Embarking on the journey of creating your dream custom home is an exciting venture. However, this exhilarating process comes with its own set of challenges, particularly when it comes to aligning design aspirations with the realities of a construction budget. More so than traditional homes, crafting a one-of-a-kind home means that early cost estimates are crucial to the success of the project.
In this blog post, we’ll explore why getting early cost estimates matters, how to obtain accurate estimates, and what steps to take if the estimates exceed your expectations.
Why Early Cost Estimates Matter
Reduce Design Fees
Building a new home is a significant investment, and while construction loans cover hard costs, soft costs like design and engineering fees are often out-of-pocket expenses. Design fees, ranging from 10%-20% of construction costs, represent a substantial investment, which is why you really only want to spend them once. While architects can add immense value to your project, most people don’t have the luxury or the resources to go through the design process multiple times after learning that their beautiful design is double their budget.
To avoid unnecessary expenses, like additional design fees, and to ensure your design aligns with your budget, early and frequent cost estimates are crucial. Regular budget check-ins allow for adjustments, pivots, or project pauses so that you aren’t investing more in a design that might exceed your budget.
Avoid Budget Surprises
Custom residential design presents unique challenges and details that can impact the budget significantly. Without early estimates, you risk late-stage surprises that may force compromises on your design concept. For instance, envision wanting expansive floor-to-ceiling glass windows. Early estimates could reveal that the window cost would exceed expectations, not to mention introduce more complexity, which could mean reducing size, number, or extent of glazing, allowing for informed decisions earlier in the design process.
Align Design Aspirations with Budget Constraints
Early cost estimates offer insights to align your design aspirations with budget constraints from the beginning, preventing future disappointments. If you dream of a cantilevered structure, early estimates help determine the feasibility of such elements to determine if they are within your budget. Adding complexity like cantilevers trigger the need for steel framing, cross bracing, and atypical ideas to solve shear loading. While this may be physically possible, the added cost of the increased complexity might not realistically fit in your budget.
Streamline Decision-Making
Baseline estimates obtained early in the process streamline decision-making as you progress through design phases. With an accurate early estimate, you have a target that helps you select the best materials, finishes, and construction assemblies to fit that budget. It also requires you to stay mindful of the budget and find cost-effective alternatives that don’t compromise on design quality. Reviewing multiple design options for a large glass door opening allows you to make informed choices that balance design aesthetics and financial feasibility.
How to Get Accurate Cost Estimates
There are 2 crucial times we like to get early cost estimates in our process. We recommend a similar strategy for all people in the custom home process:
- Before you start the design process (Pre-Design)
- After the concept design phase
Align Expectations Early During the Pre-Design Phase
Especially when designing a custom home, setting the ground rules before you start designing is imperative. Getting aligned on your project goals and project requirements ensures everyone understands the targeted level of finish, complexity, and construction quality. Understanding the association between design caliber and costs, and subsequently, your expectation for design quality will help the team provide a preliminary budget assessment before starting the design process.
In our Pre-Design process we review a Cost Matrix Worksheet to help our clients establish the caliber of design to target. This exercise helps us understand how we should design their project (in terms of complexity, finish materials, and rigor) and helps the contractor provide a more realistic cost estimate before starting the design process. We review this in tandem with their program and establish a target square footage for the project and a budget range. The budget range is based on both our own historical knowledge of construction costs AND on conversations with builders. Having early conversations with builders about the expected level of finish, size of project, and any special project requirements will help them ensure you get more accurate budget information.
Early Collaboration with a Qualified Builder
For instance, on a recent project featuring a custom three-sided fireplace, consulting with a fireplace manufacturer during early design phases allowed us to obtain rough cost estimates. This insight helped us evaluate whether to retain the feature or explore more cost-effective alternatives.
Engage Subcontractors for Specific Project Elements
In custom residential projects, there are a lot of unique features that benefit from early and on-going coordination. Consulting vendors or tradespeople in the early stages provides insights into budget considerations and feasibility.
For instance, on a recent project featuring a custom three-sided fireplace, consulting with a fireplace manufacturer during early design phases allowed us to obtain rough cost estimates. This insight helped us evaluate whether to retain the feature or explore more cost-effective alternatives.
What to Do When Early Cost Estimates Are Higher Than Expected
Re-evaluate Project Priorities
When initial cost estimates surpass expectations, it’s time to reassess project priorities. Removing scope from a project is the last thing you really want to do, but it’s sometimes necessary in order to start with a realistic budget that you can afford. Identify non-negotiable elements and must-haves, then explore opportunities to modify the project requirements to align expectations with the budget.
