Understanding Construction Budgets: A Deep Dive with Bill Reid

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In this episode of The Awakened Homeowner Show, Bill Reid discusses the complexities and challenges of budgeting for home construction projects. Broadcasting from his shop in the Sierra Nevada Mountains, Bill shares insights into various online tools for estimating construction costs, highlighting their often misleading accuracy. He introduces his own upcoming application, Build Quest, designed to help homeowners balance their dreams and budgets realistically. The episode includes live demonstrations of popular online tools like Start Build and Home Cost, analyzes a report by the National Association of Home Builders, and offers in-depth comparisons to showcase discrepancies. Finally, Bill shares his comprehensive budgeting spreadsheet, providing a realistic approach to estimating construction costs. He emphasizes the importance of combining these tools with expert advice from architects and builders to meet expectations effectively.

00:00 Introduction to The Awakened Homeowner Show

00:05 Understanding Project Budgeting

00:33 Online Tools for Estimating Project Costs

00:45 Challenges with Online Estimations

01:14 Introduction to Build Quest

01:50 Diving into Online Budgeting Tools

02:46 Exploring Family Home Plans

06:34 Analyzing NAHB Report

09:34 Reviewing Start Build Application

15:44 Reviewing Home Cost Application

19:13 Comparing Different Zip Codes

24:56 Developing a Comprehensive Budgeting Tool

34:42 Conclusion and Final Thoughts

Mentioned in this episode:

The Awakened Homeowner Book

The Awakened Homeowner Book

Area of this series, and it's a pretty interesting one because this is one of the most difficult parts of a project to answer way before you even start talking with people. So what I'm gonna do is I'm gonna look at a couple tools that are online right now where you can actually estimate your project.

South. I'm from California. Things cost more out here, but regardless there's people out there talking about a hundred dollars a square foot, $120 a square foot, and it's just crazy. I'm actually in the middle of developing an application. It's called Build Quest, and a big part of it is assembling your dreams and visions, then balancing it with your budget.

And our developers are in the middle of it right now, pulling together a tool that's gonna really help. I think, the tools that are out there that are being used, I think as far as I can tell, are using what's called a database that's been developed by the National Association of Home Builders, and they're attempting to.

Then I'm gonna pop it into my database spreadsheet that I'm developing and compare the numbers. This should be really interesting because what I'm trying to do as a builder for the last 35 years, general contractor. Coordinating design and construction of projects. So not only, I'm not just a contractor building projects, I've orchestrated everything from the day people walk in the door that want to design a project, specify everything, and then build everything towards a budget.

It's not easy, but this is gonna be really interesting to see as we compare the numbers and that's gonna validate what my new application. I hope they can accomplish. So let's go ahead and jump right in.

Instruction cost. And what I've done is I've already gone through the process and generated reports, and I'm gonna show you those to give you a sense of what they think these projects would cost if you were to build them.

Full disclosure here, or a disclaimer, is that this is one of the instigators of. Causing problems for homeowners when it comes to understanding costs of construction. Now that said, these tools are, I think these tools are really valuable only because they get you started. They give you a sense of what things cost, where some of the money goes.

And they often build the same floor plans. The same designs, designs there. There's a big difference between a production home builder and a custom home builder when you're building one-off custom homes that are specifically designed for a homeowner versus production home builders that are buying and mass quantity that have the efficiencies after building the same home over and over again.

And then what they're doing is they are. Tailoring those or customizing those to their own algorithms, their own formulas, and they're injecting like quality levels so you as a user can select different quality levels to affect the price. So let's get into this and I'll show you how this works. So what you're seeing here is you're seeing.

Website called Family Home Plans, and this is a plan house Plan 8 0 8 0 4, which is a 2,607 square foot home, four bedrooms, two and a half baths, two car garage, and the dimensions of the structure. It's a nice looking home. It's a very. Basic standard home. Kinda looks like a modern farmhouse style, and you can see that this is the floor plan.

