"STOP! That Budget Number in Your Head vs Real Construction Costs (The Brutal Truth)"

William Reid: [: 00:00:00

The budget question is something that needs to be addressed real early in the process between a designer and a customer, or a contractor and a customer, or both. And when that question arises, a lot of homeowners. Just randomly come up with a number, some of them don't even understand really where that number comes from.

he dreams and ideas of their [: 00:01:00

Part of this is because homeowners don't, you know that you, the homeowner, don't understand what you need to know. I don't understand what things cost. Depend heavily on the internet and friends and colleagues. A lot of people join Facebook groups and start listening to all the gibberish that goes on those groups about costs and design and everything.

le, and me, and connect your [: 00:02:00

You haven't specified anything yet. Yet. People ask day in and day out. Okay, I wanna build a 3000 square foot home. How's, how much is it gonna cost? And that question gets posed to architects and designers, and that question gets answered so many different ways by professionals. And it's because it can range a lot.

It depends on the quality, the location, the complexity of the home that you want. It goes on and on and on. It's a very personal business. It's a very personal journey. So that's what we're gonna try to do. Now, if you listen to my previous episode, there's two parts in my mind in working with clients that form a budget.

t's, remember, this is not a [: 00:03:00

Now, what we're gonna try to do is balance that with a budget. And a budget is one more step past the investment goal so that you can start to hone in and come up with some valuations. That you can share with prospective designers, architects, contractors, so they can lead you down the right path. So that's the idea today.

n for a project. And there's [: 00:04:00

Now, eventually, like I've mentioned in previous episodes, I'm creating a tool that's gonna do a lot of this for you, but I just felt compelled to start getting this information out there so that you can start thinking about it on your own. I know that a lot of people think about a project months, years, decades, even before they start to embark on it, and that's also why I wrote the book, the Awakened Homeowner book.

ng methods, one was the, one [: 00:05:00

Think about two teeter totters, if you know what that is, where you are balancing a plane on a central point and. We're going to, once we get through the budget exercise, you're gonna then go back and you're gonna do two balancing acts. You're going to balance your dreams and all those fancy ideas that you love and want, and the overall scope that you want with your budget.

And you're gonna look at how balanced that is. Are you try, are you getting everything that you want? Are there modifications or changes that you need to make? And then you're gonna balance your budget with your investment. So if you came up with a $500,000 investment goal, in other words, that's ano, that's a fancy name for guess.

. How much they wanna spend. [: 00:06:00

So now you're gonna take that flat out guess or some delusional, information that a builder on the other side of town gave you about how much he's building this particular home for. And you're gonna dig into it from an investment side, and I went through that in the last episode, but you're gonna balance that with your budget.

So if you set your investment goal of $500,000 and you go through this budgeting exercise we're about to do, and you come up with $750,000, then you know that there's gotta be some changes that have to be made. There's a lot of different changes that you can make, not necessarily just to your scope of work.

ere's gonna be changes that, [: 00:07:00

With your investment goal, and that's the idea here. Now you as a homeowner and your own finances can determine how important the investment side of things is. Now you may say, I set an investment goal at $500,000 because it, after I looked around at the neighborhood, it doesn't make any sense to invest any more in that.

go off of. So let's get into [: 00:08:00

Right now, what we'll do is we'll use a new home. As our baseline, but we will talk about remodeling. 'cause remodeling can be a lot more difficult to figure out than new home construction. Now what you wanna do is you want to go back and look at your design statement that we've already talked about, I believe in the previous episodes.

But a design statement is your dec, your declaration of. What you want, what, how you envision your home, how you envision living in your home. And have this like narrative, this story that you'll eventually share with your design team so that they can get a sense of what you want. So keep that in mind. And this is really helpful in re in the world of remodeling as well, because you may want to have a new master suite.

f design statement narrative [: 00:09:00

So what you can do is you can look at. Analyzing your project by square foot. Now, I know that there's a lot of controversy out there about this and how it can really range a lot and it can, but there's really no other way unless you have a complete set of design and plans. To be able to analyze actual costs of components, of materials, of finishes.

