DESIGN - excerpt from book, ,,,,,, Working for Subs

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 CHAPTER 3 Designing The Structure:

The design and the detailed estimate of construction are both discussed in this chapter, because they are integral to each other and should be evaluated together. They are both endeavors which are best undertaken prior to construction and then finalized after purchasing the lot. The estimate should continually be adjusted to reflect actual expenditures as the construction progresses.

A rough preliminary design and estimate based on square footage should be drafted prior to the lot search, as mentioned in Chapter 2. In order to select the lot suitable for your dream home you will need a vague idea of your final structure’s size and cost.

The two tasks of detailed designing and estimating discussed in this chapter should be put on hold until after closing on the lot purchase, and not during or prior to the closing process, because as any real estate professional will tell you many deals fall apart before the sale closing. If your specific lot acquisition fails, much of your detailed design and estimating work will be discarded, so keep these two efforts to a minimum. The home must be designed based upon the size and constraints of the land where it will sit and financial limits. Estimating should be simultaneously conducted during the final design period.

Try to keep in mind throughout the design and building process the reality that you should be building to suit the general market, not to suit yourself entirely. Many people stubbornly design unique personal features into their homes only to realize at the time of sale time that their notions of what is desirable are actually offensive to many potential buyers. Even if you are retired and plan to live in the home for the remainder of your years, you will do a disservice to your heirs by limiting the resale value if the design is too customized.
The major activity of this chapter concerns the design phase of home construction. Other tasks include a construction estimate.

Detailed Schedule – Part B*

• Detailed estimate of construction costs (Appendix F.)
  
• Drawing pages required by code enforcement for permit application: (e.g., per Shelby County, TN, 3 site, 5 floor, 2 roof, 2 joist, 1 elec, 1 plumbing, 1 slab section, stair detail, cornice detail, sections & other details.) (For Florida see List in the FL Bldg. Code.) Include 2 Duplicate plan sets for use in builder's office.
  
• Additional Plan Sets needed for early QUOTES from subs & suppliers:
  

1. Electrical,
   
2. HVAC,
   
3. Plumber,
   
4. Framer, trusses,
   
5. lumber. Request return of plans with proposals.
   
6. Small scale (1/8” = 1’) for convenience and copying.
   
7. Have FL Engineer stamp and produce structural drawings and details.
   
8. Truss company quote (truss drawing details come with truss order) - Chap.8.
   
9. Architectural Control Committee review in your subdivision / HOA.
   

• Accurate quotes desired early (after lot purchase, design, & prior to grading) are:
  

1. Grading & lot clearing quote
   
2. Roof Trusses and Truss joists
   
3. Appliances (to lock in price): Microwave, oven, Double or separate 2^nd oven & Range /downdraft, trash compactor, dishwasher, disposer, sink
   
4. Framing quote
   
5. Stone countertops (cultured? quartz composite?)
   
6. Wrought Iron: Gate, crawl space grilles, mailbox, balcony, stair rails
   
7. HVAC
   
8. Plumbing (see Chapter 7 for discussion)
   
9. Electrical (see Chapter 10 for discussion)
   
10. Slab labor quote
    
11. Window & exterior Door quote.
    

*Detailed Schedule – Part B above, continues the sequence of construction tasks following Part A in Chapter 2. See Appendix B for the complete Detailed Schedule. Dimensions and amounts are based on codes in Tennessee, Colorado, and Florida, local requirements, and the Uniform Building Code that change frequently. Verify all in this book before acting on them.

General Design:

The more people who desire the attributes that your home exhibits, the larger your market will be when you sell the home. This book is most useful for a median-sized residence,ⁱ but the same principals can apply to any size structure. You may only need or want two bedrooms if you expect few visitors or want no children, but most U.S. markets expect an average sized home to have three or more bedrooms. Due to this expectation you should design the third bedroom and plan on using it for storage or an office if unwanted.

If you desire to build a bigger home (say over 3000 square feet) on your own, you will find the larger your structure becomes, the more involved the details, and more of your time and effort will be required. You may wrongly think that when you add rooms or space, it should be possible to produce a structure with the same elements but merely larger for the same effort. This is not the case. As the size of your home increases, so do the number and variety of elements and level of intricacy required.

