimating by the builder or changes in material costs. As much as possible have your builder get real bids and quotes before the project begins. As soon as you get a good price, lock it in. It sounds simplistic, but the answer is similar to other answers I have given you. Do your homework. This is your house, your money, and regardless of how good your home builder is, the more homework you do, the more you know about the plans, the estimates, the bids, the intended subs, the more you will control the process and reduce the amount of overruns.

How do I avoid being taken advantage of on change orders?

Changes are inherently inefficient, so even if your builder is honest you pay a premium for changes because they disrupt the flow of work. They create inefficiency. Some builders bid jobs low, planning to make up the money on their change orders. Once you are captive to a builder or subcontractor who sees changes as a gold mine, you've got a problem. Obviously, the best strategy is to keep changes to a minimum. It is important to explain in the contract how changes are going to be handled. What type of markups and overhead and profit is your builder going to charge you. If you can get an estimate of the entire project that is broken down into very detailed categories before the construction starts, that is very helpful. Then you will know what each item costs. This forces the builder to give you proper credit for items you already had in the project. Some builders may not have this information or may not want to share it with you. A good, honest, efficient home builder should have this information and be willing to share it with you. The more information a builder doesn't want to reveal to you, the more you should be wary of getting involved with that builder.