3 Steps to Avoid Sticker Shock When Planning Your Dream Home
Ever get that dinner bill that seems to be double what you ate? The same thing happens all too often to unsuspecting homeowners while planning their dream home. By doing some additional research, asking the hard questions, and being honest with yourself, you can better prepare for what to expect when the bill comes around.
3 Steps to Avoid Sticker Shock
Know your numbers
Knowing what needs to be accounted for when cost planning is crucial - missing just one line item can bust your budget.
Everyone thinks they can do it for less, but I’ve never once experienced this to be true. Do your research and speak to qualified professionals to get the real story from people that are experienced in the process and desired outcomes.
It’s always recommended to estimate high and factor in a healthy contingency plan, especially in the early stages when so many pieces are still in motion. If and when a surprise comes along, you’ll know you can cover it and keep moving forward.
Hard Costs vs Soft Posts
There are two primary categories for costs when it comes to designing and building your dream home. Hard costs, otherwise known as construction cost, represent the actual cost to build the project, including materials, labor, and contractors fees. Soft costs cover just about everything else related to the project: permits, inspection and legal fees, architectural and engineering services, taxes and real estate costs, etc.
Hard costs are typically, at least in the early stages, estimated as a “per-square-foot” number that can be multiplied by the estimated area of the project. This number is based on similar previous projects and current market conditions in the area you are building. In a slow market, they tend to be lower than in a busy market, as labor shortages cause the contractors operational costs to increase. For longer or phased projects, it’s recommended to factor in an increase in average hard costs over the course of the project.
As the project becomes more defined, and a contractor is selected, a more detailed cost estimate can be performed to dial in the numbers and give you a better sense of exactly what the construction cost will be.
Estimating soft costs can be a bit more difficult. Since they cover such a wide variety, it’s tricky to account for everything, and often homeowners will miss a big ticket item resulting in surprise costs down the road. It’s best to speak with a qualified professional to help guide you through the necessary fees and costs pertaining to your project. As a rule of thumb, the total soft costs for a project may be estimated at around 40% of the projected hard costs.
As an example, a project with a construction cost of $100,000 could estimate to have around $40,000 in soft costs, therefore a total project cost of around $140,000.
It goes without saying that planning ahead and being realistic with your budget will go a long way towards ensuring a project cost within your expectations.
Be sure to subscribe below and stay tuned for my upcoming guide on key ways to reduce the construction cost of your project. In the meantime, check out my Project Planning Pack for a step by step guide to help you avoid going over time and over budget.