Are you considering being an owner-builder? You’ve just bought the perfect piece of land and are ready to build your dream home. Most people will use a licensed general contractor (a “GC”) to build their home from the ground up. But some people – those who wish to be an “owner-builder” or “owner-contractor” – will plan to build the house themselves physically. Opinions seem to be pretty mixed about whether it makes sense to be an owner-builder. It’s safe to say that being an owner-builder can be like an adventure – where you may have good, bad and unexpected experiences. What it’s going to come down to is: Do you want to embark on the owner-builder adventure, and is it going to save you money?
Deciding whether to build your own house or buy an existing one can be a tough decision. The allure of picking out the floor plan, features and fixtures with a new build is exciting, but does that come with a steeper price tag? A careful examination of the cost differences between the two options can help prospective home buyers best decide what option they should choose.
When searching for a home, it can be difficult to find one that has everything you want and needs – especially when you have a specific location, limited budget or unique wish list in mind. It may be tempting to start from scratch and build your own home, one with everything you could ever want in a living space. But this may not be as easy or cost-effective as you think.
There are several factors to consider before deciding whether building a home is a better option for you than buying one. These include the pros and cons of each and if it’s cheaper to buy land and build a house instead of buying an existing home. Check out our extensive range of home designs at Hitch Constructions.
The cost to buy vs. the cost to build
So, how much does it cost to build a house? According to the National Association of Home Builders (NAHB), the average cost to build a house (for a single-family home) in 2017 was $427,892. The average square footage to build your own home in this survey was 2,776, making for a cost of around $154 per square foot. According to Realtor.com, the average price per square foot of an existing home sold is $123, which is about $31 cheaper than the price per square foot cost when you’re building your own home.
While this may seem conclusive, it’s important to remember that the numbers for the estimated average cost to build a house and the cost to buy a preexisting home are based on surveys of builders and realtors. The actual numbers may vary due to reporting errors and other home factors. These factors include the location of the build, which builder you’re using, the building codes in your area and supply and demand.
Why building usually costs more
Building a new home typically carries a higher price tag for several reasons. These include:
Builders are in the business of making money. According to the NAHB study, an average of 10.7% of the cost of a new build is builder profit. Because of this, you’ll find a markup on just about every aspect of the home building process. While these premiums may also be carried over into the sales price of an already built home, the premiums are more evident in the new builds.
Some builders are looking to turn-and-burn profit by pumping out as many track homes as possible. While, on the other hand, luxury and specialty builders are selling a unique product that will come with a higher price tag.
Changes to building codes and permits
As the world moves more towards supporting environmentally conscious efforts, builders are feeling the pinch. As local, state and federal governments change building codes and require additional permitting, the cost of building can get more expensive. These costs can be felt with permitting, cost of materials, building practices and other areas of the new-build process.
Cost of land and lot premiums
When you go to select a home site to build your new home, you may run into expensive lot premiums. New builders will add a premium cost to certain lots within a new community. The nicer the lot, the more expensive the premium. Things that can add to the lot premium include views, access to public amenities and size. While you’ll still pay for these things with an existing build, the price tag may be steeper when coming directly from the builder.
If you’re building on your land outside of a builder community, you’ll have to purchase it outside of the builder. This is an additional expense that needs to be worked into your budget as well. At HP Constructions, we have the best home constructions selection to make your house a dream come true.
Increase in cost of materials
According to statistics, construction costs are on the rise. Houses are becoming more expensive to build, and the builders are passing these costs onto the consumers.
Hidden costs of building a home
When you walk through a model home, it’s usually beautiful. The problem? That model home usually has every single upgrade added to it. The starting price you see advertised does not include any of these upgrades. If you want your house to look anything like the models, be prepared to shell out tens of thousands of dollars for upgrades. The countertops, finishes, flooring, bathrooms, kitchens and more are typically upgraded in the models.
As builders work to turn out as many new homes as quickly as possible, quality can become an issue. When you do your final walkthrough, you may find many things that need to be fixed. The builder should cover these costs in most cases.
However, there will most likely be defects in the house that you don’t catch during the final walkthrough. Some of these may be covered by your home warranty (assuming the builder provides you), but some may not. You may not see things like foundational issues or the effects of low-quality materials until you are outside of the window where you can do anything without coming out of pocket.
Existing homes have had time to work through these issues, or at least expose them so that you can make a more informed buying decision.
Necessities not included
When you buy an existing home, you get everything that you see. However, many of the things you might expect to be included in the cost to build a house are probably not. Some of these things might be fences, landscaping, appliances and some other outside the home features. Make sure when weighing the cost of a new build vs. an existing home, you know exactly what you’re getting and, more importantly, what you’re not.
Why Build Your Own Home as an Owner-Builder?
The role of an owner-builder can vary dramatically. A skilled (and handy!) person who chooses to be an owner-builder could build their home nail-by-nail, pipe-by-pipe, wire-by-wire and shingle-by-shingle. But this usually is an extreme scenario.
