Read Transcript Below or Listen to the Podcast:
Timestamps & Topics:
02:07 Choosing Your Builder
12:23 Estimating the Cost to Build a Custom Home
14:47 Controlling the Budget
21:38 Design Traps
24:10 Building for Unique Climates
25:53 Estimates and Building Cycles
28:51 Pre-construction Deposits
31:09 Cash On Hand – How much do you need?
34:38 Lien Releases
Christian Gladu: Hi, my name is Christian Gladu with the Bungalow Company. Today, we’ll be having another in our series of Google Hangouts. Today’s guest is Trevin Duey from Duey Brothers Construction.
Trevin and I had been working on several custom bundle projects in Central Oregon. And today, we’re just going to run through a brief discussion about how to go about pricing a new custom home and some of the steps along the way that can help you reach your budget and not make the construction project an arduous process.
Trevin Duey: Thanks for having me.
Christian Gladu: Well, first thing I wanted to start with is defining two different processes. In our companies, we have two different kinds of plans. We basically have a stock set of plans, which is a predesigned plan that you can purchase. It’s been built before. There’s full documentation, everything you need to build the house.
The second, this is part of the design process we have. It’s like a full custom design. The difference between these two is one, we’re starting from scratch. The other is starting from this predesigned house. A stock plan in our offices run a couple of thousand dollars. A full custom design starts $15,000 to $20,000.
One of the services that the stock plans do provide is we have a study set, which could be purchased for $700 to $800. What’s nice about that is it’s a document that a builder like Trevin could estimate from the beginning before you go in to spending $20,000 worth of design.
02:07 Choosing Your Builder
Christian Gladu: So that’s how we’re going to base this conversation today. So Trevin, maybe we could start with some questions around hiring a custom builder. We have a piece for our people oftentimes about choosing a custom builder. One of the big questions that comes up for us is really, how do you really know what it’s going to cost.
My feeling is you spend a lot of time estimating these plans, so we’d encourage people to hire interview builders and hire a builder to deal with a full estimate of the project. We encourage people to pay for that as well because we all know it takes a lot of time to do these processes.
I wonder if you could maybe speak a little bit to the time required for you guys to do an estimate.
Trevin Duey: Well, in order to do an estimate correctly and get accurate estimates and accurate cost for the project, it does require quite a bit of time to do it correctly. The deposit in getting a contractor hired beforehand, it really helps in the fact that it establishes the owner and client relationship and it brings the builder on as part of the team and enables to go through and get the bids necessary and put the work into the project that it takes to actually get an accurate estimate.
Cost per square foot is a hard thing to nail down without going through the whole process. And in order to actually get a solid bid and solid pricing on a project, it takes a fair amount of time. And by getting the builder on board ahead of time, we’re able to go shop multiple suppliers and subcontractors and bring people in and get pricing that’s competitive for the market at that particular time.
Christian Gladu: Yeah, the cost per square foot is always an interesting conversation. I don’t know that there’s a better way to start the conversation, but I think in both of those projects we’re discussing, it’s as much about complexity and level of finish when it comes to creating a budget for the project.
We get a lot of telephone calls where we hear people say, “Oh, what’s the cost to build your houses per foot?” I always use the analogy, it’s kind of like, “What does your car cost per pound?” It really depends what’s included. Has it got power windows? Has it got four wheel drive? Has it got these pieces?
I feel like people, in establishing a budget, it’s one way to establish it by saying, “We’ve got $200 per square foot.” The thing I feel like is deceptive is that a kitchen is not $200 per square foot. If you are really at $400 per square foot and the living room is probably $200 per square foot.
So I feel like once we get beyond establishing a budget that they can afford, it takes you and I working together to get there. I think that Conti’s project would be a good example of that, and also the Wolfe project that we’re working on where everybody has a list of desires and needs and maybe you can give some examples of some of the types of things we would do to work to the budget.
Trevin Duey: Yeah. It comes down to level of customization that each person wants in their home. You can start out with a ballpark cost per square foot and say, “Yeah, you can do it for x-amount and we can do it for x-amount more.”
What it really comes down to is defining the parameters by which you’re establishing that cost per square foot because there’s a lot of things that go into each individual project that really make it difficult to nail that down unless you go through the process that it takes to know what the clients really value and what maybe they value a little bit less.