We're not there yet. We're gonna get there way down the path here and do what's called an actual construction estimate. But remember, we're just doing a budget. We're just trying to get some kind of parameter here built in so that you can have a, something much better than guesses, as I keep saying over and over again.

ook at the, we're gonna look [: 00:10:00

Living area. Think about it as conditioned space. Think about it as heating, heated and cooled space. This is the actual bedrooms and bathrooms and kitchen and living room, the areas that you live in. So when you go to look for homes online, you see a 3000 square foot home. That's what that means. Then you look at the market valuation price.

e foot. Is that right? Yeah. [: 00:11:00

We're not gonna go there right now, we're just talking about per square foot price. So the first thing you're gonna want to do is look at how many new square feet you want to build. So let's just, for this today, let's just talk about 3000 square feet. Then you're gonna also want to analyze or document or write down your spreadsheet, how many square feet you want for your garage structure, any structure that's attached to the building that is non-con conditioned, and it's usually a garage.

want a finish basement or an [: 00:12:00

That's what it's all about, is the living area of your home. Home Now in a remodel project. This is why it gets more complicated in a remodel project. You have new square footage, maybe you might be adding onto your home. Let's just, for our example, let's say you're adding a new primary bedroom and bathroom on the back of the home, and maybe that's 500 square feet.

t you're attacking something [: 00:13:00

Almost always, you're going to impact the existing structure one way or another. Whether you have to tear out a bedroom and create a hallway to get to the new, get to the new master suite or shrink down a bedroom, or remove a bathroom and move it to another location so you can get to this new master suite.

d floor. Let's say you have a: 1500

So you're gonna look at your new square footage. And you're gonna look at your existing square footage and you're gonna factor a per square [00:14:00] foot price to each of those. So there's three components total when budgeting a project. There's the new square footage, there's the existing square footage, and the last one is called scope of work.

Now, the term scope of work is used universally throughout. The world of construction and use a lot of industries. A scope of work is a definition of the work that you would like performed. Now it's pretty clear that you want to have the A work performed of the 500 square foot new addition. And it's even clearer now that you've gone through some of the design steps that.

ired or that you desire on a [: 00:15:00

The new square footage or the existing square footage, but often overlap both. Here's an example, because you're adding a 500 square foot edition project on the back of the home, that's gonna require significant amount of roof framing and tie in to the existing roof structure of the home, which may lead to.

ow you're putting a roof on a: 2200

They don't realize what I call the impact of a remodel project. So you, there's a lot of variables that go into remodel project that I'm just gonna hit on today that can affect your project and your budget. These are [00:16:00] why people, quote unquote, go over budget when people say, yeah, I just blew my budget.

Why, why did you blow your budget? Was it because it was unrealistic to begin with? Was it based on no data? Did you consult with anybody to understand the impact of your project so that you could include the new roof? You could include the new HVAC system because now you've increased your building by 33% and therefore the existing forced air furnace is no longer adequate to serve the building.

The plumbing needs to be upgraded. The fact that you're moving a whole bathroom, oh, I didn't realize I had to move the bathroom. I didn't think about that six months ago when I came up with a budget. So the scope of work element is really important, and we're gonna get into this later in the design process.

t, a interior designer, or a [: 00:17:00

I. Those are the general questions. A homeowner who doesn't know what they don't know can ask what other costs are going to am I gonna get hit with because I want to add on this bedroom or bathroom. So that's that's a big one. And so we've got new construction, sorry, new square footage, existing square footage, scope of work, NSF.

realize that you have to do [: 00:18:00

I'm just using hypotheticals right now. How much landscaping do you want to do Windows. If you're doing a remodel project and you put new windows in the new addition, do you think you want to match 'em to the rest of the house? Same thing applies with doors and plumbing. Electrical and lighting.

