Building Your Own Home

Managing Your Home Construction Costs

Building your own home is financially more complex than purchasing an existing home. You'll have to track your construction costs across four different categories:

• Fixed costs. Any cost that will not change, including architectural fees, building permits and the cost of the lot itself, for example.
• Bids. Subcontractors (carpenters, plumbers, electricians, etc.) will review your house plans and specifications and submit bids for the work. Ideally, you should get three bids for each sub-trade. You may choose subcontractors based on the lowest bid, but other factors like quality of past work or references should influence your decision.
• Estimates. Within each subcontractor's bid will be cost estimates for materials and labour. In some cases, you may see estimated material quantities without estimated costs because the final cost cannot be determined until the work is done. For example, you may get an estimate as to how many loads of dirt is required to backfill the foundation, however, the final cost won't be determined until the last truck load of dirt has been unloaded.
• Allowances. In the finishing stages, you will "allow" certain amounts of money for specific purposes such as lighting, cabinets and flooring. You can spend your allowances any way you wish, as long as you don't exceed them. You may make some trade-offs, as well. For example, you may choose to spend less on bedroom carpeting so you'll have more to spend on kitchen floor tile without exceeding your total flooring allowance.

You'll need to work with your subcontractors and insist on accurate forecasting in order to stay within your budget. If you go over-budget, you'll have to pay the extra costs. It is vital to have a reserve in place, such as a Royal Credit Line to handle additional costs and changes.