Hey, y'all the duo here, Brian and Steven, we're back again for. I don't know what episode this is anymore. At some point we're probably just going to stop counting, right, Steven? But I'm sure we'll we'll keep track one way or another. We're back today to talk about price tricks.
So what we'd like to jump into is several different ways that builders can, for lack of better terms, finagle the, the initial estimates or or numbers that are thrown out early on in the process when you are still interviewing builders, learning who they are, hopefully gaining their trust to, to move forward.
And so there's more than we can cover in in any one episode, but we just wanted to touch on a few here because we hear about it every single day of builders that have done something that unfortunately set the homeowners or or potential homeowners expectations in the wrong way. And it's something that we try very hard all the time to make sure that we never misguide our homeowners expectations, which by the way is not easy at all.
It's it's a constant challenge. It's something that we're always up for the challenge, but it's it's hard when we have to set expectations on things that maybe we don't even have 100% clarity on. So that's what we want to jump into today. Steven, you want to kick it off? Yeah, yeah, absolutely. Great introduction there for episode. Yeah, 15 I guess, right. But yeah, no, I think you you said it well and.
You know whether it's builders doing it intentionally or unintentionally, you know it's just something that we want to open all these listeners ears to and just something that they can be aware of as they are price shopping their new to be built home. Being aware of these price tricks as we're calling them is going to really help them to go into this with more detail and more clarity, so.
With that being said, yeah, we'll jump right into it, but the first price trick that we want people to be aware of is builders coming in with low allowances for selection items. So in more detail there any selections that go into your home. So let's give some examples there. Appliances. Tile flooring. Anything along those lines, countertops, anything that could range in level of finish out basically would fall under those allowance buckets. And most builders try to get a good idea of.
Most reputable builders, let me say that, try to get a good idea of what their clients want to see in their finished home on a scale of say one to 1010 being a very nice top of the line, high end finish out, one being a very. You know, low end budget, friendly cost saving finish out.
So with that spectrum one price trick that we want everybody to be aware of is a builder that either knows or does not know your expected finish outs and severely under quotes those allowances on that estimate or whatever price they're showing you at the very beginning. That's a great point and one that comes to mind Steven is appliances, appliances range in price like many things but very significantly we can see appliance packages in the in the range of 1520 thousand up to
over 100,000. If you're going to build in some cases a multi $1,000,000 house that that wants an appliance package like that and and how many refrigerators, multiple washers and dryers. And then there's there's obviously big brand names that that demand a premium. So to to your point just to just to bring it home a little closer to an example, you have to share those details with your builder sooner rather than later and just to get a more accurate picture on the allowances, right.
And so I ideally you get your selections done as as early as possible, but we understand you need to under you have to select a builder in most cases or you do have to select a builder before you're going to have all your selections made, right. That's typically the order it goes. So you have to be very confident and comfortable with the the budgets that are in the allowances for all those
selections. For sure, and I I think that's a a. Little bit of uncharted waters or territory for probably a lot of listeners that, you know, a lot of listeners don't know what a reasonable budget is for countertops or, you know, tile or flooring or whatever, right. They can go and look at some of those prices of things that they like, but it's really hard to put all that together. And that's where you really comes back to what we always
say, right, Brian? But finding a builder that you can trust that you tell them, you show them inspiration pictures, you clearly communicate what you want to see in your finished home and and then it really falls on the builder to quote that accurately, right? The worst thing they can do is under quote it. And you get towards the end of the build like we always talk about and they've misguided your expectations severely.
And you have to go over your budget on the home and on your countertops and on your appliances. And every which way you feel like you're just getting hit with overages. And you know the cheaper builder one out, they underbid the job, they underbid their allowances
and they got the job. But you know, it's not a pleasurable experience for you as you fell for one of those price tricks, so. Something to be aware of and I like your example of the appliances because that's a perfect example And yeah, making those selections early on can clear some of this up, you know. And the other thing too that we like to do really early on before we get a designer and selections involved is just like I said, that scale of 1 to 10
finish outs. Where do you guys see this homecoming in, you know, what's your desired finish out level? Is it a two, is it an 8? Is it a nine? Those are completely different pictures and completely different budget allowances that need to be put in there. So yeah, something to be aware of for sure.
Yeah. As you'll see, the whole theme of this and we'll say it again before we wrap up, is just because it appears a builder has a line item or the total price appears to be lower than another, it doesn't mean that it's going to come in lower when everything's all said and done right. And and we've said it before, we're going to keep saying it again in the future that you just, you have to be very careful that the cheapest on paper probably isn't going to be the cheapest at the end.
Yep, Yep. So along those same lines, we talk about cost plus contracts for a second, Steven. So what we have seen time and time again is for those builders that do cost plus agreements that they will intentionally estimate low and and maybe not just on select on selections and allowances which is the easier place to do that. But we'll see it even on items that do. I just say there's really no excuse for some of the the the estimates that are just blatantly low.
