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Building Dreams on a Budget: Navigating Construction Costs and Collaboration

Updated: Oct 4, 2023

Managing a rebuilding budget is more than just crunching numbers; it's a dynamic process that requires careful planning, collaboration, and continuous monitoring. Whether you're rebuilding after a disaster or building your dream home, understanding the budget and managing it effectively is crucial. This post will guide you through the process, from understanding the budget components to obtaining bids, comparing them, and managing the budget as a living document.

Understanding Your Budget: Key Considerations

Embarking on a rebuilding or new construction project is both an exciting and challenging endeavor. One of the foundational aspects that will guide every decision, is your budget. Understanding your budget is not merely about setting a financial limit; it's about aligning your dreams and expectations with reality, considering various factors such as soft costs, construction costs and potential unforeseen expenses.

Whether you're starting from scratch or navigating the complexities of an insurance payout, this section will provide key insights and considerations to help you master your budget.

1. Determine Your Budget: Before you begin the rebuilding or building process, it's essential to have a clear understanding of your budget. This includes considering factors like insurance payouts (if applicable), savings, loans, and other financial resources.

Knowing your budget will guide the entire project, from design to construction, and help you allocate funds for different aspects such as Soft Costs, Construction Costs, and Contingency. If dealing with a rebuild, I mention in another post the importance of being frugal with your proceeds, as cost add up quick with many different aspects.

There are 3 major components that will relate to the construction portion of your project, I am excluding personal contents. Another common item that is often lost in the scopes, is window coverings, which can be quite expensive and usually excluded from your contractor’s scope.

Soft Costs (+ Direct Costs): These costs incurred by the owner are paid directly to various consultants. Examples of some soft costs are:

  • Permit Fees, School Fees, Plan Check Fee’s and other Administrative Fees. These fees are typically paid to the county/city and required in order to obtain all necessary building permits.

  • Consultants (Architect, Structural Eng. Civil Eng. Soils Eng. Energy Consultant, Interior Designers, etc.). These costs are incurred as you create your building sets of plans, hiring architects and engineers are required to put together a construction set of drawings that is turned into your local building department.

  • Utility / Infrastructure. Some out-of-pocket costs could come directly from your utility providers when bringing in service. These costs can sometimes be overlooked or excluded from your building contact as the agreements are usually between the owner and the utility company. Depending on the scope, some of these utilities can have long lead times and large expenses tied to them.

Construction Costs: These costs are incurred by the General Contractor who in turn bills you as part of your construction contract. Keep in mind, some items may be excluded from your contractor’s budget, for example you may choose to add Solar by yourself after the home is complete, or do the landscaping at a later time. Defining their scope and allocating funds for area’s outside of their scope is essentially to eliminating scope gaps. Maintaining your own budget tracking all of these combined aspects is crucial to having a complete budget.

Contingency: Some contractors will include construction contingency in their project, which is a bucket of money for their use, to help keep the project moving and eliminate the burden when it comes to change order work that arise from unforeseen conditions.

For example, during the earthwork portion of the project, the civil contractor encounters buried debris from the old home, he needs to scrape down and remove and off haul this debris, he will change order the general contractor (because this was not in the scope) for the cost to remove. The Contractor would use the contingency fund that is in place, to pay for this added work.

An additional home owner’s contingency is also advised. Keeping 10% of your total budget to account for overages, labor/material increases, design changes, etc. is smart and will allow you to manage change orders rapidly and smoothly as they arise. If your overall budget is $1,000,000, try and work with a budget of $900,000, allowing you enough room for changes.

2. Preliminary Planning: After defining your budget, you can start the preliminary planning phase. Research architects and contractors in your area to get a rough idea of costs and feasibility. This initial research helps you understand the current market rates and identify potential partners for your project.

Consult with the architect about their fees and anticipation for soft costs to incorporate into your project budget. Before designing the dream, house and spending large sums of money on drawings and designs, have the architect start with a conceptual and preliminary design. This initial step will help you visualize the project and provides enough information to solicit feedback and conceptual pricing from contractors. This step is crucial to not “over designing”. An example could be when ones budget for a project is $750K but the design is $1.5M. This results in a lot of wasted time and money and something you will want to avoid.

