Your clients meet with their architect, select a builder, and close on their lot. They're ready to begin building their dream home. Most clients carefully plan their budget. They're convinced they won't go over budget. Unless they are highly disciplined people, the final cost of their dream home will be about 30 to 40 percent higher than they budgeted.
When I was selling lots in a new subdivision in Beverly Hills, virtually everyone of my neighbors had the same experience. Their dream home cost them 30 to 40 percent more than they expected. A major reason this occurs is due to "change orders." Once clients approve the final version of their plans, the builder expects to build what they agreed to build. However, as the building proceeds, your clients may realize that the granite that looked so wonderful in the showroom, looks hideous with the cabinets they selected. They decide you want to change it--they now have to pay for the change order PLUS the cost of removing the existing granite and installing your new selection.
When you're building a custom home, your radar is attuned to all the new gadgets and doodads that you can include in your house. For example, your clients may have planned on having a media room, but didn't realize that they need special wiring to accommodate the cutting edge system they just ordered. Now the builder has to open up the walls to do the installation. Your client may be having allergy problems and hears about a filtration system that removes most of the dust and allergens from the air. It's not that much money in the scheme of things--it's just that all these changes add up.
Another way that a custom house can go way over budget is that the cost of materials change. It's common for a custom home to take 18 to 24 months to build. Depending upon the type of contract that your clients signed, the cost of the materials is passed through to homeowner or the builder has to eat the cost. In fact, just this week the American dollar took a nose dive against the Canadian dollar. If your clients were buying Canadian hardwood for their home, the cost of their lumber just went up substantially. If the builder agreed to a fixed price, you can bet that he or she will cut corners elsewhere to complete the house within the budget.
To keep costs down, encourage your clients to handle their due diligence as soon as possible prior to signing the final contract. Have them investigate the items that they want to include and avoid making changes unless absolutely necessary. If they must submit a change order, most builders charge a fee for the change. Group your changes together rather than submitting them one at a time.
Posted by Bernice Ross, author of List and Sell Real Estate Like Crazy, your guide to getting your listings at the right price and a full commission.
Photo by Kugelfish
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