Steven. We're aware of a situation we did not build this, we were not a part of this this build or
with the homeowner. But we did hear through actually Mike, our father who was helping these homeowners with their, with their basically overseeing their build with their builder they had, they had about what was it Stephen, 10 or $11,000 in the budget for a septic system which is not even close to what even the most basic smallest system would cost anywhere in Central Texas. So you know it was on paper and and of course they didn't know any better to ask and and they
they shouldn't have to, right. I mean they're not expected to be experts in septic systems. They're not expected to know these costs. Like you said a minute ago I got $25,000 in the budget for countertops. That sounds like a lot. Well, it's really not right. It goes quickly when you start to look at all the cost for countertops or septic. So unfortunately, these poor homeowners got stuck with a number that wasn't even realistic from day one on a cost plus contract.
Yeah. And I think you said it well in there that. You know these poor homeowners and most people don't know a reasonable price for a septic on their home or a reasonable price for trim labor. You know, those aren't things that normal consumers of a custom home are in the know on and once again goes back to trusting your builder and making sure that all those prices are
talked through so that. If you are doing a cost plus contract, you feel really good about where all those costs are coming from and you're not going to be blindsided by a septic system that comes in double what everybody thought it was going to. So yeah, good take away there for sure, you know. And I think that leads us to our next point too, which is inaccurate bits, you know, and and that can happen in a multitude of different ways.
And one of those is. If I maybe just miscommunication or misguided expectations or failure to look into all the details. Sometimes architectural plans aren't super detailed on, say, cabinet drawings, and a lot of them don't include landscaping. So you know, there's a lot more left to the imagination on some of these things that once you come to a builder and say, hey, I've got my final plan set,
let's rock'n'roll. There is a lot more detail that still needs to be figured out even when you think you have your full plan set. So you know, that's where a lot of heartache can come about whenever you're working with a builder and they have inaccurately bid something, whether it was, you know, malicious or not.
It it can cause some heartache like I was saying whenever they didn't have all the details or they didn't ask for all the details and they quoted exactly what was on the plans, but that's not what the homeowners wanted in the end, right? Very basic cabinet drawing from a a standard architect might not be what you were anticipating in your multi $1,000,000 custom home where you wanted to pick all the last details of your
cabinet. So. Just an example there, but you know every builder is going to have to work through that different ways and inaccurate bids when they're going even if they are showing real numbers. Say this is what came back from the the cabinet company. OK, well you know that's great, but that was based off of basic cabinet drawings from the basic plans that came from our architect. That's not what we wanted. So anyways, not to to beat that example to pulp, but.
Yeah. Hopefully that makes some sense there. Yeah. Those are really good points. So what you're saying to sum it up is just communication, communication, communication.
And I think a good take away from this is that the plan, every last detail on that plan from the architect is what we're going to be looking at. And many homeowners or or hopefully future clients of ours or others I think believe that they've looked at their architects plans in detail, but they probably haven't gone even as as low as they can with that, right, even down to your point, Steven, on which way does the cabinet door swing open, What do you want?
What kind of design do you want inside that cabinet drawer that pulls out? Do you want storage for pans or or cookie sheets in a certain way, right. And that's typically not on most of the architect plans that that we see when people bring us their, their plan set when we haven't worked with them from the beginning, right.
So another reminder that what we recommend obviously whether you're considering building with us or not is that you pull in that builder during that design phase because if we get the plan set after all of this, then there are still are so many assumptions even though there's there's a lot to look at on the architect's plans, there's there's still a whole lot that's missing. So I'm just saying saying it in a little different way than you did, but really good point.
Yeah, absolutely. And one thing to add to that is you know it. It's if it's almost essential to loop your builder in during the architectural design phase, but almost just as essential. Is to loop in a designer.