The neighborhood in which you build a larger home will most likely be more upscale, dictating the use of granite countertops, you will need more colors of paint, your tile and floor finish selections must increase in number, appliances become more elegant in style with more features, more space conditioning systems will be needed, and so on. Each element of a larger home requires increasing attention to detail and customization, so an architect may be required, rather than a selection from stock building plan books.

The costs increase more in a larger home compared to a median-sized home, disproportionately to the increase in size, as materials are of higher quality, and subcontractors want a bigger piece of the seemingly wealthier pie. Subcontractors will charge more per square foot, because they perceive more profit, rightly or wrongly. Architectural services will consume a larger percentage of the final construction costs if used. Larger, more customized abodes invite more expensive finishes and materials. Developed lot costs per acre become higher. Structural members become more elaborate and costly due to longer spans and more intricate design requirements. All of these influences contribute to the greater cost per square foot of a larger home.

The home construction discussed in this book relates to the medium sized structure. The homebuilder will benefit from the information contained herein regardless of the volume of space he or she decides to construct. If a larger home is to be built the services of a design-build contractor and an architect, or independent construction manager who oversees construction may be useful as well. It will be exceedingly difficult for a newcomer to tackle construction of a home larger than 3000 square feet of conditioned area without assistance, due to the increasingly more complex requirements. Handling a home of less than 2500 square feet should be within the realm of possibilities of any diligent, organized, industrious person.

General Cost of Construction:

You could realistically expect to save about 12% or more of the cost of your self-built home after paying a Realtor and paying closing costs upon the eventual future sale of the residence (excluding any appreciation and financing costs). If you can make this amount on your investment in the first year in building, you have done better than most average years in the stock market²³ after taxes with less risk. Any capital gains, including sweat equity, appreciation, and avoided builder markup, are tax-free on your personal home (lived in for two of the previous five years under current tax rules.) Investing in your own home is also less risky than the stock market, or in other investments, due to the fact that you can always live there in a down market, giving it intrinsic value (like shelter, clothing, & food) not found in most other investments.

The ultimate closing cost (Realtor’s commission upon sale and other items) should be taken into account when figuring your costs, regardless of the possibility that you could be living in the home until you pass from this earth, because your heirs will likely have to pay that eventually whether or not you do. Also, including closing costs of a future sale gives a true way to compare to other homes in the open market. The final market value of other homes will include the closing costs largely paid by their sellers, and so should your estimate of true value.
A 12% savings translates to a before-tax equivalent of about 16% profit in alternative investments for someone in the marginal 25% tax bracketⁱⁱ. That is a phenomenal return for a low risk asset, which provides one of the basic necessities for living, a shelter. The return on investment has grown even larger with appreciation in most years with the exception of the 2008 crash and the great depression of the 1930’s. Even though capital gains taxes are not normally paid on profits of a home of normal size, the phantom after tax comparison should be made when selected from among other investment vehicles (to avoid apples vs oranges scenario.)


A detailed cost estimate appears in Appendix F, but for conceptual purposes the following will suffice:

Cost Estimate -Brief:

The overall break down of values for self-construction becomes:

Lot cost -developed  ........................................................................................................... 20%
Materials .............................................................................................................................. 29
Labor /subcontracts /services .(some materials included – see Chap. 5) ......................28
Markup & OH avoided     (savings: profit, and sweat equity) ........................................ 10
Financing & OH costs     mon. 1 (or opportunity costs if self-financed) .......................... 6
Closing & contingencies 7 (upon eventual sale by you or heirs) ...................................... 7
Market value = .........................................................................................................          100 % **
*OH: overhead of avoided contractor.
**All percentages are approximations and will vary.


The closing costs used here assume a real estate commission of 6% and additional seller expenses. These closing costs are unknown until just prior to the settlement date and may include paying points on the buyer’s loan, etc. Moving costs to the new residence are ignored, presuming a move would be imminent regardless of where.