But again, what these applications are doing is they're using this exact plan set. Both of them are using the exact same plan set, and then providing you a cost to construct. Let's go ahead and take a look at the National Association of Home Builders Report. Try to expand this so you can really see it.

Couple key points on this one is that they do have the finished lot price included. They have a total con, what they call construction cost of 428,000. Then they have some other items that are more related to production, home builders like financing, cost, marketing and sales and commission. But they do have two other items called overhead and general expenses, and then profit.

So these numbers I've left into the total because if you were to hire a general contractor. To build a home, you're gonna have a certain level of overhead and profit built into the project.

We won't go through these in great detail. The reason I'm importing 'em out to you is because this is not uncommon to categorize the construction costs in certain ways, like this foundation, the framing, exterior finishes, and so on. And the other reason I'm pointing this out is some of these online applications that we're gonna be looking at do not include permit fees, do not include the architecture, engineering fees.

And that's gonna be important because those cost money. In this case, the BU building permit fees and the architecture engineering fees, for example, are extremely low for a normal, custom home. But of course this is again, a production home builder. So they have different avenues to control costs.

So let's get out of this one for now. So the first one we're gonna look at is called Start Build. And I I kind of like this application for a few reasons. One is they have some flexibility built into it so a user can go in and edit the numbers and. Budget numbers a little bit to tailor it to more what you think the budget would really be off of their values that they've come up with.

So what's cool about start build is we can literally take this link up here. We can right click it. Oops. We can right click it and say Copy. Sorry. I have about three different monitors going here, and then we can go into their budgeting tool that they have. Oops.

Sorry, gimme a minute here. Lemme just pull up their site and how you start with their application.

So this is how their website. You can literally drop the link here

and it will actually find the plan set online. You can see right here, which is cool. And then they'll use that information with their little magic wand. They pull all of the data out of here that's important to do budgeting, and they generate a report. It's pretty cool. So I can hit go and then up come some more choices to generate a more accurate report.

So you enter in your zip code, you enter in some variables here about the foundation type, and then you can select your quality level here, which is nice. So good, better, best, or what they call custom. So in my samples, I'm gonna show you I selected the better option. It's kind of a mid grade option.

So you do all that and then you purchase your report for this specific plan set. So now let's take a look at their report.

So that's why they've done it this way is you can pick your own zip code that will influence the numbers. And then you can see I selected the better class. So again, this is the same, this is the same statistics, the 2,607 square feet, blah, blah, blah. So we'll go through. Now what they've come up with is, or what I've come up with, is $250 cost per square foot with a hundred thousand dollars land allowance.

And then it gets into the construction aspects, and you can see it's organized pretty similar. Although it's not the same. It's similar to what the NAHB report that I showed you earlier does. And what we care about at this particular Juncture is what their construction cost is, plus the lot coming up to 652.

A 9 5 1 2 9 zip code and a midgrade mid-grade home. So what that means is about $250 a square foot. So that's called start, build. And it's a good start. What I can't show you today is how you can massage the numbers. You can do that on your own if you decide to buy a report from. And then you can go in and play with the different numbers and create a more accurate budget.

So if we added $5,000, to that number, you can see us editing and changing it, but I'm not gonna change it right now. So this is what I like about start, build. And the other one we're gonna look at has some of those features, which I think you have to go to the more pro version. They have three different levels.

So here we go. We can change things here. So if I change this to minor slope upgrading like that, you can see it changes the amount. So I kinda like this tool. Here's what I don't like. The number's not even close to what it would cost to build a house. This is what drives me nuts, and this is what is gonna screw you over, frankly, if you depend on this to make big decisions.

So this is why I'm showing you this. It's a great start. It's a cool tool. If you have the knowledge to be able to adjust the numbers more what you can do here, if you have the knowledge or a builder can say now you're not even close. We need to add this and add that. You can play with it and get to a more accurate number.

