Avoiding Pitfalls
Think twice. Hire once.
You cannot approach construction the way you approach buying an appliance, a car, or a college education, but you can make informed decisions.
Why do many people have home construction nightmares?
For most people, a major home construction project represents the largest purchase of their life. However, you cannot approach construction the way you would approach buying an oven or car or television. Clearly, we are talking about much more money, but it is also 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, the product has never been built before. In other industries when they build a new product, they make samples, models, and prototypes that they test, debug, and discard. In construction, your custom designed house is the prototype.
If you analyze the root cause of 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 for the same model, size, and features and you find that one store has a lower price, not much should go wrong if you pay less. 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 choosing who to trust with your hard earned money on a very expensive purchase. Take it seriously. Do your homework!
We have a theory, which we 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. It is not a matter of “throwing out the high and low bid.” You have to be willing to work hard to understand what is in the estimates. 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 not 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 under real-world conditions. 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 were 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 $500,000 renovation, you are probably designing a $750,000 project. If you are dreaming about a $5 million home, you are probably designing a $7 million over-budget gem. People dream about houses beyond their means or budgets. 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 choose to 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, and extras. Know how her subcontractors charge her. 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 rely on verbal communication on a construction project. Document every conversation that involves something being done to your house. If you don’t, there is a high probability it will be done differently than you believe you communicated.
Communication with your designer, with your builder, with the electrician, is work. You are communicating ideas or feelings that 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 and opportunity to learn and improve with each misstep. “Don’t you remember when I told you” is not very persuasive when you are arguing who is at fault, but it is an indicator that communications are not clear. 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.
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, and the intended subs, the more you will control the process and reduce the amount of overruns.
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. The unforeseen will always show up unexpectedly. So expect it!
And remember, you are part of the team and your decisions and choices have an impact. Never go into a project thinking that you are smarter than your team members and will be able to manage the cost through aggressive negotiation. While there may be savings on the margin, there is no secret source for half-priced plumbing fixtures, lumber, or craftspeople.
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. Changes create inefficiency. Further complicating the situation, some builders bid jobs low and plan 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.
