To avoid the added cost of hiring a design-build firm, some homeowners choose to DIY their custom home builds. After all, experienced custom home builders charge from twenty to forty percent on top of building material costs to compensate their team members. Despite avoiding these added costs, homeowners often end up spending more when acting as their own general contractors than they would have if they had hired a professional team. In “Think you can save by being your own general contractor?” for The Washington Post, Justin Pierce why not to pass on professional help. Pierce explains that experienced design-build firms understand the residential construction market far better than the average homeowner. Their multidisciplinary teams know local zoning laws, permitting requirements and recent changes to building codes. Design-build firms have contacts across the construction industry, from realtors to real estate attorneys and from subcontractors to vendors and distributors. This combination of local knowledge and industry-wide connections ensures projects move quickly while staying on budget. Homeowners, on the other hand, typically “way overspend on materials” because they “have to select and purchase thousands of items...from big box stores.” They underestimate the amount of time, energy and money involved in a custom build. Practiced design builders, however, “consider cost and time at every corner of the planning and construction process." Below, we explain how hiring a design-build firm saves you money before construction even starts.
In her article “How To Buy Land To Build a Home: How Much Land Costs, and More” for Realtor.com, Erica Sweeney writes that “even though the lot may be your desired acreage and seem like a good investment, if it doesn't meet the specifications for your intended real estate use, you'll find yourself with a costly but worthless hunk of earth.” Finding the right plot of land to build your custom home can be complicated. This is especially so in areas that are notoriously difficult like San Francisco and Los Angeles. However, it is absolutely necessary for building a stable, durable home. In our recent post “How to Buy Land in Los Angeles to Build a Home,” we noted that “finding the perfect lot on which to build your home can be complex, time-consuming and legally ambiguous.” Unfortunately, custom home builds are subject to many restrictions, zoning laws and other ordinances across California.
Thankfully, some design-build teams help clients find the right land for all their needs by fleshing out any must-haves during the consultation phase. The right design build firm can help homeowners find sites with utilities hooked up, land properly graded and everything else they need. Local design-build firms might also be able to connect homeowners with professional realtors or attorneys who can identify easements and other legal challenges involved. In our post “How to Buy Land in Los Angeles to Build a Home,” we explained that local real estate professionals can “help buyers navigate building restrictions, feasibility studies, and so much more.” Knowing about potential limitations posed by a property protects homeowners from legal battles further down the road.
In her article “Which Comes First: Buying Land or Finding a Builder?” for New Home Source, Rachel Kinbar notes that developers know how to identify, appraise, negotiate for and purchase vacant land. Quoting Steve and Hans Wydler of Wydler Brothers Real Estate, Kinbar writes that “‘builders and developers invest enormous amounts of energy and resources into trying to identify the best lots on which to build.’” When fix-and-flippers, developers and/or builders “‘find a potential lot, they are prepared to pounce and quickly prepare a clean, cash-written offer with limited contingencies and closing terms customized to the seller’s needs.’” Unfortunately, few homeowners have access to this depth of real estate knowledge or experience. Depending on the company, working with a practiced design-build firm may help homeowners navigate a seller’s market. Working alongside real estate agents, appraisers and attorneys, your design-build firm may be able to help you submit the right bid, include appropriate contingencies, negotiate effectively and even secure financing.
According to the latest estimates from HomeAdvisor, homeowners in the US should expect to pay “anywhere from $2,500 to $8,000 for plans alone.” The site warns that this estimate “typically doesn’t include any add on services like extra revisions, project management services or any type of construction help.” This variable cost of $2,500 to $8,000 “gives you a set of plans to start from, which you [would] then take to a builder” if you are working with a general contractor. Unfortunately, architectural plans often “need revisions along the way,” which can be difficult when purchasing plans from one firm and building with another.
When working with a design-build firm, however, all stages of the design-build process are managed by a single team.
In our post “The Benefits of Working with a Design-Build Firm from Start to Finish,” we noted that “working with a design-build company ensures project delivery on time and within budget.” Before homeowners sign a contract with a design-build firm, that firm will walk each client through a consultation phase. During this phase, the client will outline his or her vision for the project, after which the design-build firm can provide a rough cost and timeline estimate. To get a better idea of each client’s need, “full-service firms like Element Homes will actually send a project manager to the site before a build starts, walking throughout the space with the client and tracing prospective layouts.” A team -- composed of architects, civil engineers, designers and others -- will then be assembled specifically for that client, ensuring the project stays on task. Once the plans are approved, the design-build firm will provide each client with a detailed timeline that includes everything from grading their lot to arranging furniture.
Design-build firms typically apply for building permits on behalf of the homeowner unless the homeowner has decided to act as his or her own general contractor. Not only will design-build firms apply for permits, but they will also arrange inspections -- which are critical to obtaining permits -- and alter plans to respond to any corrections required by your county’s Department of Planning and Building. Though some homeowners do choose to file permits for their own home building project, the process is notoriously tricky. Having a professional draw up plans, apply for permits and make corrections as needed is much simpler than trying to navigate the permitting process on one’s own.
This is particularly true in California -- especially in major metropolises like San Francisco and Los Angeles. In our post “How to Buy Vacant Land in San Francisco to Build a House,” we noted that San Francisco and LA are actually famous for strict land use regulations. San Francisco recently ranked at the top of a list compiled by data analysts at UPenn and Harvard, which examined how local zoning laws have changed in the last fifteen years. According to their data, San Francisco has the most difficult and “onerous” building restrictions of any city in the nation. Los Angeles was not far behind San Francisco, ranking fifth on the list.