And to put a label on each individual person and what they want, it’s really hard. That’s where the discrepancy comes with cost per square foot because you’re putting – I guess it comes down to you can’t really decide for a person what they value and what they want to put into a home without actually going through that process and having discussions and speccing a house accordingly.
Another big thing that goes into the cost of a home that really is hard to nail down until you actually go through the process is the site constraints – the site conditions, the amount of rock hammering. And also, the way that the house is going to sit on the lot and with me require a certain type of exterior detail versus another.
So that being said, it is a very slippery subject getting into, just saying you can get build something for x-amount of square foot because in the end, the houses are all customized for the individual owners. By putting everybody into one box, saying this is going to be perfect for everybody is just not possible.
Christian Gladu: And I think that’s so true. What is covered when people look at an estimate, I think they want to know what’s covered in that. The things I usually see in our business, if it sounds too good to be true, it usually is and there’s usually allowances that are inadequately applied to the project.
Let’s see, our Bungalow Company study sets, it’s pretty much everything you need to get from a flat site all the way to dry wall. We have interior details, which could give you a direction for some trim profiles, but really there’s still tile flooring, cabinets, counter tops, all these hard surfaces that still need to be applied.
If the builder and the designer working together to sort out, like you say, what the clients’ expectations of finishes are, it’s a very crucial part of the project.
I don’t know if you would agree with this, but I would say that on some of these projects, by the time you get to dry wall, assuming a fairly straightforward site, it’s probably somewhere between a third and half of the money goes to the interior finishes.
Trevin Duey: Agreed. And that is the benefit of going through the full process of putting these costs together because the plans themselves, they do a good job on the structural. They can itemize a lot of details for the exterior. But when it comes down to specific products for finishes, the costs can vary so much. Having assumptions of what you’re going to put into the house and then having that be a different deal after you get all the way into the process, it doesn’t ever sit well with anybody.
Christian Gladu: Right! Note to the consumer, really, the reality of this is if you’re looking at estimates apples to apples (really, windows, doors, framing), all that stuff is pretty straightforward for the builder to estimate. I mean, granted, they have to do their homework.
But when you see the difference and we have to ask the questions, it’s really at the allowance stage. In majority of places that we see, allowances are on the interior finishes. If they have not been selected prior to bidding, the builder and/or the builder and designer will work together to establish these.
What can happen is that a builder might say, “Hey, these people set $200 a foot. And so they have everything they need to do a really good job, estimating the cost up to dry wall,” but with lack of information and working to the budget, sometimes, you’ll see inadequate allowances.
I think this is something that backfires in custom builds a lot. People need to understand that really, the plans and the specifications become part of the construction contract. If it’s not on the plans or on the specifications, you’re probably not going to get it.
Trevin Duey: Yeah. Again, you’re speaking to the upfront work and the process beforehand. Nailing down the exact cost, it really does take working together with the architect, the owners and the builder in going through this whole process and defining, “Okay, this is our best case scenario. This is what we’d like in this finish. These are alternatives.”
If you hire a builder to do this, you should be able to get a detailed cost break down with you’re A choice and then alternatives – A, B, C and D. And then at that point, you’re able to go through this breakdown and be able to customize this to your guys’ and the owner’s desires and then also to the budget. And the end result, you can tailor the cost with specifications and finishes to meet everybody’s desires.
By not doing the process beforehand, you are left with a whole lot of unknowns, mock sums and allowances. It’s just a way to set yourself up for having problems as you go down the road.
Christian Gladu: Yeah. That’s definitely true. I think that the other thing that we see a lot of times in the office is people will come with estimates. Realistically, a really comprehensive construction estimate will contain hundreds of line items. It’s not uncommon to get someone to get a bring a bid back where it sounds too good to be true and there are ten items on it.
12:23 the estimate
Christian Gladu: I wonder if you could speak to the kind of time and energy it takes and maybe even the quantity of people you need to talk to to create a really cohesive estimate.
Trevin Duey: In order to do the job properly and present a breakdown, a cost estimate for a project, you’re probably talking to someone in the neighborhood of 30 people, getting bids from several different contractors from each specific trade. It’s about a 2-week process. By the time all is said and done and when things all get put together, you’ve put in a substantial amount of time to get this done.
