A Useful Checklist

There are numerous places to start. Following are some suggestions:

1. Find a builder who builds the style of home that appeals to you and has a reputation for reliability and credibility (always check references).
2. Acquire a piece of land that you love or determine the community you want to live in.
3. Hire an architect or plan designer you trust (check references first).
4. Look for a house plan already built, in a book, as a model or in a parade of homes that fits your needs or incorporates ideas that appeal to you.
5. Talk to a trusted realtor or friend within the industry.
6. Ask friends, business associates or homeowners, in the area where you are going to build, for a referral to a good builder.

As always, budget will determine the type of land and home you can acquire. To a great extent it will also determine your location. If you are from the general community you will already know, for the most part, where and what you can afford. Talking to experienced builders in the area you want to build will help you determine pretty quickly whether you can make things work. Realistic expectations are a must at this point. Priorities and options will have a way of surfacing once you commit to the process.

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As with any sophisticated organization of men and materials, knowledge, experience, dedication and discipline contribute to the effective accomplishment of the task. The key is breaking down the total objective into manageable groups of steps that will be completed in a logical, organized manner. Generally, the builder you select is the critical component in this process. If you don't have a home plan he can usually help you find one or provide and architect / designer to prepare a preliminary design. With a preliminary plan the builder can provide estimated pricing to determine if you are within your budget comfort level. Many times he can help you find a lot or direct you to someone who can. Not all builders have this diversity of skills and experience. Some only build, so you need to determine the capabilities of the builder you are talking to and, where he lacks experience, obtain the professional help you need.

If you recognize that the builder is disorganized and overwhelmed by the details, beware. In this situation you will not be focusing on your responsibilities, you will be more worried about what is not happening or happening incorrectly. The absolute key to any design-build process is organization and information flow. The process is intense and stressful enough without the additional worry.

As with most matters, many of your selection decisions hinge on cost. A knowledgeable builder and his professional staff can help you sort through the daunting list of options in a rational manner. If he doesn't know the approximate cost of an option he can certainly find it. Only with accurate and complete information can you make confident decisions.

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Selecting a builder is the most important of all decisions (of course, we may be biased here). In addition to experience, skill, dedication, and honesty, he needs to relate to you and your family. You can determine his qualifications for your project by doing any or all of the following:

• Check references by talking to homeowners and business associates.
• Inspect in-process and completed projects.
• Meet with him and his staff.
• Review his contract, specifications, selections process (especially this!) and related job organizational materials.
• Call his key subcontractors and suppliers to determine the quality of his working relationships.

At Equity, we feel the builder client relationship will last not just for the design and build but most likely as long as you live in your home.

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Once you have determined the cost, you need to identify what it includes. This is the tricky component with custom homes…frankly, without an accurate and detailed list of specifications, comparing prices apples to apples is almost impossible.

The simplest technique for comparing builder costs is to discuss a builders standard mark-up on costs.  Make sure the builder is including all supervision and overhead in this mark-up.  Most builders will disclose the mark-up they work under and most builders work under cost-plus or cost plus fixed fee arrangements (more on this later).

If this is not clear, contact us at Equity and we will be pleased to assist you.

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Project value results from incorporating the most broadly desirable components and finishes, including land. If you obtain these desirable components and finishes at a fair price value will equal or exceed the cost.

If a financial institution is providing the construction funds they will require an appraisal of the project. The appraisal will provide a fair valuation of the project.

Another factor that influences value is the appropriateness of the item for the project and how it relates to the total project value. For example, spending $4,000 for a pedestal lavatory in the powder room of a $250,000 home probably will not increase the value accordingly. However, installing the same sink in a $1,000,000 home that has upgraded fixtures throughout probably would. How do you know what to select? An experienced builder, architect, realtor or interior designer can lead you in the right direction.