If you're a person that's that particular about the details of your home and the cabinet swings and the cookie sheet storage and all that stuff, that's where a designer would really, really be able to connect the dots and organize everything based on inspiration, pictures and colors and really paint that picture more fully from just what the architect is is throwing out
there. So. To have that whole team come together at the design phase is really, really crucial that you've got your builder, got your architect and you've got your designer and of course the clients to really bring all those pieces of the puzzle together. So yeah, definitely important
points there. We we have for for the budget conscious listeners out there that say I want to be very smart with my, my money and where it goes that there are a lot of interior designers out there that don't have to cost 20, thirty $40,000. I mean you'll hear that some are out there and and they charge that because that's that's the work that they do. But you know, we have some interior designers that we work with and some are obviously much
more expensive than others. But there there is a way to do this and get their input because it is their full time job to to look at some of these things and and bring some thoughts and ideas to your mind. And even we miss, right. We're not the designers, we're the builders. And then those are two completely different things. Yep, Yep, cool. Jumping into our next point here, so another price trick for people to be aware of and look out for. This one in particular actually
falls on fixed price contracts. So when a fixed price contract, you have to be very aware of escalation clauses. And in the world of COVID, that was when these escalation clauses were really hot topic. Of course, with lumber skyrocketing and other building materials going through the roof, no pun intended, You know those. Price escalation clauses were very, very important for both
sides. Number one, to protect the builder from losing significant amounts of money on fixed price contracts that they had already locked in before lumber skyrocketed. And so it was a protection for builders, but it also is. Something that homeowners on the flip side need to just be aware of, right? Be aware of and be real diligent about how they how you're analyzing those cost escalation clauses. So dive into that a little bit more.
If you have a fixed price contract and the cost escalation clauses are set at a percentage of say a really low percent like 1 or 2% escalation if lumber goes from. 100,000 to 102,000, OK, well, the builder still has to take that hit. If lumber goes from 100,000 to 150,000 then the client has to take the hit of the 48,000 that it went over that 2% escalation
clause. So another thing just to be aware of and be real real diligent about what escalation clauses are in your fixed price contract and. And making sure that they're reasonable, right. I mean every builder has a different amount or percentage that they deem as reasonable. I mean, Brian, you can chime in too, but I would say something reasonable would be 510%.
You know of course the higher the number, the more that falls on the builder, the lower the number, the less that falls on the builder and those fixed price contracts, so. They, I will say that they're not something that any builder I would imagine would completely eliminate because it's it's too much risk in a fixed price contract. But it is something that needs to be healthfully balanced on both sides. Yeah, yeah, escalation,
escalation can be right. It's it's a balance as you said on making sure the homeowner understands what they're signing on what this means the the risk on both sides, right. There's there's there's risk that is out of the homeowners and the builders control that just has to be mitigated and managed and understand who is carrying what. So what's really difficult is when a builder has to enforce the escalation clause because it's a it's a complete surprise
right. In most cases that homeowner is not expecting this saying oh I got to make this phone call or deliver this news and it's going to come as a complete shock right. In a fixed price contract especially when we sign them. Yeah, part of our part of our offer and and what what we do to differentiate ourselves is say we we have a on budget guarantee obviously with some other exclusions and exceptions because of things that are
outside of our control, right. But you know people we've set that expectation there and then something outside of our control comes up and that that's never fun, right. So they're there that there's no other way to handle them, right. Either it's a fixed price with escalation clauses or it's cost plus and and so to to build this home somebody, somebody has to take on the risk of the liability throughout the whole thing. Right. That's just, that's just how it goes there.
There's no skirting around that. Yep, Yep, for sure. And another point on that is that you know cost escalation clauses are important. A lot of times when you go to get a bank loan or a construction loan for a build, the banks will want to see some sort of variance is what they will call it. Most builders will bake in maybe a 5 or 10% variance on. Several line items or every line
item of cost for that build. So it's something that banks are aware of that on a fixed price contract, there are going to be some variances whether it's in the allowances that the builder has set forth that the homeowners want to go over on occasionally. You know those banks want to make sure everything is within reason and I would say like we talked about a 5 to 10% variance is.
What we've seen as I would say average, right, there's more, there's less and that also lines up fairly well with those cost escalation clauses that we typically see of five to 10% as well. You know and I think those are numbers that are fair like we just talked about on lumber. I mean if if lumber goes up $50,000 or 50% or whatever the number is. It's really out of everyone's control that's involved in that, you know the builder and the
client and the bank. So the only person who really has control over that are the lumber companies. And to get the job done, somebody has to front that additional cost. So how is that handled? And that's just something that needs to be discussed up front. So there aren't any tricks going on with the pricing of the home. Yeah, yeah. It's it's important to recognize this as basic as it sounds. How how big is your contract?
I mean when you're at, when you've gotten through the design and preliminary building steps, no matter how your builder does it, how many pages is that building contract, right. And you'll see that our building contract is over 100 pages long, right. Because we try and be in deep, we try to be as detailed as possible because we're, as we said at the beginning, trying to do our best to manage your expectations, keep everything as black and white as possible.