If you're gonna be putting a 500 square foot edition on and adding a bunch of electrical requirements for new bathrooms and whatever else you might be requiring. Is your electrical service panel adequate? Is the electrical service coming to the home, adequate? Things like that. So the You roofing, I mentioned, these are just a few examples of things that you're gonna want to engage with your architect on.

sts. It costs money to get a [: 00:19:00

And I'll be talking about that even. What's the difference between those two? Do I need an interior designer to help me pick out all the materials? Does my architect do that for me? Does my residential designer do that for me? Do I need another designer to help? Do I wanna do it myself? These elements cost money one way or another.

whole set of home plans for [: 00:20:00

That might be right that you can't, you can see that you can buy architectural plans, and I use that term lightly architectural plans online for $2,000. But when you start reading the fine print. You realize that you can't take those plans, print them out, and then take 'em to your city to get a permit, not even close.

What you need to do is those are basically really good conceptual plans, which, look, they're not bad and they can be of value, but you need to then take those to an architect. And say, okay, here's what I want, but I really wanna do this and I want to have a bigger garage, and I wanna modify the master bathroom or the primary bathroom.

as to be engineered for your [: 00:21:00

What does that mean? That means hiring the appropriate consultants to do that. What does that mean? You had, the first one I can think of is a structural engineer on the project. These are the people that design the bones of your home. These are the people that instruct your contractor what and how to build your home.

Structurally, sometimes our, sometimes structural engineering fees can cost more than the architectural fees. I've seen it, and that depends on the complexity of the project. Who's gonna design the cardiovascular system of the home? Who's gonna design the HVAC system? The heating, ventilation, air conditioning system?

esign and specify all of the [: 00:22:00

Now it, it depends on your particular situation. Some people have a lot of experience and they can tackle some of these things themselves, like the interior design aspect. But a lot of people don't have the experience and they think going into these home plans that they get excited and they buy the plans and realize that's not, that's 25% of the what it's gonna cost, maybe even less.

er part of budgeting that is [: 00:23:00

Now the 20% thing gets a little bit into more complex, very upscale custom homes, but not always. So knowing this going in is gonna really help you establish an accurate budget. So we have a construction budget, we have the design budget, and one of the other elements is the permit fees. So these things cost money and it's sometimes a lot of money, so you're gonna wanna understand and that's not too difficult to understand when you go down to your building department or even look online.

te the anticipated cost for a: 3000

Whoopee, is it a hundred dollars a foot? Is it $700 a foot? Pretty big range there. And this is where everybody gets lost. Like I mentioned earlier, there's some online tools out there that are trying to do this. I'm trying to do it too. And what I've done is I've gone back and looked at history over 30 years of how much it costs per square foot to build a home and to remodel a home.

om reality as opposed to the [: 00:25:00

The fact that I figured it out, what it's, what is a good average price per square foot. Really you, this is where you have to do your own work, and I want you to be careful here because I don't want you to latch onto the number you finally found that works for you regardless. Again, I keep mentioning these Facebook groups, but these people out there.

There's some good ones too out there. There's actually some really good ones on social media and Instagram, and I've even chimed in on a few and said, good job, because this is gonna help people not screw up and get themselves into deep water. But for the most part, there's really low ball numbers out there.

em independently, or you can [: 00:26:00

And we'll, we're gonna go into that some someday soon too. But you're that's how I'm coming at it from the valuations that I come up with on a per square foot basis. Now, people that want to act as an owner builder, where meaning they are the builder, they're gonna do some hands-on work themselves.