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Develop realistic expectations by researching new homes in your area and inquiring about the elements that interest you. You need to get comfortable that your budget will allow you to include the features and the space that you require. A reputable, experienced builder will be able to provide you a preliminary budget range based on your desired size, layout and features. We always provide preliminary budgets that identify this cost range to help you start at and stay within your comfort zone. As plans progress, so do the cost estimates. At any point, you will be deciding whether the cost of a feature or size of an area is worth the additional cost. Keep in mind that from the start of the process it will likely be six months or more to complete the planning phase and another eight to twelve months (or more) to build, so inflation will be a factor. Try to leave some room in your budget for this, as well as other items the builder probably does not include such as landscaping and window coverings.

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We suggest to clients that if they are going to be in a house for 5-years or less stay away from really unique features that don't have broad appeal. This could include interior finishes or spaces that aren't customary. If you are planning to live there 10-years or more, you can exercise much more freedom in your design and selection without the short term retail concern.

You will apply this thought process for each area of selections. It can get complicated, however, with experienced advisors you can proceed with confidence.

As a builder, we go through this exact process each time we do a speculative home or build our personal residences. Since it is our money, we know how you feel. We are always trying to identify the most appealing features at the best price...and we utilize professional architects and interior designers to help us in this process.

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Lot size and topography are usually the most limiting factors. If you have a 100' long house with an end load garage, you probably won't fit on a 120' wide lot. With setbacks and turn around requirements the house will be too long. A walkout ranch won't work very well on a flat lot. Depending on how much and which way the lot slopes will govern the type of home that utilizes natural features best. An experienced builder or architect is best suited to make this preliminary evaluation. We provide this as a free service.

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When purchasing a lot you will most likely be dealing with real estate professionals. If either the listing or selling agent has land experience he can make this evaluation. However, it is also advisable to seek the advice of an experienced builder. The more difficult the project the more professionals you might need to involve. We always recommend that a soils engineer do a soil examination prior to finalizing any lot purchase. If topography is not easily discernable or there are significant grades you should have a surveyor prepare a topographic map and so on. If a licensed architect is preparing the plan, he should be involved. Usually site features are not that ambiguous and the builder/ realtor evaluation is adequate.  We suggest that any land contract should be contingent on resolving any questionable conditions. If you don't have a realtor involved, it becomes even more important to have a builder assist you.

At Equity, we provide a free lot evaluation.

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The minimum time you should expect for design and build for your custom home is five months to design and eight months to build. These numbers represent the most optimistic in both categories and would occur only if you found a house plan that required few modifications and was modest in size. Obviously the larger, more detailed and complicated the project the greater the time. An average for our projects now is approximately seven months for design and nine months for construction.

A lot of what happens depends on how much personal time you can commit and how rapidly you can make decisions. The schedule availability of the other parties involved is also critical. Be realistic. Once you have decided on a floor plan, completed all the revisions and worked your way through all the details and finishes, the builder must then obtain the necessary permits and approvals. This includes architectural control committees for the community, building permits, utility permits and whatever else your area requires. This can be relatively quick or very time consuming. Our company has a flow chart that helps clients understand the process and timing involved.

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The complexity of the project should be the determining factor as to whether you need an architect or plan designer. Many times a builder will have a plan that meets 90% of your needs. In that case, the builder will usually have his agents modify the plan to meet your specific goals. The agent could be an architect or a plan designer. Starting with an existing plan also allows the builder to provide a more accurate estimate of the pricing. The builder can often provide preliminary sketches of the home you are trying to create from existing plans he has or ideas you supply.

On more complicated and unique projects the architect is much more critical to the process and may be the first professional engaged. We believe that the most effective design scenario involves both the architect/designer and builder from the beginning.

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Realtors can be of significant benefit to buyers moving into a new community. In addition to locating builders and real estate, they have intimate knowledge of value, schools, growth patterns and other important community features. They can be very well worth the fees paid. Many builders have realtors represent them who provide valuable services to both parties and many custom communities have “on-site” realtors who are involved in every home deal within the community.