Christian Gladu: We also noticed that estimating process often brings up a good list of questions too. I mean, the plans are as thorough as they can be, but if we hear the same question from a subcontractor, from the builder, sometimes, it is an opportunity for us to clarify, go back and make sure the bid is covered, but sometimes, people will have padded things because there was unclear information.
So I think it’s part of the collaborative. That’s how we like to think about it. We like to have a builder, you choose a builder, you work with them. We are on the same team.
Trevin Duey: And it does give us an opportunity to identify key areas within the plan that may be a little bit higher cost and maybe there are some alternative ways to put these together. By enabling us to go through the full process and get several subcontractors and suppliers to get their eyes on this, it enables us to harness the wealth of knowledge that each individual person in their trade or what they’re supplying based on fluctuations in the market or different assemblies that may need to be altered and we can move over to savings without comprising the design.
It really brings together a collaborative effort to identify, “We’ve done this thing right. We know that every single system in this house has been put together and designed to the best of our knowledge and to the best that the market is doing right now too.”
Christian Gladu: Yeah, that makes sense.
14:47 controlling the budget
Christian Gladu: If you have a top five list of things that people could do to – I don’t even know if it’s to save money, but a top five list of things to help control the budget, what would you say to our listeners?
Trevin Duey: Top five…
Christian Gladu: Three, I don’t know.
Trevin Duey: One, I guess I would say listen to suppliers and subcontractors and your builder about products to put in to the structure and to the house. I guess listen to the wealth of knowledge of the people that you’re bringing in to work with you on this project.
Two, itemize your best case scenario as far as your finishes and how you want this look and what products you want to put into the house. Know what you want, but also have a couple of other options as far as maybe a little bit lower cost. Identify alternatives of products you would want to have in your house with finishes that you’d like to do that would be acceptable. That would allow us to tailor the pricing more, help us hit a budget if, say, your number one choice is over the budget or is not going to help us hit where we need to hit.
Three, I would say be open to alternatives. Keep an open mind to the different products that would be able to be brought to the table by different people within the business.
Christian Gladu: It’s interesting. A lot of times, we’ll see a client start to step in and bring in cost-saving measures, be doing some of their own research. It’s good for them to encourage. But in the same breath, if you’re working some place, every area has this unique thing.
If you’re working in Central Oregon like we are in some of our projects, you need to know that you can one, get the product and/or service and maintain there. Bringing very unique and high maintenance materials to a tough climate like this doesn’t always make a lot of sense. It looks like it will save money on paper, but I think to your point, trusting the guys that are out there, working with it every day, having that experience of how this stuff last is super important.
Trevin Duey: Yeah. And maybe not so much speaking to price, but one of the main considerations is as a home buyer or wanting to build a home, do your due diligence on builders. Figure out who you’re interested in working with. An architect, a lot of time, has a short list of people that he works with a lot.
And then do your own diligence. Interview several builders. Get a list of references and check those references. Request a sample of a cost breakdown. Just know what you’re going to get from the builder.
Ultimately, you’re working with them for over a year. That’s a big deal. You’ve got to be compatible as far as personalities and knowing that who you hire, you’re going to be able to work with and they’re going to produce what you want them to produce.
The only way to do that is do the upfront work and check references, call them and ask those tough questions that maybe aren’t so easy to ask. Ask the builder. If they have a problem answering them, that may be an issue.
Christian Gladu: Yeah, that makes sense. And I think that point that you’re going to be working together, once the plans are done, you’re going to be working with the builder a lot more than you’re going to be working with the designer or the architect. I think it is really important that that communication is clear.
And that’s a really good question for owners to ask, past clients. What was their line of communication and also, what was the level of supervision on the jobs.
I think this is one of the places that you guys are really elevated compared to the majority of your competition here in Central Oregon. You have on-site guys swinging the hammer, on-site guys – I mean, everybody in your crew works for the betterment of the project and that is totally evident when you come on to one of your job sites. Those sites are never left alone.
I think there’s a lot of value in that and I think that that’s a question that people don’t often ask. The two questions were, “How is the job managed? Is it a cell phone guy that rolls by there? A guy who pick up their cell phone and rolls by once a day? Or is there actually somebody on the job with the ability to make decisions and report back to you guys that’s on the same team and how that’s structured for fee?”