They're going to micromanage every aspect of the project and do subcontracting themselves, hire subcontractors themselves. Theoretically, you can save money doing that. I'm not convinced after all these years that you honestly save that much money, and especially time, and especially quality, but that'll be for another day.

y level meaning low, medium, [: 00:27:00

Are you not sure you've been in the home 10, 15 years? You're not sure, but you still want quality, but you don't want to go overboard? Or is this your forever home? Are you, is this it? You finally got there and you're gonna build your new custom home. And I will, post some valuations that I think are reasonable on a blog post for you to look at and talk a little bit more about it there.

ther elements I talked about [: 00:28:00

All in, not including the cost of the land that 'cause that there's so many different variables there to build a really decent quality custom home. Now, that's not a high end home. That one's gonna get you from the 700. Above 600 all the way up into a thousand dollars per square foot. I know you're freaking out right now, but a thousand dollars a square foot starts getting you into, upper end materials, custom designed, a lot of high end features.

I hate to say it, but that's not the end. You could spend even more for real high end work. And again, like I mentioned earlier, this is a really personal business. Personal choices so you can see the low end. I'm, the low end. I'm thinking, this is my first project. I wanna just get something good.

You might spend [: 00:29:00

Okay? Bill says, I better budget about $500 a square foot. That's 1.5 million. Now what you need to do is you need to pound the pavement a little bit, depending on your risk tolerance. If you think that's close enough, I could go up or down 20% or whatever. I'm a good, then you can start getting into. Working with architects and designers, but I, what I recommend you do is engage with some architects.

al. Your investment goal was [: 00:30:00

You're like, what do I do? You start talking and asking questions to architects and designers. Now what I have to say here is contractors and builders tend to have a little bit better grip on the pricing of building a home than architects and designers. That's my opinion, and I've been on both sides for a long time.

The best situation is when you have the same team that are designing and building the project because they're talking back and forth. They have a good sense and they've done some valuation studies of past projects. Another good way to do it is when you start interviewing architects and designers and you've conveyed your ideas what you want, you can ask them.

you'll be able to interview [: 00:31:00

It's almost always the case where people don't get to hear what they want to hear. Very rarely do they do. Do homeowners say, oh, is that all? I thought it was gonna be a lot more. Never happens. And these are the things that you can do if you're in a, and if you're in a urban or suburban neighborhood or even a semi rural neighborhood and there's projects going on, it doesn't hurt to just stop in and say hi to the contractor, look for the signs and the architect, and that's a good way to find relevant information in your area.

f work on your own to figure [: 00:32:00

Use a tool that's use a spreadsheet tool that you know, new square footage, existing square footage. Make a list of the scope of work that you want beyond just simple calculations. And for example, you may want a accessory dwelling unit. You may want a shop or a barn or garage, detached garage.

Any of the things that you think you want beyond your living area and your attached garage structure, list that down and then do a little bit of work on your own to. Figure out what you think people are spending per square foot. I'm hoping I'm giving you enough information to be able to, get way get so much in a such better place than where people get screwed over.

acebook group a few days ago [: 00:33:00

And if you see some of the pictures that get posted and you get, you start to pay attention to some of the answers. You'll start to get a sense. Some of the answers were that didn't include any of the land, and I'm gonna do a lot of the, I did a lot of the work myself. Some people were boasting about how much they spent.

I did a lot of the work myself. I act as my own general contractor. My brother-in-law did the electrical. These are people that are trying to do it on the cheap or trying to maximize their dollar. I don't blame 'em. I don't blame it. And if that's you, great. If you're gonna really dive in deep, all the more power to you.

verything, the architectural [: 00:34:00

And some of the guys out there, the builders that might be listening to this saying $500 a square foot, some of them might even be thinking I'm crazy. I might be, but it's a hell of a lot better than some of these other things that have, they're getting set all over the place. So let's recap, 'cause I'm getting a little windy here.

This has been the Discovery Series of the Awakened Homeowner Podcast. Everything that you do right before you start engaging with any designers, we went through those early and I welcome you to go back and look through all that, because what we're doing here is we are establishing a foundation of expectations.

tions that have been thought [: 00:35:00

So let's review when you are creating a budget. Or remodel project, you're gonna enter the data. In a case of a remodel, you're gonna enter the data of the existing square footage of your home that is going to get affected. Take a guess. So if it's a 1500 square foot home, okay, you're gonna, the back end of the house is gonna get affected.