You may consider building a primary home, living in it for two years (two out of the last five years,) and selling to capture the capital gains tax avoidance allowed, however this is usually a loosing strategy. Real estate commissions, moving costs, and sales costs will consume any tax savings. Investing your money in stocksⁱⁱⁱ long term may have been a better financial strategy than owning a home for years, which you did not build, as in most markets housing has shown only about three percent appreciation annually. This rule of thumb may be incorrect in long-term appreciating housing markets especially near the coasts. In the 2007/08 credit crisis housing actually declined in value, and many owners experienced a capital loss when selling.

The Design Documents and Quotations:

The design documents consist of drawn plans, specifications, and any physical or digital depiction of the purposed structure. These can take the form of blue-line drawings (on light background) that replaced the old blueprints, which had blue background with white lines. Other mediums used for drawing originals are hand-drawn mylar or sepia. Hand drawn plans are rare these days, and have been replaced by electronically produced CADD drawings, stored as computer digital files. The architect or designer normally owns rights to the design and original design documents though some will sell this right.

You might purchase blue-line (or black plotted) paper drawings and written specifications from the architect or designer. In residential construction the specifications are usually inserted into the drawings as notes, and are rarely separate as a booklet like commercial jobs. Many plan books are available from libraries, bookstores, or online sales with design documents. Most of these sources will sell five or six sets of plans for a few hundred dollars. If you want more sets or the originals for reproduction purposes, often these are available also. Subcontractors will need quarter inch scale (1/4” = 1') plans for use in the field, since an electronic drawing on a computer screen on the job is impractical.

Determine from your local code enforcement office the number of plan sets they desire for permitting purposes. Add two sets to these for yourself, and at least four more for your subcontractors. The framer may need one set originally and another later, due to destruction on the job. If you want to get simultaneous quotations prior to beginning construction you will need as many sets of plans as the number of bids you desire. Be sure to ask for the return of the plans with the bid. If you are building in a subdivision with an architectural control committee, they will usually request two sets and will keep one. Figure all theses extra sets into your cost of design when deciding whether to use a local designer, a plan room, your own CADD system, or an architect to do the working drawings.

i The average size of a home for the purposes of this book is described as one with 2500 sqft of floor space. The NAHB has calculated the size based upon the year and location, 2503 sqft for the South in 2006. See the spreadsheet, available from the web page: http://www.nahb.org/fileUpload_details.aspx?contentID=80051 .

(continued in book)

 Estimating Costs:

The estimate in Appendix F is based upon a Microsoft Excel® spreadsheet composed by the author and was used for building in Tennessee in the mid 2000's. Other locations may vary drastically in labor and supply costs. Referring to this estimate will aid you in compiling a list of most materials and labor items used to build an average sized home as well as a representative percentage of that item’s cost to the total project cost. Actual dollar figures will not be accurate for your location or time, and are shown to merely give a relative notion of itemized costs. It is based upon a slab on grade foundation and a single story house.

This author has found it is best not to rely upon any single spreadsheet, book, or computer program to estimate the cost of construction. Instead, call each and every subcontractor and supplier you can for each project to get the latest cost. Go through every number produced and verify its derivation for every new project. This will take some time and for some items several hours of work. Each entry in the estimate sheet represents money, and is worth spending at least more time on than you might spend reviewing the bill for dinner at a restaurant - the way many builders treat their quotations.

Every job should be estimated by re-calculating from scratch every item that goes into building it. Materials' prices change, different subcontractors have different rates, and their quotations change. Building codes change, each structure has unique attributes, different locations affect costs in different ways, etc. Use a previous estimate like the one shown in Appendix F only as a guide to prevent overlooking items that should be included or only to give ballpark figures for comparison and checking your figures.

A spreadsheet similar to the one in Appendix F is a good way to approach estimating. Each item has three columns dedicated to materials and three columns to labor. All factors that enter into a calculation cannot be shown in a single cell of a spreadsheet, so we use separate spreadsheets (not shown) to calculate the various numbers shown in the cells. These separate calculations then automatically refer their result to the appropriate cell of the main spreadsheet.

For example, the fireplace cost may consist of a summary of components, including the firebox supplier’s quote, framing, hearth construction, a surround of tile or marble, a mantle constructed by the trim sub, separate chimney enclosure, etc. This detailed estimate item from another spreadsheet (not shown) is all reflected in one or two entries on the main spreadsheet of Appendix F. The units column may list the number of bricks or the square footage of floor for tile. No units are consistently the same type, as one might be a unit of volume (cu ft,) a quantity (count,) or an area (sq ft.) The unit cost column may just be a factor composed of a complex computation from another spreadsheet to yield the total cost shown. Each entry of Appendix F must be reviewed as though it were being produced for the first time in order to be accurate.

