The opacity of construction cost estimates

After I selected his design, my architect went on to prepare the detailed schematics and specifications required for the building permit. This lasted several months, partly because he had to undergo hip surgery. (The permit application was finally submitted six months after I chose the design and almost a year after I closed on the purchase of the property.) These detailed drawings would, I hoped, form the basis for more precise–and reduced–construction cost estimates. The builder whom the architect introduced me to during the design process used them to refine his earlier estimate. Instead of decreasing, this came in at around $500 per square foot, above the top end of his earlier range of $400 to $470.

The books I read about home construction didn’t prepare me for the degree to which cost estimates can be opaque, unspecific and changeable. The amount of specification and input needed from subcontractors, structural engineers, public utility officials and various tradespeople in order to estimate the costs with reasonable specificity seemed almost boundless. To mitigate my lack of knowledge in these matters, I asked my architect to introduce me to other builders so I could get a second–and even a third–opinion. There was time to do so since the construction permit wasn’t expected to be approved for several months. Not surprisingly, the builder was unhappy with my decision to bid out the project.

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The builder decision

Two other builders submitted bids for my project. The second builder was someone else my architect had worked with in the past. His bid came in at $520 per square foot. The third builder was a friend of mine, whose wife co-owns a townhouse development company. Their bid came in at $570 per square foot, which was surprising. I was expecting their experience and approach of building multiple spec homes at a time to yield economies of scale to more than offset their higher mark-up percentage.

My architect was invaluable during the bidding process. He answered bidders’ questions about the design and specifications and assessed their ability to deliver quality work. After we received the bids, he prepared a detailed comparison of the bids.

That two of the three bids came within five percent of each other gave me a good sense of how much the build was going to cost and it eased my anxiety about inexperience in home construction.

When I spoke to the lowest bidder, the first builder to look at my architect’s design, I discovered that he wasn’t actually willing to do a lump sum (fixed price) contract. His lump sum would be 15% on top of his bid, or $575 per square foot, or else he would fix the contract price after some more work was done on specifications but then he would charge a 40% fee for any owner-driven change orders after that; neither prospect appealed to me. Meanwhile, the second lowest bidder was willing to do a lump sum contract. He also seems like a genuinely nice guy so I decided that he would be the one to build my new home.