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Owner Builders Beware: The Dangers of Construction Cost Estimators

Jul 31, 2008
Owner builders need to put a budget together prior to starting construction on their new home, not only to qualify for an owner builder construction loan, but also to properly plan for the construction phase.

All too often, though, owner builders use the latest and greatest cost estimator that claims to have eliminated the need for getting real bids from individual sub-contractors and material providers.

Just plug in some quick specs about your home, and you have an instantaneous construction budget to build your dream home.

Right? Wrong.

Here's the problem - not one of those cost estimators is accurate for your specific project, especially for your owner builder project. All estimators, no matter how fancy or expensive, are based on average costs. Your house, no matter what, is not exactly average. Your house may be more detailed or less detailed than average. It is guaranteed not to be exactly average.

Cost estimators are almost entirely based on square footage and costs per square foot. Let's say you, the owner builder, are building a 2000 square foot house. A cost estimator will spit out some number for you based on costs per square foot x 2000 feet. You can make some adjustments, typically, for higher or lower grade finishings, but that is it.

Is your 2000 square foot house a simple shoebox, or is it a Victorian style house? Your estimator software is likely not to care. A 2000 square foot Victorian could cost an owner builder over twice as much as a very simple design of the same size. Things like roof pitches, number and design of windows, porches, and many other variables are often not considered. So, using an estimator without getting proper bids, could force an owner builder to make gross budgeting errors.

And, it gets worse. Even if you think you are using a super detailed estimator designed just for owner builders, you will fall short if you fail to account for your local costs, which vary from town to town and even within different parts of the same town.

Also, owner builders constantly run into inaccuracies for any aspect of a home that is not completely standard. For example, if window sizes come in a standard size, and you need something an inch or two different, you will pay a huge premium that your estimating software will not account for. Do you want any curves to those windows? Any transoms or sidelights? These discrepancies are just for windows. Spread this across an entire house, and you should get the point.

Now add one more factor to the equation. The actual number of owner builders who use estimating software correctly is miniscule. Most people, especially owner builders, do not do this sort of thing professionally. And no matter how smart you think you are, you will most likely make mistakes. So, not only are most owner builders starting out with a faulty premise when using a cost estimator, they are using the application incorrectly on top of that.

Often owner builders want to use cost estimators that are provided by material package suppliers or home design companies for their particular set of blueprints. The owner builder's argument is always logical - the blueprint company or the home kit supplier based the overall construction cost estimates on the specific set of blueprints. So, they should know the actual costs to build that particular house.

Well, sadly, they might only have a rough feel for the typical costs, based on some of the reasons listed above. And even if they do have a good idea, they may underestimate the costs just to get you to buy their package. Why would they do something like that? Put yourself in their shoes. They make more money by selling larger home designs or large material packages. So, by low-balling the estimated cost to complete the home, they can convince owner builders that the larger houses are affordable.

Therefore, owner builders opt to buy the larger houses, and more money goes into the company's pockets. It happens all the time. When you confront a house plan provider or a home kit company, you will always get the same answer: the budget provided is just an estimate.

The only costs that the company can assure are accurate are the costs for the specific materials that the company is selling. The cost estimate to complete the house is meant solely as a helpful, rough guide for the customer.

The best advice for any owner builder is to disregard the cost estimate completely. If you want to know what it will cost for the labor and materials to build that particular house in that particular town, then go find out. Don't rely on others to tell you what you want to hear.

In conclusion, do not rely solely on estimating software. They lead to trouble for owner builders every single day. And remember this last point: your cost estimator, and the person who designed it, has no liability when you run out of money during construction. But, you do.

So, when should an owner builder use cost estimating software? There actually is a good time to do so, and that is at the very early stages of thinking about your new home. If you just want to get a very rough idea of the costs of a house plan you like, by all means use a cost estimator to start your thought process. But, add 10-15% to be extra safe. Then, once you have decided to go forward with a home plan and a specific owner builder project, toss those estimates in the garbage and go about the process the right way.
About the Author
Chris Esposito and Owner Builder 101 provide owner builder construction loans to people who want to build instant equity into their new homes by avoiding general contractor fees. Discover the secrets of owner builder financing and planning at www.OwnerBuilder101.com. Or, call (877) 876-3688.
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