The last two columns of Appx. F (% cost per item and cost per heated square foot) are handy for checking your calculations. They should be in the same realm or magnitude as your figures. If your trim and door number, for example, is 10% of your total cost instead of the 2.3% shown, you either have very expensive finishes or your calculations need to be revisited.

Early in the design phase of construction you should get as many quotations from suppliers and subcontractors as you can in order to avoid surprises later. Often time is not available for this in great detail. However, several quotations shown are needed at this early stage, due to their long lead times (from order to delivery,) and to lock in some significant prices prior to commencement. Some subs are booked for weeks in advance, and you will need their quotes at an early stage to guarantee their contract commitment. A list of these critically early items is shown earlier in this chapter in the Detailed Building Schedule Part B. 

(continued in book)

ii 22.7% = 17% / (1 – 25%).

iii Per the Univ. of Michigan 11.83% average annual return for a 30-year period in stocks from 1963 to 1993.

Typical Warrany Policy from builders - what's not covered and what is

Have you ever wondered if you new home warranty covers everything in your purchase by law? You may be surprised to learn that it does not.

  The book Working for Subs covers that subject in several chapters and in Appendix H shown below:

[below are excerpts from the book by this author:]

 Warranty Companies for the self-built home:

If you want to obtain a structural warranty for your foundation, roof, and walls there are several providers available, among these are.... [continued in book] ...

Some warranty companies will guarantee the foundation against settling for ten years. Others will give multi-year guarantees on mechanical, electrical, and other specific portions of the residence. You will have to consult with each of them in order to make a decision, and it would be prudent to do this during the planning stage before the design. Refer to Chapter 19 for more information about warranties.

Excerpt from Chap. 19:

 Completion and Warranty:

There is always something else you can do to a house. You will never finish working on one even after the day of substantial completion onward. Occasionally a buyer will have no final punch list, and the builder never hears from them during the warranty period. Others become obsessed with minute details, and give their builder extensive punch lists with many items not covered by warranties, like paint touch-ups or squeaky floors, waiting until the end of a year's period. The meticulous new homeowners perhaps are over reacting for fear of not being able to maintain the multiplicity of elements of construction that they do not understand without assistance from the builder after the warranty expires. We usually handled their non-warranty items without protesting as long as they were not too costly or too numerous.

If a contractor has built a house according to industry standards and current codes, using approved materials and methods, he is not held responsible for the thousands of items that cannot be foreseen, like nail pops in the drywall, or loosening fasteners in the subfloor that squeak. These things will occur on any project. The builder holds a final walk-through with the buyer in order to establish a point in time where these things become the buyer's responsibility and not the builder's. It is the responsibility of the builder to educate the homeowner as to the difference between these non-warrantied occurrences and those that are covered. Most contractors will, however, repair a lot of nuisance imperfections in the interest of good will, regardless of whether covered by warranty.

Excerpt from Appx. H:

WARRANTY POLICY & PROCEDURES

[The Builder - insert name] thanks you for purchasing one of our homes. All the contractors responsible for building your new home are professionals with a high degree of skill in their trade. Even though subcontractors may be very thorough, in a project with hundreds of thousands of pieces such as your home there will always be a few things which could have been done differently or more efficiently and some things which may not work properly at first.

There always are some items that require adjusting or repairing or redoing in any new house: Doors or windows may stick, squeak, or drag; water pipes could leak, especially hot water when expanding under first usage; small roof leaks may become visible under different rain and wind conditions. Many of these things are repairable during your warranty period (see HBW/BBHWA booklet).

[The Builder] wants you to enjoy and take pride in your new home. A great deal of attention to detail has gone into its construction. For these reasons we ask that our buyers work with us throughout the warranty period that begins upon the closing sale of the home.

