10.5 New-Construction Tips From Experts Who Know Better

Buying a home can be a tricky process. Buying a home that doesn’t exist yet can be trickier. But that doesn’t mean you have to go into it blind. To help you, we took to the streets and gathered the best advice we could find from experts who have built a house or two. 

1. Come with ideas

As Margaret Heidenry, from realtor.com, explains, "Homebuilders follow your lead -- not the other way around." So unless you give them some direction, you'll end up with the same generic house that everybody else has. Yet "the whole joy of building new is that you can actually customize it," says Tim Costello, CEO of Builder Homesite. "So come with inspiration."

Create a Pinterest board, a scrapbook from home magazines or an idea folder filled with what you like. If you're building commercial, check out your competition’s space and see what others are doing in your industry. What do you like about the layout, how it's used and how you can one-up it?

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2. Choose a floor plan

Now that you have an idea of what you want, it's time to make your first big decision: the floor plan. Chinburg Properties, a large builder on the upper East Coast, calls this "the baseline for your project," since it will determine the size, style, quality and features of your new building. 

Whether the floor plan came from the builder's catalog, a book or the internet, it needs to be okayed or adjusted by a local general contractor or architect before work can begin.

3.  Estimate the cost per square foot

To get this estimate, take the total cost (which you'll get from the builder) and divide it by the number of square feet in the building.

Why am I doing this? I don't even have a builder yet.

You can do the same for similar, newly constructed homes and commercial buildings in your area. Take the price of the building, subtract the price of the land it stands on, and divide the result by the number of square feet you want to have.

Doing this with a few different examples will give you the going rate for this kind of construction. Comparing these numbers will help you determine whether or not your builder's estimate is reasonable.

4. Balance additions with cuts

Jared Loveless, President of New York builder Vector East, observes that "people plan with a budget in mind. But they build with their heart." Our rational brains know that shiny things are expensive, but that doesn't keep the shiny things from being irresistible.

Margaret advises buyers to "balance out any cost-adding changes with some budget-cutting elsewhere" to keep your costs in check. Want expensive tile floors in the kitchen and master bath? Go with cheaper appliances and sinks.

5. Leave room in the budget for additional construction costs

Apart from the time and materials to build the building itself, Chinburg Properties names three more things you may need to pay for:

• Altering the land before construction can start. "If you have to clear a lot of trees, haul in dirt, grade or remove large rocks, expenses will increase."
• Fees for any special permits the builder will have to get.
• Labor costs, which can fluctuate due to supply and demand. "During times of low unemployment and economic growth, costs are typically higher" since the builder will have to spend more on salaries for subcontractors and other tradespeople.

What will this cost you? Look up rates for tree/rock removal companies and local independent subcontractors, and fees for applicable permits. This should give you a rough idea of how much to budget for such expenses. Check with the builder and/or real estate agent for a clearer picture of what your project will require.

6. Budget for the unexpected

Know that delays are part of the construction process and can carry additional costs. Workers need to be paid for those extra days. Damaged or defective materials need to be replaced. If tools are stolen, they need to be replaced, too. Chinburg Properties advises buyers to "assume an additional 10%" to cover these costs.

7. Hire a real estate agent

Now that you know what you want to build and have a rough budget, you can start gathering your team. A real estate agent is the first member you should consider recruiting.

Really? Do I need one? I mean, the sales rep was super nice and helpful.

Don't be fooled. As Ali Johnson, a Florida real estate agent, explains, "That person [the sales rep] works for the seller. They represent the developer's interests," not yours. A real estate agent will represent your interests.

Blake Miller, from Trulia, adds that the builder pays the agent's commission, so "it costs you nothing to have someone represent you during the new-construction process." You get the agent's expertise and back-up for free. Talk about a sweet deal.

8.  Find the right builder

Chinburg Properties recommends choosing a builder who routinely builds the type of home or commercial building you want. Patty Brockman, an Oregon real estate agent, says that the builder should be insured and bonded, and "have a good standing with your state's Construction Contractor's Board." 

Insurance policies you'll want to look for are:

•  Workers' Compensation -- helps employees when they are injured on the job.
•  General Liability -- protects the company from getting sued into bankruptcy (more or less).

Patty also recommends asking questions "about whether they use independent subcontractors, and verify their licenses and bonds as well." Doing this background check on the company will ensure that you are hiring a crew that is experienced and has a good reputation.

9. Understand the contract you are signing

You're going to be working with this builder for months. Establish expectations from both sides, which is why Patty says to "always list in detail anything that you expect" the builder to do, even if the contract doesn't specify it.

Chinburg Properties recommends creating "as detailed a construction contract as possible." Not only does it clarify what everyone expects of each other, it gives an accurate estimated cost and a clear breakdown of where your money is going. 

Some of the components they recommend including are:

•  Definitions of heated and unheated spaces.
•  How to handle a garage or basement. Are they included? Should they be finished?
•  Utility connections.
•  Liability insurance, such as Builders Risk, that protects the half-built structure from fires, storms, vandalism, etc.

Patty warns that, by default, "builders' contracts pretty much only protect the building company, not the buyer." A real estate agent can add addendums to the contract that protect you as well.

10. Plan for delays

Delays cost more than money. They cost time. Margaret notes that many buyers "take a contractor's original completion date as a fait accompli and end up with no place to live" when the house isn't finished by that original date. This is why you need to create a back-up plan as soon as construction starts.

If delays are less than a couple of weeks, crashing with family or friends is a great option. If delays are on the order of months, research apartments and hotels in the area. You'll also need a place for your stuff, so check out storage facilities nearby. Ask your moving company if they offer storage or can recommend someone.

I'm not building a house. I'm building offices/a storefront for my business.

If you're in the storefront camp, then at least wait to order promotional material for your grand opening. If it's office space, arrange for you and your employees to work remotely while you're in transition. Many cities now offer co-working spaces for rent. See if there are any in your area and if they'd work as a temporary base for your team.

10.5 Make sure there’s builders’ risk insurance

Builders’ risk insurance, a.k.a., course of construction insurance, which is usually purchased by the builder or general contractor, protects against mistakes and mishaps that can damage a structure, equipment and materials waiting to be installed.

It’s important to make sure they have adequate coverage in place to recover the current value of your project, including labor costs, if a loss occurs due to a set number of causes. This will also help to keep construction on time and within budget.

Good luck!

Construction isn’t a business for the faint of heart. Even for the buyer, it’s full of delays, sudden changes in plan, and generalized chaos. But choosing the right team of experts, and having a clear vision and plenty of money in your budget, will help make the process less scary. No guarantees about less tricky or shorter, though.