Strategies include reducing scope, complexity, or level of finish. Check our post How To Reduce Construction Costs During Design for extensive coverage on these approaches.
Get Multiple Cost Estimates
If initial estimates seem high, seek additional quotes to validate or challenge the first one. But, make sure that all contractors are using the same information to provide their estimates.
In many of our projects, we create concept pricing sets during the concept design phase. This is a drawing set with additional information like square footage, room sizes, and a bullet point list of design features (what we call Basis of Design). We give this to contractors so that they base their estimates on the same information. This facilitates an apples-to-apples comparison when evaluating estimates.
Accept the Reality of Higher Costs
Unless you’re in the design or construction industry and are in this space day in and day out, chances are you are going to underestimate the cost of building a new custom home. Acknowledge that construction costs, especially for custom projects, can be higher than anticipated. If you’re unwilling to compromise on your project requirements, consider these two options:
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- Increase your budget by finding additional funds via savings, investments, different lending, or investor support so that you can increase your budget and continue with the project as is.
- Delay the project (until you can increase your budget). If you have a concept design that you love and a preliminary price estimate from a reputable contractor, you are now in a position to evaluate your finances, talk to lenders, and set financial goals that align with your dream. While costs may rise later, planning ahead can mitigate this impact.
Cancel the Project
When costs exceed affordability and the thought of watering down the design or removing parts of the project is not acceptable, the smart thing to do is to project the project either temporarily or indefinitely. Accept the sunk costs and reassess your financial capacity before moving forward. While not the desired outcome, it’s a prudent decision if cost reduction strategies are undesirable.
Case Study: Strategic Project Delay
In our previous post, we shared our unique approach to staying on budget when building a custom home. Developed over years of trial and error, our distinct process helps future homeowners balance their vision and their budget and has become a differentiating service that we offer all our clients.
In a recent project, we were asked to design a new custom home on a 10-acre rural lot in south central Ohio. Our clients currently reside in a modest home towards the front of the property but envisioned a larger estate deeper on the land, surrounded by tall prairie grasses.
During the Pre-Design phase, budget discussions revealed a potential strain on their finances due to the project requirements. Exploring options, the clients suggested a phased approach, staving off less critical components like the guest wing and garage for future construction.
After aligning on design expectations and the likelihood of phasing, we crafted a concept that uniquely spoke to the clients, incorporating all programmatic requirements. Utilizing floor plans, 3D renderings, inspiration images, and a basis of design document, we obtained a preliminary estimate for the project. This early estimate, the first time pricing was associated with the design, provided a realistic cost overview.
The flexible design concept allowed the clients to defer costs if opting for phased construction. Unwilling to compromise on design or scope and considering unfavorable market conditions with high interest rates, they made a strategic decision to put the project on hold until they were in a better financial position.
With a realistic cost estimate and factoring in inflation and construction cost trends, we established a target construction budget. Our clients sought advice from their financial planner and devised a plan to optimize investments, increase savings, and maximize equity to put them in a better financial position for when they are ready to resume and move forward with their custom home project, which is targeted to be in 24 months.
Conclusion
Navigating the complexities of custom residential design requires a strategic approach that emphasizes the importance of early cost estimates. Recognizing that building a new home is a substantial investment, both in terms of financial resources and creative vision, underscores the significance of informed decision-making from the outset. By aligning design aspirations with budget constraints through early estimates, clients can avoid surprises, streamline decision-making, and set realistic expectations.
The journey from conception to construction involves careful planning, collaboration with qualified professionals, and the flexibility to adapt to unforeseen challenges. Whether adjusting project priorities, obtaining multiple cost estimates, or strategically delaying a project, the key lies in maintaining a delicate balance between design excellence and financial feasibility. Through these insights and practical strategies, individuals embarking on the path of custom residential design can navigate the complexities with confidence, ensuring that their dream homes become a tangible reality within the defined parameters.
At YR Architecture + Design, we specialize in bringing unique visions to life while maintaining a diligent watch on construction budgets. Our proven process involves aligning project priorities with realistic financial goals, ensuring that your dream home becomes a tangible reality without compromising on excellence. If you’re ready to embark on your custom home project or seek expert a reach out today. Let’s collaborate to create a home that reflects your individuality and meets your budgetary needs.
