How to Prevent Cost Overruns in New Home Construction
By Sofia Alonso
4 min read
Embarking on a construction project can be an exciting yet daunting endeavor, especially when it comes to managing the budget. Cost overruns and unexpected expenses are among the most common concerns for people who are considering building a new home.
To properly address these concerns, it is essential to distinguish between factors of the project that we can control and those that we cannot control. The best way to prevent unexpected expenses is to emphasize proactive decision-making and careful planning in the design process because once you get to construction, even if you can change something, it will cost you a lot more as a change order.
The Importance of Pre-Construction Decision-Making
The key to avoiding cost overruns lies in making informed decisions during the design phase, rather than leaving those decisions to be made during later stages of the project when change is more complex and costly. By thinking ahead and addressing all potential aspects of the project, homeowners can set a solid foundation for a successful construction journey.
Isn’t the Builder Supposed to Do That For Me?
No, a standard builder will present you with an estimate for the cost of building your new home, but they will not consider every aspect of your new home until it is time for the decision to be made. Most builders use a term like “allowances” in their contracts to represent an amount for the cost of items that have not been determined with certainty when a bid or proposal is submitted.
For example, this could mean that your new home contract might have an allowance for windows of $30,000. When it comes time to select the windows for your new home, you may end up choosing windows that exceed your allowance budget, and thus increase your overall project cost.
Additionally, the builder is building your home with these standard allowances in mind, meaning that if you select windows that exceed your allowance and also are larger than the standard window you may also incur costs required to adjust the framing of the home that has already been completed.
This is why you might consider hiring an architect to be your owner’s-representative and advocate for all design needs early on in the project. Even better, you could just hire a design-build firm that has architect’s in-house and specializes in creating accurate home plans.
Working with an architect is advantageous because you can plan for your future home while building your new home. This means that even if certain elements, such as a pool or guest house, are not immediately in your plans for this new home, it is worth discussing them with your architect so they can ensure these items can seamlessly be incorporated into the future design, reducing the likelihood of costly modifications in the future.
Controlling the Controllable
Many people don’t know that there are certain decisions that can be made and completely finalized before construction even begins, allowing the homeowners to have better control over the project's cost and their own budget.
Big-ticket items, including windows, doors, and exterior materials, should be carefully considered and selected during the design phase. While specifics like color and finish can be determined later because knowing the materials upfront helps to accurately estimate the project's cost and not simply rely on the builder’s standard allowances. Similarly, choices regarding cabinets, appliances, flooring materials, and plumbing fixtures should be made early on, as they influence the construction process, such as framing requirements and plumbing installations.
Avoid Afterthought Decisions During Construction
Budget overruns often occur when homeowners make "afterthought" decisions during construction. Making changes in the middle of the project can impact multiple aspects and lead to additional costs.
For example, if you choose a different toilet type like a wall-mounted toilet instead of the standard standing toilet, this can require structural changes to the framing of the home, resulting in a costly change order.
Planning ahead and thoroughly considering details like lighting, electrical outlets, and low-voltage smart home features can help avoid such expensive alterations. By examining electrical plans and anticipating needs, homeowners can ensure the project aligns with their expectations and code requirements.
While careful planning can mitigate many risks, certain factors are beyond our control. Economic fluctuations, the cost of materials, and unforeseen events like a global pandemic can influence project costs.
Additionally, site-specific considerations such as soil conditions and utility connections, can present uncertainties. Although these factors cannot be fully controlled, conducting a feasibility study and working with experienced professionals can help anticipate these potential costs and minimize surprises.
The Cost of Time
We have discussed the cost of making changes in your home during the construction phase and how going over an allowance can result in a costly change order, but it is vital to realize that one of the most significant cost overruns is time.
Making numerous decisions during construction prolongs the project's duration, leading to increased rental or mortgage expenses for the client and overall project costs going backwards instead of forwards. To avoid unnecessary delays and expenses, it is crucial to make as many decisions as possible before construction commences. By ensuring allowances align with expectations and finalizing finishes ahead of time, homeowners can help prevent any time-related budget overruns.
Preventing Cost Overruns and Unexpected Expenses
Preventing cost overruns and unexpected expenses during the new home build process requires proactive decision-making, meticulous planning, and considering both controllable and uncontrollable factors. By making crucial choices upfront, homeowners can minimize the need for costly modifications during construction. Thoughtful consideration of materials, finishes, appliances, and fixtures sets the stage for a successful project. While uncontrollable factors exist, thorough studies and collaboration with experts can help to anticipate unexpected costs. Ultimately, by minimizing decision-making during construction and understanding the impact of time on project expenses, homeowners can achieve their construction goals within their budgetary expectations.
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