I know there are several construction contracts we see. Sometimes, it’s part of the overall percentage of construction and other times, there’s an additional fee for that kind of work. So that’s another good thing for the consumer to be asking because it can add up. If it’s like, “Here’s the price for the job. Oh, plus, in the fine print is it’s $55 an hour management time. That’s not included in the contract.” I think everyone needs to be clear about what they’re getting.
Trevin Duey: Agreed! And another big deal is go see the house. Go see the builders you’re considering. Take a look at what they’ve built. Take a look at what they are building. Craftsmanship shows through and it’s something that’s not easily quantifiable until you walk through house and see what they’ve done.
There are just a whole lot of things that’s got to come into place and usually, by the time you go through your process, the right choice is going to be evident. There is a lot to be said for walking through a house, putting your hand on the trim, taking a look at how the house is built, how it’s holding up.
And not just necessarily the brand new house. If you’ve got a house that they’ve built that’s, say, five years old, ten years old, if you can go see those, that’s pretty evident with the craftsmanship and what’s been put into this and if the products that were used and the procedure that were used is going to hold up. That’s a big thing.
21:38 design traps
Christian Gladu: Yeah. That’s for sure. I think the other thing that ties into this too is in my side of the industry, on the design side, one of the traps I often see is that people will see the design professional around cost. This is a really dangerous thing. They say, “My designer or my architect says that we can build this for so much a square foot.”
I think we have a general idea and a general range of maybe the projects we’ve done last, but I really feel like we have to look at every project specifically. So if we’re not signing our name on the construction contract, it’s really not our business to quote prices. I really feel like that working with the builder and going through the process of making changes in the design sometimes to meet the budget is a really important thing.
You could spend all the money on design and have nothing to show for it, but a set of plans unless you’ve had a builder engaged in the process, going through the plans.
I’m thinking when we did the Wadsworth project. I remember one morning, we were looking at the different roof things and different roof options – metal, fascia, all these stuff. We were sitting in a meeting and you said, “I’ll take a look at that.” You emailed me an hour later with like, “Okay, it’s going to be this much per square foot more for metals, this much per square foot more for metal fascia or linear foot for fascia” and we were able to make some decisions on that project. We could tell the client that and move forward with that and they were onboard, not just as a surprise, “Hey, it’s $100,000 over budget.”
I think that really raising the collaborative between the designer and the builder is the only way to get these houses built. Nobody wants to draw a set of plans that don’t get built. Nobody wants to buy a set of plans that are going to get built and nobody wants to estimate one.
So for the consumer, really leaning into the idea that you have this design, you have this general sense of what it’s going to be and understanding that it’s going to be a negotiation and a process to get what you want.
Spending more money also doesn’t always make the project better. I think especially with some of the bungalows that we do, sometimes, less is more in terms of what you actually put in the houses like simple trim detail or straightforward colors or good standard windows, things like that that kind of help make those somewhat affordable.
24:10 building for unique climates
Trevin Duey: And the big thing on our end of it is putting in products that work well in the climate that we live in. Only a builder who builds in that specific climate that has experience with homes can have that type of experience to say, “Hey, we need to put this product on the exterior of the house instead of an alternative, maybe a less expensive alternative.”
That’s another one speaking into cost per square foot and how it can be a tough target to hit just because by the time you go through and make all those decisions and listening to your architect and listening to your builder and saying, “Okay, this is what we can do. Here are your options. Your exterior trim can be x-amount of money for this product that’s a little bit inferior. And yes, it’s going to get by cold. It’s going to look really good through the warranty period of the contractor. Ten years down the road, you want to know that you made that decision to put the right the product in and you’re still not having problems with it. It’s looking good and performing well far beyond the warranty period or far beyond year expectations.”
Those are the decisions that need to be made throughout the process. Maybe it’s a case where if you build your home, you don’t value that, you can, say, put a lesser grade of paint because it’s going to save a few thousand dollars.
But I guess the whole point is to have that information in front of you, know what the costs are, know what the trade-offs are and have a builder that’s willing to explain these things to you and will help you to make the best decisions possible, so you’re happy with your purchase for years down the road and you have no regrets.