Use this system, which is a third party system. It's integrated into theirs to build a construction estimate. And that's exactly what I did here. All right, so this is that website and then the report, here's where I typed in that same zip code I specified their standard level. I believe this is using their, what they call their instant estimating system, which is not as comprehensive as some of the more premium versions of their tool, and it generated a report.

So here's what their reports look like

Architectural fees, interior design fees, permit fees, consultant fees. I'll show you that in, in the last presentation here of a budget spreadsheet that I have. So they've come up with that zip code of $765,000. So it's, although it's more than the other one. They don't have the soft costs included, and they don't have any land included.

So here's what I did. I came up with $294 a square foot with no land, and then $331 a square foot based on a hundred thousand dollars allowance for land. The NAHB one you may remember was 91,000. Here's the point. The point is, again, we're not, this is not a thorough, comprehensive construction budget, but for people who don't understand.

Which by the way, is zero. And the site work, which by the way is zero. So there's things that aren't included in here. Do you care how much the baseboards are? They do have their contract, general contracting fee. Now, if you're an owner builder, if you are a d iyer, if you're planning to be right in the middle of this, managing the project yourself, meaning subcontracting, meaning doing work with your own hands.

Maybe doing the plans yourself and hiring a drafts person. These tools can be helpful. And if you were to do that, you probably would want to invest in the more premium versions of this application so that you have the flexibility to add things, change things, and create budgets that are more accurate.

It's not even close. So that's the problem. Now, there's another thing I wanna show you that's with the same report you can enter zip codes in. What I did is I entered a different zip code for the same exact plan and they came up with, for that valuation, they came up with $552,000 versus $765,000 in the Northern California Silicon Valley zip code versus 5 52 in Reno, Nevada.

There's no real smart. Factoring here, they've just added a percentage and it's probably they've probably used some general economic factoring and geographic factoring to come up with a revised amount. But here's the problem. Does a sheet of drywall cost more in Reno than it does in the Bay Area?

Maybe. But is it. Double. Is it 50% more, 38% more, whatever. It's the material aspect of this thing is not accurate, so I don't think it costs, even though the 9 5 1 2 9 zip code is not enough, the more expensive territory this. It's not enough either, and it's distorted by the way that they've created this.

Eh, I got a pretty good idea what's happening here, but none of that really matters because this is the problem. You can't build this house for this amount a custom home. Now, if you're a production home builder. Maybe you can. I still don't think they can, honestly. And you'll also notice, like on this one, there is no site work.

If they think 700 thousand's a possibility, and they start hiring contractor or start hiring architects and contractors, and they start going down that path, paying tens of thousands of dollars, then come to find out that it's, $1.1 million, not $700,000. This is the big problem.

Then you compound that with all of the people on Facebook groups that are talking about how much it costs to build their home. I paid $125 to square foot to build my home. I paid $200 square foot to build my own home. I think that is one of the biggest delusions out there. And there's people talking about, but then you'll see messages right after that saying I don't believe that I spent $400, I spent $500.

This is directed towards homeowners to, and part of that will be a budgeting, but it's not going to be a budgeting tool that is how much your baseboard costs or how much your framing costs. It's gonna be a. Tool to give you a more realistic sense of, how much it's gonna cost to build the home.

And that's all. As a homeowner, I think you should care about at the early stages of planning to understand where you're going so that you can convey that to potential architect or maybe your contractor if they also do the, so what I'm gonna. Again, one of them was called start build.com. You can see it up here.

But that's how you can start managing your inspirations. And then you can use those plans to maybe capture a budget of some sort. And then when you have that budget in hand, take it to a builder or an architect and say, I love this house. I wanna make some changes. But I ran through the cost report and I came up with $700,000.

Do you think it's realistic? That's who really matters. And a contractor or a home builder really has a better grip on the cost, even more so than an architect, unless an architect has been involved during the construction and during the bidding process, which some of them are. It's called a construction administration, and they'll have a good sense if they're involved at that level.

