(617) 620-5493 RealtorPrestonHall@gmail.com
Realtor / Architect / Civil Engineer / MBA
MA Licensed Real Estate Broker 9572517Keller Williams Realty Boston Southwest
Many Buyers do not fully grasp all the challenges that go into the construction of a new home. The process is filled with obstacles and challenges that cannot always be anticipated which heavily contribute to delays and expenses. In the past couple of years, soaring material costs and supply chain issues have certainly exacerbated the situation. Of course finding subcontractors who will show up when they promise and complete their tasks in a timely and reasonably priced manner can be another whole layer of frustration. Even builders/developers who have extensive experience and connections with reputable subcontractors can struggle to maintain a profit margin of 8+%.Insert Levity Here: I always say to my clients, “Make sure that family counseling is taken into account in your budget because it can be an extremely stressful process”.
Renovations vs. Sale/Purchase - many homeowners struggle with the decision of whether to stay and renovate their existing home or sell and purchase a new home. Experience shows renovations can easily come in 30% over budget and take 30% longer than expected and living within a construction zone can be particularly challenging. Another option is to move out and rent during construction but short term leases are not plentiful and moving multiple moves and storing possessions can be a hassle.
Land Acquisition - this can be highly variable, for instance in Needham the Bird’s Hill area lots/tear downs are selling for $1m+ while other less desirable areas are in the $800k - $900k range. Acquisition costs are a line item that builders really look to exploit so be careful if they come knocking on your door
Tearing Down An Existing Structure - typically around $15k - $25k but asbestos or other unforeseen concerns can complicate the process. Also disconnecting water/sewer lines, fencing, police details and town fees should be taken into account.
Site Work / Ledge - many time site development costs escalate when a new larger home necessitates tree removal or an excavation exposes bedrock/ledge. Ledge removal is very expensive and can cause extensive delays.
Conservation Commission - any proposed work within 100 feet of a ‘resource area’ [such as a wetland/stream] will initiate review by the local Conservation Commission which can trigger a 3 - 6 month review and incur extensive attorney and engineering costs. If it falls within 200 feet of a ‘river’ then it falls under review of the Rivers Act. Many builders will not even consider taking on a project that falls into this category due to these delays and unknowns.
Construction Loans / Carrying Costs - of course this varies by lender and the established builders typically use cash to avoid this added expense. If financing a project, the builder can put down as little as 20% for land acquisition and most banks provide 2 year construction loans at about 1.5% above conventional rates. Many programs are interest only during construction and once the home is completed the loan transitions to principal plus interest, check with your lender.
Level of Finish - of course this can vary greatly according to taste, but many end users tend to go over budget during the process. When spending $2000 on an item, owners decide to splurge $3000 to upgrade to get what they really want in their ‘dream home’. This trend can really add up over the course of a project.
Cost per Square Foot
- This is difficult to quantify, it really depends on the buyers’ tastes. If the anticipated occupancy is long term it might make sense to spend more and enjoy the finished product. It is important to take into account the neighborhood so as not to ‘over build’ and to maintain a Return on Investment that makes sense.
Square Footage - upon examination of the difference in cost between a 3500 SF vs 4000 SF home, most builders will choose to go with the larger home. This incremental expense increase can be mitigated by economies of scale and fixed costs such as kitchen/baths don’t necessarily increase proportionally. If the subcontractors are there anyhow, enlarging the scope of their work is not in direct proportion to the expense.
Finished Basement / 3rd Floor - some builders will price a home cheaper then offer the option of finishing a 3rd floor which might allow for teens to hang out, a home office or guest suite including a full bath. Finished basements are typically more valuable in terms of resale [especially if it is a walk out basement with full windows] than a finished 3rd floor. Basements can range greatly in price depending upon features such as guest suites/home gyms/theaters/wine cellars. If the basement is finished make sure it is properly water proofed and paying a premium for 10 foot rather than 8 foot concrete foundation walls makes a HUGE difference. If it is only an 8 foot pour, after the structural beams, electrical/plumbing and ductwork are installed, you could end up with a 7 foot ceiling and it feels cramped.
Septic Systems - I have a lot of experience in this area due to my civil engineering background. New septic systems can be anywhere from $20k - $40k due to perc [percolation] rates and soil conditions [ledge?]. They typically have a life of 30 - 40 years and should be pumped out every 2-3 years based upon the level of usage. If course site characteristics such as wetlands or high water table can incur additional costs such as pumps and alarms………but you don’t have to pay quarterly sewage bills!
Domestic Wells - this expense is more difficult to predict as drillers will go down as far as needed to provide the required gallons per minute [typically around 10 GPM] as required by local regulations. Again if ledge is prevalent in the area or the water table is low the well could be 800+ feet deep. The quality of the water will also be tested and must meet certain guidelines. Personally I am a proponent of private wells rather than town water as that expense is avoided and typically there are no limitations during drought conditions.
Solar Panels & Power Storage Cells - in recent years as technology drives pricing down, this option is becoming much more reasonable. Preparing a house during construction is much easier rather than performing ‘after market’ modifications. Definitely invest in battery storage so that during catastrophic events the home can be heated, the sump pump will keep your basement dry and if you have a private well, then you will have water to drink and bathe. Of course in this event, all your friends, family and neighbors will be coming by!