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If you have a realtor and are using standard real estate documents you most likely do not need an attorney. If you don't have a realtor it is worthwhile to have the documents reviewed by an attorney for any significant deficiencies.

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A fixed price contract is one where the price for the project is set at the contract signing and is based on the items described and represented in the plans and specifications. The price can be changed throughout the construction process by written change orders or allowance reconciliations.

The advantage of this form of contract is that generally all risk of cost increases, damage or loss is absorbed by the builder. The disadvantage is that the builder may increase his fee and/or include a contingency line item to carry this risk.

Many builders are reluctant to use fixed cost contracts as they require much more precision and up front effort on plans, selections, specifications and bidding to ensure an accurate budget.

Generally, in a fixed price contract the client will not have the opportunity to review individual bills, bids, estimates, etc. as the builders is absorbing any cost overruns or savings.  This can be a bonus or a detriment, depending you your desired level of involvement.

If accurate, fully detailed plans and specifications are available, many of our clients select the fixed price option.

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A cost plus contract is one where the builder charges a markup on the costs incurred in the execution of the contract. In addition to hard construction costs, project costs may include the cost of site supervision, insurance, and setup. On a cost plus 15% contract, for example, the client would be charged $1.15 for every dollar the builder spends.

The advantage of this contract is that the client will have knowledge of all expenses incurred and benefit from any savings realized throughout the process.  The disadvantages are that if costs increase due to plan errors or omissions, inflation or inaccurate estimates the client pays the extra. There also is less incentive for the builder to control costs as the builder is getting paid 15% on every dollar spent.

In a cost plus contract, clients are generally more involved and have the opportunity to review bills paid on a monthly basis. 

In any cost plus contract it is important to determine who is responsible for costs due to site damage, vandalism, errors in execution etc. It is also important to understand what items are included as "costs" such as, supervision, insurance, realtor commissions, etc. on which markup will be charged.

A variation of this is cost plus a fixed fee. In this scenario the builder establishes his fee based on the expected costs and fixes that amount. The fee does not vary except through written change orders. This scenario allows the builder and owner to work together to control the costs and provides the proper incentives to do so. 

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A hybrid of a cost plus and fixed fee contract is cost plus a fixed fee. In this scenario the builder establishes his fee based on the expected costs and fixes that amount. If the costs of the base project go up or down, the building fee remains the same.  The fee does not vary except through written change orders. This scenario allows the builder and owner to work together to control the costs and provides the proper incentives to do so. 

This is our preferred form of contract for design-build client relationships as it provides the most open and “teamwork” oriented atmosphere throughout the project.

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Each builder is unique. However, at Equity we think the most fair way is to sign a letter of intent. The letter of intent is a preliminary agreement covering costs and time invested during the design phase and is sealed by a monetary deposit. The deposit is provided to cover the estimated costs of getting the project ready, which includes soil exam, preliminary design, permits, etc. Upon completion of the plans, specs, selections and bidding, a contract will be prepared for signature. At any time during the process, if the circumstances change, either party may cancel the arrangement with a refund of the unspent deposit amount. This protects both parties from significant damage. In our mind, it is much easier to void a letter of intent for $10,000 to $20,000 then to rescind a contract for $500,000 to $1,000,000.

Sometimes builders will require buyers to invest 5% to 15% as a downpayment with a builder without really knowing what the final package will cost or include. Conversely, some builders may expend thousands of dollars on a client's project without any kind of signed commitment from the client. These arrangements have the potential to be unfair to both parties.

The main issue here is that you understand the implications and requirements of any agreement you sign, especially when you have expended funds.