3. Talk with Multiple Contractors: With a preliminary set of drawings, seek pricing and input from multiple contractors to get a range of estimated construction cost for your design. Try and meet them on site to take into account existing site conditions that they can incorporate into their pricing. While this is not a hard “bid”, it is a crucial step in helping you understand the current construction rates and identify the best partner for your project. Contractor selection is partially about cost, but also about relationship and trust.

The road to completion will be long with many bumps and hurdles along the way. Finding the right partner early for this journey is important, see my article posted here that includes a section on selecting the right General Contractor.

4. Comparing Bids: Aligning apples to apples in bids can be challenging. Utilize templates and tools to compare bids accurately. Download a free blank budget here. This is a simple budget that has a detailed page and a summary page. I included 3 separate budgets within the file so you can import data from multiple contractors. I recommend importing their data into your spreadsheet, as every contractor has their own process, tools, budgets, and presentation files that they like to use.

Contractors can all interpret drawings differently. What types of products they use, what level of finish, etc. One way to avoid this, is to provide clear outline specifications / directions to the contractor to follow when pricing. Attached in my budget file, I have included a tab for “outline specifications”, this is a relatively simple one, but really is about putting on paper what you want from the contractor to align their pricing with your expectations. Every home and property is different, so feel free to modify and adjust according to your specific project.

In addition to clear outline specifications, a completed finish schedule is also important to establishing a budget. While not required in the preliminary phase, this schedule is something to keep in mind and fill out as you collect costs and feedback for your home. The finish schedule will list out what type of floors, or plumbing fixtures, appliance packages, etc. go in the house and where. This information helps ensure the pricing you are obtaining is the same and most importantly, accurate.

Collaborating with a General Contractor: Building Trust and Efficiency

Building or rebuilding a home is a complex process that requires careful planning, coordination, and trust among all parties involved. One of the key relationships that can make or break the success of a project is the one between the homeowner and the General Contractor (GC).

Selecting a GC early in the process and fostering a collaborative relationship can lead to a more streamlined and efficient project. This section explores the importance of early collaboration with a GC, the benefits it brings, and how it contributes to building trust and efficiency in the overall rebuilding process.

1. Selecting a GC Early in the Process: As mentioned earlier, choosing a General Contractor during the preliminary planning stage fosters collaboration and trust. It allows the GC to invest time with the client, understanding their needs and expectations.

After you had received the conceptual pricing from the contractors and done your due diligence, compared budgets and consulted with your architect, I advise selecting and notifying one of the contractors that you will like to move forward with them for the remainder of pre-construction. The GC can then be used and incorporated as you finalize design, budgets and compile the rest of the information needed for a smooth project.

2. Collaborative Design and Budgeting: Working with a GC along with the design team helps in finalizing plans and budgets efficiently. The GC's insights can fill in gaps of scope, catch potential issues, and contribute to a more cohesive process. Involving the contractor early and committing to them early, allows the contractor to dedicate more resources to the client without fear of “wasting time”.

An additional benefit of working with a contractor early, is procurement schedule and long lead time items. Working with your contractor and discussing lead times, could help prioritize decision making to ensure items are ordered early enough for your project and not an afterthought causing delays later down the road (i.e. ordering windows too late).

3. Benefits of Early Collaboration:

  • Streamlined Process: Collaborating early with a GC ensures a smoother transition from planning to execution. This means exiting the pre-construction phase of the project and moving into actual construction.

  • Enhanced Relationship: Building a relationship with the GC from the start fosters trust and understanding, leading to a more successful project.

  • Cost Savings: Early collaboration can lead to more accurate budgeting and potential cost savings by identifying and addressing issues upfront.

A budget is not a static document that you set and forget; it's a dynamic tool that evolves with your project. As you progress through the various stages of rebuilding or building, new information, changes in scope, and unexpected challenges may arise. Managing your budget as a living document means continuously updating, monitoring, and adapting it to reflect the real-time status of your project. This approach ensures that you stay on top of expenses, make informed decisions, and maintain alignment with your financial goals.

I hope some of the information provided in this article is helpful and aids you in your building journey. Share your experiences or reach out at anytime if you have questions or need guidance.



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