Put 500, 7 50 in whatever, enter the new square footage. Of your addition or just simply enter the new square footage of the living area of your new home

t. Select the square footage [: 00:36:00

Put, put a provision in there for that. Determine a budget range, so you may come up with 1.3 to 1.6 million for a budget. What is a budget? Again, it's not an estimate. It's a tool for you to compare to your investment goal. That's it. So you know, you should even pick up the phone and call if you thought you were gonna spend 500,000 and it's 1.5 million, you got a problem even if you start hacking away at the per square foot price.

And I'll get my brother-in-law to design it, and I'll do this myself. You're just on the wrong path. But if you're getting closer and you feel like you can manipulate the numbers and the scope of work and your desires and make compromises, now you're in the driver's seat.

tions. So let's lastly, let's[: 00:37:00

Go back to some of those earlier podcasts. Be aware of the outside forces that can totally derail you. That was my episode on delusions. There's some cool little stories in there. I even talk about some square footage stuff in there. So be aware of those delusions and don't let 'em screw you over.

Understand the value of your property today and when your project is complete. That was establishing part of the process of establishing an investment goal is, and then you decide and prioritize how important that really is.

re all these goals with your [: 00:38:00

One of the first things a designer thinks about when you call 'em up is you are excited about your project. You have all these things you want to do. They want to understand if you know what reality is when it comes to budget before they do anything, because it is how they get motivated or not. And if you are close to your balancing your investment and your construction budget, good ones will help you get there.

' cause again, like I said, very rarely do people have say that, oh, that's all that's all it costs. Very rarely the good ones will help you get there, but they're gonna ask you what your budget is and you shouldn't go on the defensive there. You should share the exercises that you've gone through and that kind of equals that little playing field.

hat kind of stuff. This is a [: 00:39:00

So empower them with your budget. Now, that's a little bit easier said than done because some people don't know what their budget is. They don't under, they want to understand the value of certain components of their project. That's great. And if you know that going in, tell 'em. Tell 'em, look, this is my forever home.

ome numbers myself based on a: 3000

I need help getting there, and this is what I would love to have, but I'm willing to make those compromises and those [00:40:00] revisions to my project to get me there. The worst thing you can do is not share your budget or share an unrealistic budget or not address the budget. Early on, it's the worst thing you can do.

And even if the architects don't ask you, or the designers or contractors, don't ask you bring it up. Let 'em know. ' cause this is where you're gonna get reality. And if they say, wow, that's gonna be tough to get there. Really tough, then, and then the next question is, wow, really? Can you show me a project that you think would be in my budget that you've designed?

Or could you show me a project that's similar to mine that, and how much it costs so you can make informed decisions? The best part about all of this is you're setting expectations for you and you're setting expectations for your contractor. Your architect designers, they know right outta the shoot.

hen we get into the world of [: 00:41:00

Excitement comes out and all of a sudden everybody wakes up one day and says, wait a minute, can I afford this? Do I want it? May not even be, can you afford it? Do I wanna invest in this? Can we stop? Can we pause? I'm gonna get into a lot of that. That was my stab at the budget I, and it's not gonna be the end, but I wanted to get that into your head.

consult with you just on an [: 00:42:00

I really can't wait to get my new application out called Bill Quest ' cause you're gonna be able to do all of this online. You're gonna be able to save your project summary. You're gonna be able to reach out to me or your local architects that we help you find, and you're gonna be able to do. You won't have to think as much.

How about that? That's what I have for you today. My name is Bill Reed and I am the author of the book, the Awaken Homeowner, and the host of the Awaken Homeowner. It's all me. Thanks for joining and I'll see you next time.