Often, when considering being their builder, the owner is taking on this extra responsibility largely in an effort to save money. Some still want to work with a contractor in some capacity, but also want to physically handle some of the work on his or her own. Others want to exclude GCs altogether (and their fees) and intend to directly oversee all the skilled trade subcontractors who do the actual fieldwork. Builder fees vary, but in some cases, the fees can make up about 25% of the cost of building a new home. That’s a big number and is the primary motivator for most owner-builders.
There certainly are fascinating accounts of people building their own homes. From a man’s “hobbit house” that he built in Wales for under $5,000 to the “wiki house” that can be framed in a weekend by two people using pieces of timber that snap together, there are many creative concepts that can help bring home design and building to the masses.
Whether it’s a hobbit house or a traditional home, anyone considering building their own home needs to focus on more than just the GC’s fee and must look at the whole process to understand whether it makes sense for them. Finding the right home constructions company Melbourne is an important decision. Check out our range of the best home design constructions at Hitch Property Constructions.
The Reality (and Risks) of Being an Owner-Builder
If you are considering the owner-builder route, you need to decide whether you are ready to take on the role, the risk and the responsibility.
Even though you may be highly skilled in carpentry, you may not be able to install plumbing or wire the house to code. So in most cases, you will at least have to subcontract some of the work. This is where your dream home can start to become a big headache. Likewise, eliminating a general contractor often shifts the risks and responsibilities to you when things go wrong.
For the owner-builder, these building problems can develop for many reasons and have a range of impact on the project, its cost and your home’s long-term value:
- Risk of out-of-control construction costs and blowing your budget
- Inability to control your schedule properly, causing costly time overruns and delays in project completion
- Complicated construction issues, requiring solutions that may be beyond your capabilities
- Failing to build to local code (and the unbudgeted costs of correcting issues)
- Many of the best subcontractors won’t work with owner-builders
- Banks may not want to give the best terms on a construction loan without a licensed builder on the job
- Being taken advantage of by shady contractors
- Mechanic’s Liens filed against your property by subcontractors or suppliers
- Difficultly refinancing a construction loan (especially when off schedule)
- Foreclosure or other loan-related distress caused by budget and cash flow problems
- Depressed resale value when the home is not built by a known professional
And if you are thinking that an easy solution is to get a licensed contractor to work with you as an owner-builder, remember that there are a lot of headaches for the builder when setting up the relationship that way. As one contractor noted about working with a potential owner-builder, “they end up taking so long that three-month projects drag out to 8 or 9 months, quality suffers because of the items they do, and we struggle to get the projects completed.” And now that the home building market has picked up there is not as much incentive for busy builders to work with owner-builders and risk being caught up in the related problems.
You also need to be able to properly estimate the cost of materials and labour in building the new home, as well as the construction schedule. This is something that you need to make sure that you do not over, or especially under, estimate. Estimating job costs, materials and the schedule accurately is essential in knowing whether you have the correct budget to finish your new home and for obtaining a loan.
There also are other costs associated with building your own home, such as having to purchase specialised insurance. You should have both construction insurance and general liability insurance if you are an owner-builder. In some cases, you even could be responsible for worker’s compensation coverage for labourers too. As an owner-builder, you must do the legwork to make sure each of your subcontractors keeps their insurance coverage in place. Banks will require proper insurance coverage for you to get approval for a construction loan.
And being the owner-builder means you are responsible. So, even if you are getting help from a contractor overseeing the project, you are responsible for the integrity of the completed home and will be liable if anything goes wrong (like an injury on the site). In addition to managing and scheduling subcontractors and pulling all permits, you are the person who must order materials, ensure they are delivered to the site in a timely manner and pay the suppliers. You must keep the site free of hazards and be sure it complies with all safety requirements. In some circumstances, you also could be considered an “employer” for tax purposes. You would be obligated to register with the state and federal government and be liable for the administrative and withholding responsibilities of an employer. Likewise, are you prepared for handling the administrative responsibilities and indirect costs like processing permits, plan review, HOA approval, meter installation and connecting utilities and costs related to impact fees or possible fines for stormwater management violations?
In some states, some laws govern owner-builders and attempt to keep people from skirting construction licensing laws. For example, California regulations state that to meet the exemptions to be a non-licensed owner-builder an individual must own the property and in most circumstances will have limits on both the number of homes it can build and sell and when it can sell those homes.
These are just a few of the things that you will need to consider when building your own home as an owner-builder. Outside of all these practical, legal and financial issues, you also should take into account that being an owner-builder can cause a tremendous amount of stress. You have to ask yourself the question “When do I have time to do this?” Chances are you are not going to be running over to the Jobsite on your lunch break from the office to help pour a footer for your foundation. Just building after work as daylight permits, and on weekends leaves very little to no time for personal life and the demands of family. Of course, these personal constraints can not only affect your mental well-being and happiness but also can throw the whole project off schedule and result in serious construction delays.