25:53 estimates and building cycles
Christian Gladu: Right! Another thing I’m interested in is when you do an estimate, how long are these bids good for usually? By the time you do the estimate and everyone agrees on the price, how long do the contractors and suppliers usually hold that pricing?
Trevin Duey: Well, the fine print on a lot of bids, a lot of times is 30 days, 60 days. I guess the reality of it is usually, in a building cycle, when you approach the subcontractor or supplier, “Okay, we get a price for the work that needs to happen” with the expectation, say, it’s going to be starting in six months or twelve months, for the most part, the building cycle would determine that, “Hey, this project is going to happen in…” That’s typically how the pricing stays good for.
I know number is a big one that fluctuates a lot. It’s up and down and it’s really hard to predict where that will go. One thing that we love to do is, say, we get the project moving forward, but there are certain products that tend to be a little more volatile and you’re not too sure where they’re going to be, so you break ground and six months down the road, you don’t need the product for another six months. That’s one instance where it makes sense where, “Okay, we want to make sure the pricing gets held as close to what our original bid was as possible.”
There are certain products. Sheath goods as one example. Your floor sheathing, roof sheathing, wall sheathing, that type of stuff have a long shelf life. It is very volatile. In that case, what we’ll do is we’ll talk to our suppliers and say, “Alright! We’re under construction and we want to buy this chunk of product. We don’t need it for another six months, but we want to buy it when it looks like the market is going to be working for us the best.” That’s one of the things that helps us to avoid a lot of these as prices fluctuate.
But as a rule, subcontractors pricing are not necessarily affected by the commodities that they’re supplying. It’s usually good for the building cycle or the timeframe that you’re expected to build in. If you go too far out past six to eight months, at that point, you really need to go through and verify the pricing. And sometimes, all that takes is a phone call or an email and say, “Hey, are we still good on this?”
As a rule, people don’t make money unless they work. It’s a costly fluctuating deal, but it speaks to another reason to hire confident and well-written, respected subcontractors and suppliers.
28:51 preconstruction deposits
Christian Gladu: So here’s another question too. When you get this initial set of plans and you come up with an estimate, is there a specific type of contractor that you recommend owners sign before they’re signing the contractor for the full construction, for this pre-construction stuff? Is there a way you guys like to go about that?
Trevin Duey: As a rule, we’ll take a down payment, a preconstruction deposit essentially for basically initiating the relationship between the owner and the builder. And basically, what that does is that gets us onboard for, “Okay, so we’re blocking out a timeframe to build your home based on what the parameters of the project are.”
That deposit, typically about $5000, is a refundable deposit. Basically, it’s an advance on the overhead profit fees for the job. So basically, it engages us. We know that, “Okay, we’re serious. We’re part of the team. We’re going to work with the owners, an architect to define all the finishes, to cost this thing out, to work through the design process, get this thing.” Basically, it’s adding us to the team, enabling us to be able to do the work that’s necessary upfront to move the project to the construction phase.
Once the construction starts, after the first month’s work is completed, it’s shown as a credit on the first invoice from us. I guess it’s just a way of ensuring that we can just put aside a spot in our schedule and that everybody is serious about going through.
In the event that the project does not happen for one reason or another, at that point, the deposit is non-refundable. So we keep that. It essentially pays for the time. Well, it pays for a part of the time that we put in through the preconstruction in the bid, getting this thing to go to the bill.
Christian Gladu: Yeah, it seems a pretty good insurance. If someone is talking about building a half a million dollar or more house, it seems like a pretty good thing to invest in to know that you can afford to build the house for sure.
31:09 cash on hand
Christian Gladu: How about cash-on-hand in terms of contingencies? This is something that we’ve had come up quite a few times with people. It seems to be that there are some specific things that sometimes, the construction lenders don’t like to lend on. We advise our clients, often, to say (and I guess I’ll preface it like this), “I don’t care how much money you have. Usually, building a house pushes you to the edge of it at some level.”
So I would always encourage people to understand that windows, cabinets, anything custom, that often takes a pretty good size deposit. I encourage them to have some money on hand to deal with some of those deposits.
I’ve ran into quite a few situations where people have dumped all their money into this construction project and the lender doesn’t want to advance money for 50% of wood cabinets. Maybe you could talk through that process a little bit.
