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  • Writer's pictureKeith Groninger

Construction Costs

Construction cost estimating is a sensitive subject with many builders. It’s frequently misunderstood, varies widely between builders and communities, difficult to discuss with potential customers, and the most frequent criteria used by buyers when selecting a home or builder. This is my attempt at explaining some of the dynamics and hopefully establishing enough credibility that you will allow me to provide an estimate for you.

Construction Cost Types

In general, there are four types of costs associated with construction: market costs, value judgements, personal preference and options.

Market costs are controlled by supply and demand. Concrete, lumber, drywall and metals are all commodities. Their costs are driven by market demand. There aren't any special places where one builder can purchase these items for much less than another. We conduct business professionally and expect the best pricing on these items from our suppliers. We shop for the best prices and do our best to earn "Preferred Builder Status", but there is a limit to the efficiencies we can achieve. Likewise, many of the trade contractors provide services that are like commodities. Of course we have minimum standards, but much of the semi-skilled labor costs are also a function of supply and demand. We seek to manage our projects as efficiently as possible and obtain the best pricing from the companies we prefer to work with. If a builder leads you to believe that they can provide these items at a cheaper rate, be cautious.

Value judgement costs are likely the most difficult to understand and the area where many home buyers get into trouble. Air-conditioning, insulation, roofing and windows are some of the cost categories included. Many of these components are installed as systems and technical knowledge is necessary to compare the cost and benefits. Decisions about mechanical systems and the building envelope are often above the ability of all but the most studious home buyer. Few buyers when given the options, go with the cheapest roof. Low up-front cost may contribute to increased operating and long-term costs. We can help you make value-based decisions that enable you to obtain the best return of your investment.

Personal preferences are those items selected by you. Frequently, these are the most-visible items and also carry the strongest emotional bias. We have a variety of vendors that offer discount, mid-range or luxury products and services. We see our role as helping you find ways to achieve the most satisfaction from your purchases at the lowest cost. This can be time-consuming but also a lot of fun.

Options and Upgrades is also a very diverse category. Many features that were considered to be upgrades not long ago, have now become what many buyers consider to be "standard", and the list continues to grow. The most common budgeting error is the omission of something that was overlooked or simply cannot be left out. Much of the reason for building a new home is the desire to have features that the previous home did not.

A thorough construction estimate and proposal should also list the items that are not included. The joy of building a new home can be tempered by the realization that it's going to cost a lot more than originally planned, to actually get what you want.

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