Project so that you can set ex expectations. This tool called Build Quest is going to start with picking your home, setting up the project, picking up picking your square footage in your rooms that you want. Then it's gonna get into what's called Vision Spec. It's going to help you gather inspirations based.

Then it gets into a budgeting tool, and then it gets into how to find resources to help you design and build a project. So that's coming, that's in development right now. But this is a spreadsheet that I wanna show you that you can see here that I've entered in 2,704 square feet at $400 a square foot, not 200.

I don't think I saw that anywhere on some of the other budgeting tools. This costs money sometimes a lot of money, and sometimes it's a requirement by the cities, by the counties, by the HOAs, but it must be done and it should be put in your budget. 6,000 square foot lot. You could spend, let's call it 60,000, or maybe it's less, maybe it's, whatever.

Most importantly, the more change orders and cost escalations and schedule delays that you'll have. So I want you to keep that in mind when you're thinking about a project. Now you can search all day and night online. And I've also studied this myself because in my business I operated what's called a design build business.

And that's a big range because a simple project is a lot easier design than a more complex project. Pretty simple. So I put in the low amount here. People are out there, claiming that they're, doing it for 2% or whatever. So you saw some of the architectural fees out there that were six and 7,000 on some of the reports that we looked at.

So I'll put 2% for now, and then you will have to hire some consultants to do your work. Even if you buy those plans online, you can't take, you can't print out those plans and run down to the city and get a permit. You need a site plan. You need what's called MEP me Mechanical Electrical Plumbing Plans.

If you want to make changes to those plans, you'll have to hire a designer or an architect to, to add a room or whatever changes you're gonna wanna make. But anyway, you're gonna need some consultants. It's usually a structural engineer. You may need a civil engineer if the property is large or sloping or you need special situations such as grading and drainage plans for the county.

And there's other soils reports you might need you need to factor a dollar amount in there for these reports. And I talk about a lot of these consultants in the Awakened Homeowner book, under the consultant section. And I put descriptions of what each one of them do.

And there's several. You can learn about, and then interior design is something that could apply and should apply. If you want to meet your expectations, if you want your project to look like all the pictures that you've saved online. So I put a dollar amount in there.

Then an a qualified interior designer documents all those materials. They provide drawings and details to hand off to the subcontractors or the general contractor for example, a big one is always tile design. And who's doing that? Somebody's gotta do that. Or you're not gonna, you're not gonna get what you want.

And you can see what I've come up with. So this same house, same square footage, same garage size. Is now at 1.2 million where the other ones were six and $700,000, and those six and $700,000 number was not inclusive of some of the elements that we talked about earlier, site work and soft costs and other things that were just not.

And then lastly, I've put a 5% provision in because things change. You might change something. If it's a major renovation, some unknowns might come up. Having a provision of anywhere from five to 10% is recommended, and the more complex the project is, the less quality design work, the inadequate specifications.

In other words, you haven't made all the choices if you don't have an interior designer. The higher the provision you should put in, because there's gonna be mistakes made. There's gonna be things that need to be redone, and a lot of it's gonna land on you to get it redone because the information wasn't provided.

And that's all the work that I did for those people. It's pretty damn accurate. In fact, it might even be a little low, frankly. Now if you're in a, a region that's not as expensive. And you try to do some of these things yourself and you find less expensive resources and you pick lesser quality materials, maybe you might be able to chip that number back closer to that $700,000 number, but not that much closer.

Don't mean that much. It gets you started and the best thing you can do to get a sense of what a new home's gonna cost, even if it's not the exact home you want, is to get into that plan set, run the budget. Then the secret sauce is to go to an architect and a builder and say, look, I want to build something similar to this on this lot.

I ran some numbers through some of these tools and I came up with 700,000 before we even get started. I'm, am I even close? And get their opinion. And that's where you're gonna really feel empowered to meet your expectations. So that's what I have for you today, and that is the, that kinda runs to the end of our discovery series.

Now I feel like you're in a much better position to meet your expectations. That's what I have for you today. This is Bill Reid with The Awakened Homeowner Show