Why Homeowners Should Allow Their Design-Build Firm to Apply for Permits on Their Behalf
Because homeowners who apply for permits on behalf of their own build have registered themselves as the project’s GC, they are liable for any building code violations. In their article “Building Permits: What to Know” for The Spruce, Lee Wallender, Deane Biermeier and Emily Estep note that “hiring a licensed, insured, bonded contractor better insulates you from these liabilities.” While homeowners might not know all building codes or which permits are necessary, design-build firms have navigated this exact process many times before. Writing for NOLO in their post “When Homeowners Must Obtain Permits for Home Projects,” the site’s editors note that design-build firms have “pre-existing relationships with the city [that] can work to your benefit.” As such, California homeowners are best served by allowing their design-build firm to apply for permits on their behalf.
As mentioned above, homeowners who act as the general contractor for their home building project often overspend on materials due to their lack of network connections and experience. In our post “8 LOW-COST BUILDING MATERIALS FOR YOUR PANDEMIC-ERA CONSTRUCTION PROJECT,” we noted that finding affordable materials is especially important in 2021. Caused by extreme weather events and the COVID-19 pandemic, supply shortages across the construction industry have resulted in unpredictable materials costs. According to Marcy Nicholson, Dave Merrill and Cedric Sam in their June 2021 article for Bloomberg, “the cost of almost every single item that goes into building a house in the US [was] soaring” earlier this year. For some traditional building materials -- such as lumber and concrete -- “the prices have topped 100% since the pandemic began.” Unfortunately, homeowners conducting renovations or custom builds are more likely to suffer pricing increases than are general contractors or design-build teams. This is because design-build firms have connections across the industry with vendors, tradespeople and suppliers.
Their years’ long relationships with these industry professionals could result in trade discounts for building materials, finishings and other elements of custom home builds. Homeowners who act as their own general contractors, however, are unlikely to pay any less than what materials are listed for at big box stores. As Lee Wallender notes in the article “Pros and Cons of Being Your Own General Contractor” for The Spruce, a design-build firm that “has an extensive contact list of masonry pros, carpenters, electricians, plumbers, HVAC contractors, landscapers, and house painters is worth more than you can imagine.”
Homeowners often consult with a real estate or construction attorney before signing contracts with their general contractor or subcontractors. While some projects necessitate multiple contracts -- such as one with the architect, one with the GC, etc. -- working with a design-build firm means only one contract is needed. Signing a single contract not only simplifies the process for the real estate attorney, but for the homeowner. In our post “The Benefits of Working with a Design-Build Firm from Start to Finish,” we explained.
We noted that a single contract “virtually eliminates the possibility that legal issues will arise between contractors or subcontractors.” Disruptions such as these are unusual “because the sole-source responsibility of a single contract for both design and construction clearly places the responsibility for coordinating all project elements squarely in the hands of the design-build team.”
In her article “What To Look For When Buying Land To Build A House” for Rocket Mortgage, Miranda Crace notes that in order to qualify for a construction loan, “your lender will need to see your construction plans and budget, which is known as the ‘story’ behind the loan.” Without professionally rendered plans and a reasonable budget composed by a respected design-build firm, securing financing for your custom home build could be difficult. Securing a construction loan without the help of a design-build firm is also difficult because banks lend money directly to the builder. While homeowners must seek approval based on their credit scores and other criteria, the bank actually lends to the company completing the build. In their article “How Construction Loans Help Finance Your Dream House” for NerdWallet, Linda Bell and Hal M. Bundrick, CFP explain.
Bundrick and Bell note that “the lender pays a construction loan to the contractor — not the borrower — in installments as building milestones are achieved.” This means that “everything hinges on your contractor’s ability to complete the construction plans on time and within budget.” Lenders typically ask the design-build company in question to provide “their work history and proof of insurance, blueprints, specifications, a materials list, a detailed budget and a signed construction contract that includes start and finish dates.” As such, it may not only be difficult to secure a construction loan if you plan to complete any or all of the build on your own, but nearly impossible. However, if you can secure bank-backed financing for your custom home build, the company’s fees may be covered under your construction loan.
Homeowners who do secure financing for their custom home builds will usually do so through a construction loan rather than through a traditional mortgage. In his article “Can Architectural Fees Be Included in a Home Mortgage?” for The Nest, Randolf Saint-Leger explains that “a primary mortgage does not allow you to include architectural fees” or other costs like that of land. However, construction loans include both hard and soft costs. As such, construction loans “allow you to include architectural and other related fees as part of the financing process when you build a home on a parcel of land.” Writing for NerdWallet, Linda Bell and Hal M. Bundrick note that plans, permits and fees, labor and materials, closing costs, contingency reserves and interest reserves are also covered by construction loans.
As outlined above, design-build firms walk homeowners through the entire custom home building process. They help select land, draw up plans, apply for permits and so much more. All along the way, design-build companies protect each homeowner’s timeline while saving them money on everything from materials to permit applications. Those planning to build a new home in the Golden State might consider California’s premier design and build firm Element.
A design-build firm with dozens of satisfied clients from Los Angeles to San Francisco, Element Homes offers customization throughout every step of the home building process. From architectural planning through the entire construction, Element works under a single contract to deliver all the benefits associated with working with a design-build firm from start to finish. Reach out to one of the Element Homes team members for more information about the design and construction phases involved in our process and our integrated project delivery.
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