Do we miss stuff? Yeah, sure we do. Right. These are these are massive projects with a lot of intricacies. So we do our best. There's a lot of builders that their contracts not nearly as long maybe 25% as many pages as as ours and other other builders. So just that alone should tell you something that why is 1 contract 100 pages and the other one is 25 right When when I'm when I'm embarking on this journey as we always say with with a builder that you better trust it is a journey it's a
it's a partnership. So you know just think through some of those. I know it sounds like it's common sense but but it is important when you say OK I'm I'm at the stage and I need to I need to decide on a builder and even as basic as how many pages is a contract is is can be a big. Difference. Yep. Yeah. Very good points and a note on that. I think everybody hopefully is aware that, yeah, if something is not in writing with you and your builder, it most likely
doesn't count, right? And I hate to say that, but it's the truth. If you try to just have your word versus theirs, or your word versus the builder's word, it's. It's not something that's easily defensible, you know, So just something to think of and make sure that anything that has been discussed or selections or any changes or anything like that
are all documented. That's another thing that can cause heartache and price increases on things that a client believes that they have told the builder at some point. Whether they did or didn't, or whether it was on a phone call that was never documented or whatever, have it in writing. Make sure it's documented. And if even better, have everybody sign off on it, you know, get it on DocuSign. It's so easy to collect digital signatures now.
Just protects everybody. So yeah, little side note there. We can't reiterate enough how important it is to pull that builder in as early as you can during the design phase, right. And even if it ultimately comes down to the fact that the builder that you worked with on the design phase isn't the builder that you ultimately choose to build your home. You had builder input and and hopefully proper or or fair guidance on the cost estimates as you go through that design
phase, right. And that that's really, really important because you want to be able to get to the end avoid these price tricks and say hey I got the house that I wanted that is within my budget on this piece of paper. We've reviewed all these details and we feel good about moving forward with hopefully at this point hey the builder that that we've been working with for some time or another one that we've been talking to that we feel really good about really good
trust. So you know, make sure you ask for a complete price and you know we're just trying to minimize or eliminate the cases where the you're shocked that the final price comes in significantly over the initial estimate, right, Initial estimate being ballpark, the
builders done no work. They're just saying, hey, ballpark figures, this is this and you say, OK, I feel good about it. Then you go do all the work and then they come in and surprise you and it's over your budget and you're stuck with, OK, well now we've done all this work and we have to backtrack to make it to where it fits within our budget or whatever it may be. So you know it it it's tough.
It's a it's a delicate balance when you're looking for information, but the builders also looking for information to give you the, the, the proper information that you're requesting and and there's still a lot of unknowns all at the same time. Right. So it's it's also about asking your builder what, what is their process, right. What do they do? How do they organize all this? How do they manage it?
And that's why so we've hopefully been fairly clear and vocal on our process and and what we do during the preliminary building agreement and all the pre construction work before you ever even start building a. Home. Yep. Yeah, fantastic point right there. And just to reiterate that that I think a lot of these price tricks that we've talked about in this episode can be mitigated by a fixed price contract and like you mentioned.
Looping your builder in early on in the design process so that they can consult. You can be on the same page as you and know exactly what is going to be involved in this build and that allows them to more accurately quote their allowances. And you know, all that ties together to really mitigate quite a few or maybe even all of these price tricks that we just talked about. So fixed price roping your builder in early.
And making sure that everybody's on the same page with allowances and what all exactly is being built into that home that you want. And yeah, in the end, you know, this isn't supposed to be a scare episode. It's just to open the listeners eyes and ears that this is stuff to be aware of, you know. And I don't know that many builders do these price tricks or, you know, have these things happen maliciously or on purpose. I think a lot of them are actually.
Accidents or just miscommunication or lack of detail. So I don't know, maybe that's me being naive. I know there are some, you know, bad builders out there that are crooks or scam artists or whatever, but I like to think that most of them are not. And you know, there really is just so many details that go into any custom home building. It it, it's really, really tough from a builder perspective to keep all the details straight, know exactly what the clients want.
And we aren't mind readers. So we have to communicate clearly. They have to communicate clearly to us. And in the end, you know, the ultimate goal is of course to get what the clients want built in a timely manner for their budget on their lot, right? And if that's what we can do, that's exactly what we strive to do. So Yep. And as we hear about or come across or experience other price tricks will jot them down and maybe have an episode too here
in the future. A continuation of this because these certainly aren't all of them and and Steven you you you said that most builders are not trying to do this intentionally and and I I do believe that right there there's there's there's bad contractors and people out and in every industry but as a whole it's it's just that catches builders by surprise but then unfortunately both the builder and the homeowner in a in a not so fun place and it affects the the the
experience as you as you go through this. So yeah we've got plenty more and we'll jot them down and keep them in our notes or our back pocket for when we have have enough for a continuation of this. So thanks for your time. Yeah, same to you. Great episode. And once again, just to wrap this episode up like we've been asking recently, but. We really appreciate everybody listening.
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Thank you. It makes our day whenever you reach out to us and tell us what you like or don't like. So please, please do that. We love the feedback. We love the interaction with our listeners. Absolutely. Absolutely. Cool. That's a wrap for Episode #15. And thank you all. We'll catch you on the next one. Bye.