A LENGTHY BUT WORTHWILE BIT OF INFORMATION ON
Optional Approaches to Selecting a Builder

Perhaps on of the greatest questions asked by those seeking to build a home has to do with when to select a builder and how the money flows. When do we select a builder? How do we compare different companies? At what point do we pay for the house? Who finances the construction? How do we manage things like design, soil testing, lot choice, etc? These are all very valid questions that this page is intended to give some insight into.

While there numerous elements to investigate, essentially three approaches are common to most people and dictate both how and when to select a builder as well as why and when money should exchange hands.

Non-committal approach

This is really information gathering for clients who are trying to determine what to do. For the customer, financial costs at this time are minimal and limited to expenses such as gas, books, etc. At Victor Myers Custom Homes, we simply serve as a resource servant to the client. During this time, we will talk about dreams, expectations, budgets and other considerations with you. Our intent is to try to steer clients in the right direction. Don’t get us wrong, we WANT to sell homes, but we are in business to uniquely satisfy customer dreams. The foundation to that is serving you by helping you to understand the process better.

In example, if clients need to learn more about financing or how jumbo loans work, we put them in contact with knowledgeable and experienced financing agents who can serve and teach. If clients want to know approximate build costs, we will show them a variety of homes at different price points and help them understand what separates the cost differentiation. If they want to know more about green building, energy payback or specific items, we work to field questions and get appropriate answers.

Even though financial investments are low, time investments are not. This is a time for customers to interview builders. You should find out what separates one builder from another. You should seek information about the builders reputation, quality, industry recognition, financial stability and likeability among his home owners. Likewise know that the builder is interviewing you as well. At Victor Myers Custom Homes, we don’t build for every prospect that desires our services. We, just like you, reserve the right to explore and chose not to partner if we don't sense that the relationship will be mutually beneficial.

PROS:

-          Little financial investment,

-          Get to know the builder and his company,

-          Get an idea of what level of customer service, quality, and price are realistic.

 CONS:

-          Everything is speculative and generic,

-          Potentially large investment of time,

-          Enormous amounts of information to process,

-          Difficulty comparing apples to apples.

Self Owned Lot or Design Without Holding A Lot Approach

So what if you own your own lot or if your not quite sure your ready to buy a lot from a builder? At Victor Myers Custom Homes about half of our clients fall into this category. There are a lot of choices you can make. Here are a few:

-          You can choose to purchase ready made plans from a magazine. Please don’t do this. Even if you don’t build with us, please don’t do this. Generic plans are just that and like the one-size-fits-all bathing suit on the Home Store network, you will be disappointed with the fit. Even the best set of store bought plans have to be modified and engineered to the specific lot. This cost saving step will inevitably cost you money.  

-          You can choose to hire an architect, design your home and then seek a builder. For people who have been through the process a time or two this can be a good choice. After all, the thought is that as a client you are reserving selection of a builder for the end which will give you more negotiating power. To an extent, this is a valid reality. However, here is something to consider: Architects are not builders. Many have general construction knowledge, few have real world experience designing to budget. This is not a slight on architects. They are gifted, creative individuals with a valuable skill set. What inevitable happens though is that clients spend months working with an architect to get the house just right. Dreams are coming to term as the plans are circulated among several builders. When the bids come back, even the lowest dramatically exceeds budget. Time and time and time again, we meet with people for whom this is the case. Countless clients have thrown in the towel because their dreams are smashed. Plans often come back 25-50% above financial realities. At VMCH, we are not saying don’t do this. We bid plans on a monthly basis that come through this process. We are just suggesting that you prepare yourself to make some hard choices and carefully weigh the benefit of going at it alone.

-          You can choose to select a builder and involve them in the process. Perhaps a biased opinion, but nevertheless it is our suggestion. The reality is that when the dust settles and you move into your new home, most reputable, no gimick builders in any given market are going to be within about 2 or 3 percent of each other in cost.  Do your homework, interview 2, 3, 4 or even 5 builders in the area you want to be and select one. Let them be an advocate and a voice of reason to help you with the scale of balance between cost and desire.  

At Victor Myers Custom Homes, we handle this in a manner that we believe exemplifies the win-win we all desire. For clients who wish to do this we enter an initial build agreement and begin design. The terms of this agreement are straight forward and outline what will happen. Usually this includes the builder working to interview the client, determine needs/wants/desires, determine appropriate budget, and work with an architect to design the home specific to the buyer. In exchange the client places a deposit which will be used to cover the hard costs of this process including things like architectural fees and soil samples for particular pieces of land. The deposit is usually between $5,000 and $15,000 depending on a few factors such as the square footage of the house, overall budget and who actually owns the land.  

At the end of the design process (which may take 3 or 4 attempts) the client will be given a specification document outlining the cost of the home. They then move forward to coordinate the financial arangements. When the financing is in place, a final contract is signed, the loan is closed and construction begins. With our company, the initial deposit is applied to the contract price. In example, if the total build price of a home is $1,000,000 and a $15,000 deposit was rendered, then the balance is $985,000.

PROS

-          Smaller deposit translates to less initial financial investment to client,

-          Client knows what the product will cost before purchasing a lot,

-          Still retain the freedom to change builders if not satisfied.

CONS

-          No guarantee that the lot you are designing for will be available.

Holding A Builder’s Lot Approach

This is where the rubber meets the road so to say because it calls for real commitment on both the builder and the buyer’s part. In this scenario the parties again enter into an initial design contract much like the previous approach. The difference is two fold. The builder agrees to remove the lot from public market. This means that he is agreeing not to sell or make available the lot to any other client for a set period of time. For example, if a client wants a particular lot, but needs to wait 6 or 9 months to build, the builder won’t sell the lot out from under them.  In exchange, the buyer is placing a larger deposit- usually an additional 5-10% of the lot price. Each month that the lot is held off the market, a portion of the deposit is applied to the builder’s cost of holding the lot. This includes incurring interest, HOA dues, taxes, etc. The builder is not being compensated for his time and looses the opportunity to sell the lot for a current build job. However, in good faith, he is also not paying for the potential of building for a particular client.  

With our company we will apply a portion of this deposit along with the design deposit to the overall project. That amount is dependent on the scope of the project. Take for example a client who wants to build a $1,000,000 home on a $400,000 lot ($1.4m total). The design time for a project like that should be about 3 months. The client makes a $50,000 deposit ($40k land, $10k design) to hold the lot and design. In 3 months, the design is done, pricing is complete and the project is underway. The full $50,000 is applied to the project rendering a $1,350,000 balance.  In the same scenario, if the client needs 6 months, we would deduct 3 months carrying cost. If those costs are $3,000 a month ($9k total), then the amount of the deposit applied to the project is $41,000 ($50k- $9k=$41K).  If the client needs 9 months, we would deduct 6 months, or $18,000.

PROS

-          Guarantee that the lot the client wants will be available.

-          More time is allowed to get things in order for those who desire to secure a location at today’s prices.

CONS

-          A larger deposit is required and the possibility of forfeiting a portion of the deposit exists if  the buyer decides that they don’t want to build.