Trevin Duey: Well, I guess it’s the same thing we’re talking about of going through the process and finding a builder you want to work with, I think the same holds true for finding a lender that’s most willing to work with what your parameters are.
Yeah, agreed. Having a fair amount of capital on hand to pay for the deposits and pre-buy the lumber like we were talking about earlier, that definitely has some advantages.
But I have worked with lenders on jobs where that is part of their process and it’s part of their program. They are willing to pay for upfront deposits and things that need to be bought for the project. So that is lender specific and that would be a very important question to be asking your lender before you decide on who to use for in your financing.
Christian Gladu: And probably really folding the builder into that too. I’ve also seen it a couple of different ways. I know that some of the projects we worked on in the east, I see it a little bit different vape. It’s paid by performance once it’s completed. They won’t pay for any framing until all the framing is done.
I know that out here, usually, it seems like there’s a draw against that line item and you get paid for the percentage that’s been completed over that month. Is that generally how you guys do it?
Trevin Duey: Yeah, when a lender is involved, that’s typically how it’s done. The progress that’s completed during the month of work, usually, the inspectors come out on a monthly basis, they’ll pay for percentage complete on a line item. But again, on lenders that we have worked with, they have understood that certain products need deposits. It’s just a matter of deciding which lender is going to work with you the best.
Christian Gladu: Yeah. So for the people out there listening, part of the process is that once a builder like Trevin makes a draw, submits for a draw every month, they do so and the bank will send out an inspector and they’ll say, “This much material is here. This much labor has been done.” That’s really important for you guys that are having the house built, so that you know that basically, you’re paying for what’s been done and neither the builder is ahead of you nor are you ahead of the builder in terms of finances on the job.
34:38 lien releases
Christian Gladu: And I guess during the recession we had a couple of these things come up too around lien releases. Sometimes, people will get a copy of a lien release and they’ll freak out. Maybe you could speak to a little bit of how that works and why that’s important for the consumer as well?
Trevin Duey: Well, it’s a process that we’ve incorporated in our monthly processing. And essentially what it is is any supplier or subcontractor that supplies anything for the house, they send out notices of right to lien to the owners, which is basically saying that we’ve started to provide labor or products or services on this project. It’s a notice saying, “Okay, we provided this. If we don’t get paid, we have a right to put a lien on your house.” It comes through certified mail and it’s something that’s required by law for all these suppliers and subcontractors to do in order to have recourse if they don’t get paid for what they’re doing.
So I guess in a worst case scenario, it says you pay your builder x-amount of money on a monthly basis and just having assurance that the money that you paid your contractor is going to where it actually needs to go, to where it’s owed on that project.
So on a monthly basis, one big thing (and that’s another question to ask when you’re interviewing builders) is how you deal with lien releases. And personally, how we deal with it is on a monthly basis. We will provide an itemization of every place, every supplier/subcontractor that has sent out an invoice to us for your specific project. So we send out a bill itemizing this. “Okay, we have suppliers and subcontractors here that we are billing you for.”
What we do is we send out a lien release to all of the suppliers and subcontractors. The subcontractor signs it and sends it back to us saying, “Okay, for up to this date, we’ve been paid in full for the amount of work that’s been put into this project.” It has been signed. At that point, we collect all those and and we send them to our owners on a monthly basis.
So essentially, it’s ensuring that the money that you paid to your contractor is actually going to the subs and the suppliers that have a right to lien on your property. It assures that there will be no liens put on your property.
And at the end of the project, there will be a final lien release basically saying, “Okay, this project is complete. I’ve supplied x-amount for your project. We release all rights to lien. We’ve been paid in full.” And that’s just some assurance.
It takes a fair amount of time on a monthly basis, but as far as from a contractor’s standpoint, it’s just good business and it assures that the contractor is not using your money to pay, to fund other projects or taking it or what-not. That’s your only assurance that your money is going where it needs to go.
Christian Gladu: Yeah, exactly!
Christian Gladu: Well, Trevin, this has been great today. I appreciate you taking time out of your day in doing this. Maybe we can do it again. I’ve got a couple of other ideas.
Trevin Duey: Yeah, no problem. Thanks for having me, Christian.
Christian Gladu: Yeah, yeah. Thanks so much.