Construction budgets can mean many things to many people. They can be anything from a WAG (wild ass guess) to pages of detailed items and pricing. Probably the best way to approach this subject is chronologically.
Sometimes the first budget for a custom home design comes from the worst possible source; a real estate person encouraging someone to buy a property. Buyers we met in the Mayacamas golf development said they were told to expect their hillside home would cost about $1,000,000. Unfortunately, the reality was that their home would cost more than $2,000,000, as did every other home in the development, including some that were much more.
The next level of budgeting is usually the infamous “cost-per-SF”; a single unit price applied to an area calculation that might or might not include unconditioned spaces like garages, site improvements such as roads and swimming pools, design and engineering costs, and regulatory permits and fees. The sources of these numbers come from glossy magazines featuring enticing prices of dream homes somewhere, well-meaning non-experts, designers hoping to get work, and general contractors. An ethical luxury custom home builder In Napa and Sonoma finds itself in a difficult position. He doesn’t want to risk sticker-shock and lose a chance at a project but also feels the pain and outrage of a customer who has been misled.
Once you leave the realm of these single parameter estimates, you enter the realm of multiple quantity measurements, scope explanations, and verification of the site conditions. These estimates can be but are not necessarily more accurate. Here are some of the variables that affect such a budget’s usefulness:
- Shared understanding with the customer about their expectations. A budget needs to be the beginning of a conversation, not just a number.
- The estimator’s experience with custom home design and with the project architect’s preferences and style. Independent estimators can be accurate on commercial projects but the only good cost databases for these projects are kept by local, sophisticated luxury custom home builders.
- The level of detail in the estimate. I call this the “law of compensating errors” – no line item in a budget is ever exactly right but if you break it down into enough pieces, the errors will tend to offset each other; one high, another low. Fewer items, more variance. More items, less variance.
- A sufficient budget contingency for what isn’t there or yet to be seen.
In budgeting, the devil really is in the details.
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Jay True, former vice-president of JMA, became partners with Jim Murphy in 1987. In 2015, Jay and his wife Elaine True, our office manager, retired from JMA and moved to Michigan to escape the cool summers and warm winters in Santa Rosa.