To complete a single house of residential use there are 12-24 months of commercial activity involved. These 12-24 months are covered by a single contract. A single schedule manages the decisions made during the period prior to the pouring of the foundations of the house. The quality of the finished house is more to do with the contract and the builder’s back office than with the choices of finishes.
Reading a builder’s operation before you sign anything
How many homes is the builder currently constructing? How many superintendents does the builder have on staff? What is the builder’s ratio of Homes Under Construction to Superintendents (HUC/S)? A ratio greater than 4-5 Homes Per Superintendent (HPS) typically indicates a builder that is operating in a reactive mode on a project-by-project basis as opposed to having a scheduled site supervision model in place.
Treat your trade relations with as much respect as you treat your staff. A builder who operates in a single metropolitan area (i.e. Charleston home builders who build under the coastal wind and flood requirements) will have more committed trade relations than a builder who operates in multiple areas. This will be reflected in how easily the builder can get staff on a job as needed (i.e. When a framing crew is scarce).
Requests that produce useful answers
- The last three completed projects with contact permission, including one that went over budget
- A sample owner contract and a sample change order form, not a summary of them
- Current certificate of insurance, license status, and any lien history
- A published warranty document with defined response windows
- An example of a monthly draw package with backup invoices
How the contract structure decides who carries the risk
The cost of the work to be done (including all of the details shown on the drawings in development) is set during the period between contract execution and permit issue. As the builder is working through the architect’s drawings, he or she will be conducting a constructability review. The builder will then obtain pricing from several subcontractors for the major trades and prepare a line item estimate for the work to be done. The resulting estimate should be a single page and not a lump sum by division after the fact. It was guessed. Site work carries the highest variance. The builder should resolve geotechnical reports, survey confirmation of setbacks, utility tap fees and stormwater requirements before fixing the number.
| Structure | Who carries cost overrun | Suited to | Watch for |
| Fixed price | Builder | Complete construction documents and finalized selections | Padded allowances and aggressive change order pricing |
| Cost plus fee | Owner | Complex or renovation work with unknown conditions | Unaudited invoices, no cap, fee charged on change orders |
| Guaranteed maximum price | Shared above the cap | Design that is roughly eighty percent resolved | Contingency ownership and how savings are split |
Terms worth negotiating line by line
Set a contingency amount as a percent and specify who can disburse funds. Require written notice prior to each disbursement. Establish a threshold for change orders and require written owner approval for all change orders above the established threshold. Establish a schedule for recovery of lost time for the builder in the event of delay.
Preconstruction determines almost everything that follows
When a person signs a contract for a new home and the builder goes to obtain the necessary permits, the cost of the work is actually determined during this time. You can expect the builder to go through the architect’s drawings to check for any problems with the constructability of the drawings before he can price the work. You can also expect the builder to obtain three bids from different sub-contractors to perform any major work that will be required for the new home. A line item estimate, as opposed to a lump sum estimate, should be created for each division of work.
The biggest variance in site work is the ability to obtain information prior to establishing cost. Therefore, items such as geotechnical reports, survey confirmation of setbacks, utility tap fees, and stormwater requirements need to be addressed prior to establishing the cost of the work. A builder that treats these aspects of the site work as allowances is transferring unquantified risk to the owner, so it is worth shortlisting home builders in Charleston that price these items from documented findings rather than estimates.
The selections calendar and why delay costs more than indecision
Decisions made with respect to design, especially those that are going to require long lead times to be delivered, will affect the critical path of the project. For example, a builder may select a window package several months prior to the time that the frames will be installed by the trade framing the structure. The structural steel and custom cabinetry will also require release long before the time that the trades that will be installing them mobilize to the jobsite. A good builder will create a selections schedule with fixed dates that will be distributed to all of the relevant design team members.
- Structural and envelope decisions, released at permit
- Rough-in decisions covering plumbing fixture locations, electrical layout, and low voltage, released before framing inspection
- Long lead finishes, ordered during framing
- Interior finishes and hardware, confirmed before drywall
Verifying quality rather than assuming it
Independent verification of your home’s completion is required at three points in time, pre-drywall, pre-finish and pre-closing. Each of these points in time affords the opportunity to identify and rectify significant defects prior to them becoming warranty claims. Of greatest value is verification prior to the completion of drywall (i.e. The framing, the flashing, the mechanical rough-in and the insulation are all exposed).
What closeout should include
You should expect the builder to provide you with a jointly created punch list for any items that were discovered during your final walk-through of your new home. The final lien waivers for all of the subcontractors and suppliers that worked on your new home should also be provided to you. The builder should also provide you with a set of as-built drawings for your home, copies of all of the equipment manuals for the various systems in your home and a list of all of the registered warranties for the various products that were installed in your new home. In addition, the builder should advise you of the process that he would use to log and respond to any warranty requests that you may have in the 11th month of ownership of your home. How long it will take the builder to return your call for either an emergency or non-emergency request is also something that you should expect the builder to advise you of. In summary, if the builder does not have a written process for an 11th month walk-through of your home, then he probably will not be around to fix any problems that do arise.