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Unless you have your home rated by an independent professional rater you won't really know. Simply installing "energy efficient " products is risky unless you know how your home works as a system. Installing R-50 insulation in the ceiling is more energy efficient than R-38, but is it economical? We participate in the E-Star builder program sponsored by Energy Rated Homes of Colorado. As such, we have obtained significant training and guidance in energy efficient products, design and construction. We have refined our approach to ensure our clients are getting the best return on their investment.

Sometimes energy products relate more to comfort and lifestyle than energy dollar savings. An example of this would be radiant heat. Radiant heat is less costly to operate than forced air gas, however after considering the additional cost to install the system, it is not more economical given today's energy costs. Notwithstanding this, many homeowners want this system because of the comfort and quietness that it provides.

At the completion of each home we build, a professional energy rater performs a comprehensive review and testing of your home. Based on this examination, a certification of the energy efficiency of your home will be issued. More information about the certification program can be obtained by accessing www.e-star.com.

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Theoretically, you have the right to make all the selections in your custom home. From a practical matter, you will probably be involved in the selection of only a few of the construction components and most of the finishes, which are loosely defined as "all the things you can see". You should choose a builder who incorporates as standard, most of the features you are looking for (i.e. 2x6 walls, insulation packages, wiring packages, etc). By doing this, you will minimize the effort involved in selecting items which are outside the builder's envelope. Also, the builder won't always be saying " that will cost you extra". This can be uncomfortable for both parties as well as being inherently inaccurate in estimating the final cost.

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In our office, we assist the client in making selections that deal with construction components such as windows, doors, roof material, appliances and similar items. Items generally dealing with color, texture and finish are handled by our selection coordinator or your interior designer. We feel our professional selection coordinator is best suited to assist you in developing the look and feel that compliments your lifestyle. The selection coordinator is more aware of current style, trends, sources and techniques which provides you maximum versatility and confidence in your selections.

In order to minimize unknowns and surprises during construction, we attempt to have most selections made prior to contract execution.   It is, after all, much easier for us to set an appliance allowance if we know what appliances we are including than it is if we are guessing at what appliances you might want.  This puts an additional burden on our clients during the design phase…but it eliminates much of the confusion, stress and sticker shock during the construction process.

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In addition to the inspection performed all throughout the process by ECH personnel, In each county that we build in, a combination of licensed engineer certifications and building department inspections provide the assurance of compliance with building codes. At each level of fabrication, an inspection is made before the installation can be covered. Final inspections are made at completion to insure code compliance for electric, plumbing and heating. In addition a final building code inspection is made which covers any number of things from smoke detectors and step heights to hand rails, address numbers and drainage. These inspections do not address the finish quality of the installation, but rather the functional and safety aspects of the home. In order to obtain a certificate of occupancy, all inspections must be passed.

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Equipment and product warranties (i.e. appliances) received by the builder are fully transferred to the client. The builder will not usually provide any extended warranty related to these items.

For items not covered by these warranties Better Business Bureau and the National Association of Homebuilders has published a document titled "Residential Construction Performance Guidelines". This publication identifies "observable deficiencies", the related "performance guideline" and the "corrective measure". This publication attempts to reduce the subjective evaluation to an objective measurement. This is effective up to a point. There are always issues that arise which are not specifically covered and like beauty, much of it is in the eye of the beholder. When a questionable item arises, an agreement between the client and builder will need to be reached as to whether a deficiency exists and if so, what is a reasonable resolution.

The inherent problem with custom homes is that they are handmade using thousands of individual parts installed under all sorts of conditions by varying levels of skilled craftsmen. There is no perfect component in a home. The question is, what level of perfection do you expect in the home you are having built? Before you commit to a builder, look at several examples of his existing product and determine if you will be satisfied with his level of finish work. There are differences in “fit and finish” from one builder to the next, it is worth your time to investigate and inspect closely.

The normal time frame for warranting construction and cosmetic deficiencies, other than product and equipment warranties, is one year for parts and labor. Structural components are warranted for six years.  Our personal commitment is that we will correct any valid construction deficiency as long as you live in the home.

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