Granted, the scale of the project can make a difference. If you want to build a one-room cabin, then the task may be manageable if you have the right skills and patience. But the bigger and more complicated the home design, the more daunting the challenge will be for an owner-builder.
Be sure to include plenty of contingencies in your budget for mistakes and miscalculations – things that are inevitable for someone new at building a home on their own – so you can thoroughly evaluate the financial costs, along with the intangible and personal costs that we’ve described. Only then can you conclude whether being an owner-builder is going to “save” you anything.
If you’ve decided to take a shot at being an owner-builder, then we wish you the best. There are websites that can provide support and advice for owner builders, as well as many construction consulting firms that are specifically designed to assist a person who decides to be an owner-builder.
Questions to Consider Prior to Building a Home
Can We Afford It?
On paper, building a home appears to be very affordable. However, while the numbers on paper might add up to an attractive price, you need to consider the construction costs of building a house that is not planned for. For instance, while lumber might have a certain cheap price today if your build is delayed, that framing cost could go up. And while your land may appear to be ready to build on now, you might find out that it requires additional surveying. Make sure you can afford the number on the price breakdown, but also that you have some wiggle room to work with so that one mistake or setback doesn’t completely blow your budget.
Run the numbers and only sign on for what you can afford – sure, marble countertops might be nice, but not when your budget only allows for laminate. Pad your budget by at least 10% of the total cost to allow for unforeseen expenses.
Do We Have the Time and Patience?
Having a house built rather than simply purchasing an existing home requires a much lengthier amount of time. Therefore, you need to be sure that you’ve got the time and the patience to deal with the variables involved in building a custom home. Even the most basic, stock-built homes take three to six months to finish, while custom homes can take up to 18 months or longer if you run into problems. If you’re in a rush to get into a home, buying one might be the best option.
Can Our Marriage Handle It?
Often contractors and builders would say that if we could get through building a home together, we’d be okay. It was kind of a baptism by fire for a couple of clueless newlyweds. Of course, I’ve done my part to warn friends of the stress that building a home can put on a marriage. We made it through, but not without roughly 600 arguments over fixture finishes and paint colours. Builders beware.
Is Our Lifestyle Stable?
Building a home means pouring blood, sweat, and tears into a place that you’ll hopefully keep for a long time. The emotional attachment to your home can keep you in place for a while after building, so that’s why it’s a better option for families that will be putting down roots. There’s a good chance that after you build, you’ll want to stick around out of sheer exhaustion. If there’s a chance that your job or education could take you away from your current location, building a home could mean a lot of work with little time to enjoy the fruits of your labour.
What Are Our Wants and Needs?
At some point, sit down and make a list of wants and needs. Under the “needs” category, list the features your home must have, such as a big toy room for the kids, or a spacious eat-in kitchen. Under the “wants” category, list the features that would be nice to have, but won’t make or break your homebuilding experience. By doing so, you can budget for your needs accordingly. If there’s money left over, you can pick and choose which of your wants you can afford.
Do We Have a Location?
Look around at land for sale in your area and see what you can expect to pay – price per acreage varies greatly by location. Furthermore, determine whether you can finance the purchase of land, or if you will, you need to pay cash for it. You also need to consider some of the costs of the location, such as paying the city for permits, adding power and sewer hookups, and any excavation and landscaping that must be completed as part of the building process.
Investigate the land you want to purchase thoroughly to identify potential problems before they arise: How far are power and sewer lines from your land? Will you need to install a septic system or a well? Is there a good spot to build on? How difficult will excavation be so you can lay a foundation? These are all questions to take into account and investigate with your contractor.
Do We Have a Builder?
Choosing a builder might be the single most important decision you make in the building process. Do your homework and shop around – you’ll find plenty. When choosing a builder, look for one who is upfront and professional. A builder who makes wild promises about building the Taj Mahal for less than $200,000 might seem great at the start, but will probably max out your budgets in the process. If possible, tour the finished homes of a specific builder and choose one with tastes and philosophies similar to your own, and with whom you get along. After all, you’ll be spending a lot of time together.
Have We Weighed the Pros and Cons?
Take your time to make the decision to build a home, and be sure to consider all of your options. Check out some of the built homes in your area that are in your price range, and weigh the pros and cons of purchasing an existing home. While your dream might be to build a custom house, it may make more sense to purchase a home now and hang onto that dream until you’re ready to stick around for a while. If the benefits outweigh the issues of time, patience, and budget, then you are ready to build your own home.
But when it comes down to it, there are so many benefits of working with a skilled, licensed builder as your general contractor. Ultimately, a quality builder can add a lot of value to your home and the homebuilding process. For more details, read this article about the benefits of working with licensed builders.
Each person has different skills, free time, patience, needs and financial ability. Ultimately it is up to the individual to decide if they want to go the owner-builder route. So if you still are feeling ambitious and plan to build yourself, then, by all means, have at it! We’d like to know how it turns out for you.