BUILDING VS. BUYING - BLOG SERIES! ​STEP #3 PART A: CONTRACTORS

​BUILDING VS. BUYING - BLOG SERIES
Since so many of our readers ask us about this topic, ​we decided to write a blog series!

Step #1 - Buying a Good Lot! (Click to read Step #1)
Step #2 - Getting Your Permits (Click to read Step #2)
Step #3 - Part A: Contractors   <----------------
Step #3 - Part B: Financing 
Step #4 - Let the Building Begin!
Step #5 - Permanent Financing and Moving into your Dream Home!

STEP #3
​PART A: CONTRACTORS

Okay, so you found a great lot and you worked hard to design a home that's just perfect for you and your family AND you even managed to survive the gauntlet of "plan check" with the building and safety department and you actually have your permits and entitlements!

Congratulations!
This is a real milestone but you are not home just yet!

Now you need to decide how your home will get built and how you will finance the construction or "hard costs"

Regarding how you will get your home built,
there are a couple of main options:

1) Hire a general contractor
2) Build the home yourself as an "owner-builder"

GENERAL CONTRACTOR
If you decide to go the general contractor route, just be forewarned - you've heard the stories, there are a lot of general contractors who will make lots of promises and offer to do the job for a price that seems too good to be true and you will be very tempted to hire such a contractor.

Be careful, what seems to be too good to be true just might be. 

Often the contracts are poorly written, vague, ambiguous and may not include all sorts of details that should be included and that offers the contractor an opportunity to add all sorts of costs and fees and change orders and the like and you can end up paying MUCH MORE than you ever thought would be possible and it's not just the extra money spent but also the disappointment, stress and maybe worse.

 How do you find the best general contractor to work with? It's unlikely to go with the lowest price quote.  The best advice I can give is to really take your time, check references CAREFULLY and, of course, verify that the contractor's license is current/valid and that there are no complaints or violations with the Department of Consumer Affairs Contractors State License Board Contractors State License Board (http://www.cslb.ca.gov/)

ALSO be sure that the contract is clear and includes language is not vague or ambiguous AND if your permitted plans are well detailed you can include language in your contract that assures that the scope of work is to build the home per the specifications and details in the permitted plans.

Here are two different types of contracts that you might be considering:

"Cost Plus" and "Fixed Price"

In the "Cost Plus" situation, the contractor will charge you whatever his costs are "plus" an additional amount for the general contractor's fee- a typical "cost plus fee" is about 20% of the costs.

While this might seem like a good idea, there is no incentive for the contractor to keep costs in check. In fact, in the cost plus scenario, your contractor is incentive to rack up as many costs as possible and this can create a situation where costs get out of control.

The fixed price contract might be a better approach so that you are aware of the price you will need to pay and there really isn't wiggle room for your general contractor to escalate the costs at your expense.

BUILD YOUR HOME AS AN OWNER-BUILDER

The other option "build your home as an owner-builder" can be an amazing experience and education but it is a very serious undertaking and should not be entered into without careful consideration.
​
Yes, there is an opportunity to save quite a bit of money if all works out well; however, if you do not have experience in construction or as a project manager you might find yourself over your head. 

Without a certain amount of experience, you might not have the ability to know that the work being done is not being done correctly until it's too late and then things have to be 'undone" and then re-done again. Also, do not underestimate the time commitment that will be required.

On a personal note, I built two homes from the ground up, one right after the other. For the first home I made all the mistakes, I hired a general contractor that seemed great but the contract was poorly written and I didn't carefully check references and it wasn't too long before I realized that this contractor (despite his claims to the contrary) had absolutely zero experience building a hillside home.

Needless to say, things went south quickly and the contractor I hired hardly ever showed up at the site and his workers didn't really know what they were doing. So I ended up being on the job every day and doing my best to keep the project moving forward. 

I made it through to a successful completion but it wasn't easy.

I was saved by someone who has become a dear friend over the years, a very experienced home builder, that took me under his wing and mentored me and really saved my butt!

On the second home, with some experience under my belt, I did not hire a general contractor, instead, I was an owner builder and dedicated about two years of seven days a week and 16 hour days to build the second home.
​
Summary, might not be your best choice to take on the job as an owner-builder unless you have the temperament, experience, and TIME to be on the job every day, plan for what's needed next for many hours each day after the workers have left for the day, and are up for a high-stress environment for months and months on end.

I don't mean to be all doom and gloom but realistically I want you to be prepared for the reality of what it really is to embark on such an undertaking.

STAY TUNED FOR 
STEP #3 - PART B: FINANCING!

Buying or Selling Real Estate?
​Contact Us Today!
​
Brian Fitzburgh
​Real Estate Broker / Animal Lover
818-571-9712
team@brokerstrust.com
www.brokerstrust.com

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