Budgets for custom homes inevitably fail for the same reasons. The amount agreed upon for the home in the initial stages includes the cost of the land, decisions made 8 months later, and the expenses of the home until it is actually occupied. A budget for the construction of a home is only a partial estimate of the costs for the home. It needs to be labeled as such so that people have realistic expectations.
We now move on to how the typical home budget gets spent and where key decisions are made regarding large sums of money that could easily be squandered.
Separate the four cost pools before anything else
You typically track your custom home budget as one number, but construction costs vary greatly from other costs of getting your home built. The four main costs are, Hard Costs (Construction) Site Work Soft Costs (Pre Construction)
- Site and land costs, covering survey, geotechnical work, clearing, grading, septic or sewer tap, well or water connection, utility runs, and driveway. On a difficult lot this can swing by a factor of three.
- Hard construction costs, meaning labor, materials, and subcontracts from footings through final trim.
- Soft costs, including architectural and engineering fees, permits, impact fees, inspections, construction loan origination and interest, insurance, and legal work.
- Owner costs, which cover appliances outside the contract, window treatments, landscaping beyond rough grade, furnishings, and moving.
Set contingency per pool, not as one lump
A single global contingency fund gets spent on the first surprise and then is impossible to find for the subsequent surprise. Site costs are by far the unknowns and hence need to be carried in a larger reserve than hard costs once the plans have been completed and a fixed price contract placed with your builder. Soft costs are by far the most predictable costs and hence need the least amount of contingency funds.
Choose the pricing structure that matches your risk tolerance
Who absorbs cost movements in the contract is a commercial decision, to be made before design is finalized. It should be part of the negotiations and incorporated into the agreement.
| Structure | Cost certainty | Who carries overruns | Best suited to |
| Fixed price | High at signing, assuming complete plans | Builder, except for change orders and allowance overages | Fully documented plans on a known site |
| Cost plus with guaranteed maximum | Capped, with savings often shared | Builder above the cap, owner below it | Complex builds where some scope is still settling |
| Open cost plus | Low until the project closes out | Owner entirely | Highly bespoke work with an experienced owner |
Understand which floor plan decisions carry cost
The number of square feet in your home is a rough measure. True measures of cost are the home’s shape, its complexity, and how many vertical surfaces it contains. A simple rectangular box with a simple roof is less expensive per square foot than a home with many bays, many dormers, and many intersecting roof surfaces, for example, because every corner in a home’s design is a potential leakage point for water into the walls and ceilings of the home, as well as an area that requires additional flashing and labor to frame.
The plumbing system is another area of cost that needs to be monitored. Stacking bathroom locations near each other will help to minimize the runs of water supply lines and waste lines as well as vents. Having wet areas near a central core can also help to keep slab penetrations to a minimum.
Where added square footage is cheapest
Consider finishing the upper levels of your home such as the attic space later. These spaces can add lots of square feet to your home’s overall square footage at a fraction of the cost to finish, if the rough plumbing, the stair and major framing members are completed as part of the initial construction.
Control allowances before they control the budget
Allowances are defined amounts of money to be used to make selections for items like flooring, cabinets, lighting and plumbing fixtures. Overruns occur when the selections actually end up costing more than the low allowance. Thus, a bid that contains low allowances for these items may end up being more expensive than a bid with higher but realistic numbers, which is why it is worth sitting down with custom home builders in Greensboro who will tie every allowance to a product you would actually install.
- Price each allowance against a real product you would accept, not an abstract per-unit figure.
- Confirm whether the allowance covers material only or material plus installation.
- Lock all major selections before framing begins, since late changes trigger rework rather than substitution.
- Record every change order in writing with cost and schedule impact before work proceeds.
Budget the schedule as a line item
Remember that time is money too. Your construction loan will begin accruing interest after the first draw. Renting a home, office or storage can add up month after month as well. A build that goes from 11 months to 15 can add 4 months x 3 costs = 12 months of additional carrying cost to the original spreadsheet.
Where delays actually come from
In our experience, the major factors that cause delays in custom home construction are permit and inspection wait times, long lead times for items such as windows and custom cabinetry, and the owner’s selections not being ready in time for installation. A good Greensboro custom home builder will usually place long lead time items for delivery during the time frame that the permit is under review, thereby saving weeks of time at no additional cost.
Ask any good builder to create a draw schedule vs. Milestone calendar. If the two don’t line up, then the budget and timeline were not created simultaneously and one will give.
