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

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• The below is an excerpt from a book of 309 pages, 19 Chapters, 10 Appendices
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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.