We ask that new buyers keep a written list of items that are warranty items and a separate list of items that are not (paint chips, drywall dings, other cosmetic items, etc.). Except for emergency items, following closing each buyer should send the written list to our warranty contact, listed below. We will then make an appointment to come and assess the required work. A minimum charge may be due in advance for repair items which are not warranty related with an additional final charge when finished. Non-warranty work is billed hourly plus materials and a reasonable markup for overhead, administration, and profit.

It may be necessary to arrange for one of our subcontractors to handle particular items, in which case an appointment will be made which is convenient to the buyer and the subcontractor. We may request that each buyer and subcontractor communicate and make their own appointments to avoid confusion and repeated calling back and forth by using us as an intermediate. We do need to know when items have or have not been accomplished and ask the buy to notify our warranty contact about this.

Some repairs may take several trips, as patches or paint may need several coats or the source of the problem may not be readily obvious, such as roof leaks. We ask that buyers be patient and allow the repair men to enter their homes and let them know directly if you are not satisfied with their work before they leave the job as many subcontractors are difficult to reach and have odd schedules. It may be some time before a subcontractor will return to redo a job or return when not admitted to the home.

We ask that the homeowner be patient with the repair process and allow an extra amount of time for our busy subcontractor's and agents to arrange their schedules to accommodate your home. They serve many people with similar problems and must fit them in their time frames in an orderly manner. Some problems may require detective work on the part of the homeowner, as only the person living in the home can be there for example at odd hours or during rainstorms when the symptoms may occur. Write down times, dates, weather, conditions, and other observations that may give clues as to the cause of problems. If there is a water or gas leak turn off the main shut off valve if the pipe cannot otherwise be isolated. If there is an electrical problem it may be necessary for the homeowner to trip the main breaker.

The homeowner should handle EMERGENCIES promptly by first calling our warranty contact or us to request instructions on how to handle the problem and prevent further damage and to arrange for any needed repairs. Please leave a message if no one is immediately available, and the problem may worsen and cause further damage if left unrepaired. Next the homeowner should call the appropriate subcontractors from the list received at closing to come as soon as possible to control the emergency and make repairs. The homeowner should make reasonable emergency repairs only to the extent required to prevent further damage until we can be contacted. Only emergency reports will be accepted by telephone; all other reports must be in writing. Turn off water shut off main valve in case of leak and turn off main electrical breaker in panel in case of electrical problem or gas main shut off at meter if gas problem. These were demonstrated at the pre-closing walk-through inspection, and if you do not know how to control these, contact us right away before an urgent problem arises.

It is up to the homeowner to inform us of problems in a timely manner so that we may arrange a repair schedule agreeable to both himself/herself and the responsible subcontractor. If no written list is received, no work can be done. It is also the homeowner's responsibility to inform us whether the repairs were successful or unsuccessful after the repairman leaves. If we do not hear from the homeowner we must assume that they are satisfied with the repairs made. In many cases we do not know the schedule arranged between subcontractors and homeowners or whether they have agreed that the work is complete, it is therefore necessary for the homeowner to let us know when the work is completed.

After the initial written warranty repair list (if any) has been completed, the homeowner should begin keeping another warranty repair list of items that occur after the first list has been serviced. This next list should be mailed to our warranty contact before six months following closing and will be handled promptly. At that time a final warranty repair list (if any) should be kept until two weeks prior to the end of the warranty period (see New Home Warranty for duration) at which time this list should be mailed to our warranty contact. It will be handled similarly to any previous lists.

If there is a question as to what is covered under the New Home Warranty and what is not the warranty document itself should be consulted. This policy and procedure guide is merely a guideline and does not replace the New Home Warranty document received at closing. The homeowner is urged to communicate with the builder anytime there is something in question. [The Builder] is always interested in having satisfied customers and wants people to be satisfied with their new home. We are very conscientious about our work and will do everything reasonably possible to solve a problem with the cooperation of the homeowner. It is never appropriate to become angry or irritated over a problem. We are eager to discuss any detail of the warranty as long as the homeowner is willing to communicate.

[The Builder] looks forward to assisting you throughout the warranty period and wishes you a carefree and happy home.

Builder's warranty contact: --------------------------------------------------------

[Agent & telephone/cell phone number]

See: New Home Warranty and closing documents for mailing and other contact information.

________________________________

date: [month date, year]