William Reid: [00:00:00] Hey everyone, bill Reid here from The Awakened Homeowner Show and The Awakened Homeowner book. Just been thinking about the Discovery series I've been working on coming to you from my shop up here in this year in Nevada Mountains, and yeah, I've been thinking more about this discovery series that you may have been listening to, and I'm starting to head towards the budget.

Area of this series, and it's a pretty interesting one because this is one of the most difficult parts of a project to answer way before you even start talking with people. So what I'm gonna do is I'm gonna look at a couple tools that are online right now where you can actually estimate your project.

Or at least budget your project based on some of the basic criteria. I went back onto the Facebook groups that I've spoken about and I went online and I gotta tell you, there is so much delusion out there. It's unbelievable. There's still people talking about doing projects. I know that there may be in [00:01:00] areas that I'm not accustomed to, such as the Midwest or.

South. I'm from California. Things cost more out here, but regardless there's people out there talking about a hundred dollars a square foot, $120 a square foot, and it's just crazy. I'm actually in the middle of developing an application. It's called Build Quest, and a big part of it is assembling your dreams and visions, then balancing it with your budget.

And our developers are in the middle of it right now, pulling together a tool that's gonna really help. I think, the tools that are out there that are being used, I think as far as I can tell, are using what's called a database that's been developed by the National Association of Home Builders, and they're attempting to.

Factor those into some economic data. Geographic data to try to get to a real realistic number. So what I'm gonna do in this episode is I'm going to dive into those and I'm gonna do it live with you to see where these things really come out at. And I'm gonna do it in two, [00:02:00] there's two different things I can find out there and.

Then I'm gonna pop it into my database spreadsheet that I'm developing and compare the numbers. This should be really interesting because what I'm trying to do as a builder for the last 35 years, general contractor. Coordinating design and construction of projects. So not only, I'm not just a contractor building projects, I've orchestrated everything from the day people walk in the door that want to design a project, specify everything, and then build everything towards a budget.

It's not easy, but this is gonna be really interesting to see as we compare the numbers and that's gonna validate what my new application. I hope they can accomplish. So let's go ahead and jump right in.

All right, here we go. We're gonna be looking at two online applications that are attempting to build a budget for a construction project to build a new home. Both of these applications [00:03:00] use house plans that are available online, and they are importing those plans into their system, and they're outputting a.

Instruction cost. And what I've done is I've already gone through the process and generated reports, and I'm gonna show you those to give you a sense of what they think these projects would cost if you were to build them.

Full disclosure here, or a disclaimer, is that this is one of the instigators of. Causing problems for homeowners when it comes to understanding costs of construction. Now that said, these tools are, I think these tools are really valuable only because they get you started. They give you a sense of what things cost, where some of the money goes.

The problem is that they're not accurate, and I'm gonna show you that Now. One other thing I'd like you to know is. There is an organization called the NAHB, the National Association [00:04:00] of Home Builders. And what they are is, well, they're an association of home builders, and this is primarily for production home builders across the country that are building hundreds and thousands of homes.

And they often build the same floor plans. The same designs, designs there. There's a big difference between a production home builder and a custom home builder when you're building one-off custom homes that are specifically designed for a homeowner versus production home builders that are buying and mass quantity that have the efficiencies after building the same home over and over again.

You can imagine that they are. To be extremely productive and efficient in building them. Hence, the cost is kept down. So the reason I'm mentioning this is because I believe, this is just my belief that some of these online tools are using this report [00:05:00] as a benchmark to some of the costs for these different items.

And then what they're doing is they are. Tailoring those or customizing those to their own algorithms, their own formulas, and they're injecting like quality levels so you as a user can select different quality levels to affect the price. So let's get into this and I'll show you how this works. So what you're seeing here is you're seeing.

Website called Family Home Plans, and this is a plan house Plan 8 0 8 0 4, which is a 2,607 square foot home, four bedrooms, two and a half baths, two car garage, and the dimensions of the structure. It's a nice looking home. It's a very. Basic standard home. Kinda looks like a modern farmhouse style, and you can see that this is the floor plan.

Pretty common kitchen, four [00:06:00] bedrooms, bathroom half bath, laundry, so on. So this is a really good one to use. One of the reasons I'm using this one too is the square footage amount. Right up here is really close to the same square footage amount that the National Association of Home Builders uses in their cost study, and we're gonna look at that next before we dive into some of these applications.

But again, what these applications are doing is they're using this exact plan set. Both of them are using the exact same plan set, and then providing you a cost to construct. Let's go ahead and take a look at the National Association of Home Builders Report. Try to expand this so you can really see it.

So this is a lengthy report and it's interesting to read if you'd like to, but this is what we care about right now. This is what they call their sale price breakdown. And they have a 660 $5,298 price tag on a [00:07:00] 2,647 square foot home. So you can see this is really similar in size to our sample plan set, and I did that intentionally.

Couple key points on this one is that they do have the finished lot price included. They have a total con, what they call construction cost of 428,000. Then they have some other items that are more related to production, home builders like financing, cost, marketing and sales and commission. But they do have two other items called overhead and general expenses, and then profit.

So these numbers I've left into the total because if you were to hire a general contractor. To build a home, you're gonna have a certain level of overhead and profit built into the project.

So what we've got here then is we have a revised amount of $630,000, $630,491, or about $238 per square foot to build this [00:08:00] home. As you scroll down, you can see that there are costs associated with certain categories. So here they do have costs for permit fees, water and sewer connections, even architecture and engineering, and they have a percentage of cost over here, which is helpful.

We won't go through these in great detail. The reason I'm importing 'em out to you is because this is not uncommon to categorize the construction costs in certain ways, like this foundation, the framing, exterior finishes, and so on. And the other reason I'm pointing this out is some of these online applications that we're gonna be looking at do not include permit fees, do not include the architecture, engineering fees.

And that's gonna be important because those cost money. In this case, the BU building permit fees and the architecture engineering fees, for example, are extremely low for a normal, custom home. But of course this is again, a production home builder. So they have different avenues to control costs.

[00:09:00] Anyway, this is the total project of 428,000 construction costs. And then you have to add in the lot. They have a $91,000 value for the lot and other elements that bring it up to $665,238 per square foot. So that's an idea for a 2,600. Do 2,600 square foot home. They spend this much money, supposedly, this is after interviewing several, maybe a hundred, I don't know how many builders they interview, production home builders, but these are the values that they've come up with.

So let's get out of this one for now. So the first one we're gonna look at is called Start Build. And I I kind of like this application for a few reasons. One is they have some flexibility built into it so a user can go in and edit the numbers and. Budget numbers a little bit to tailor it to more what you think the budget would really be off of their values that they've come up with.

So you've got some [00:10:00] flexibility in there to to, massage the budget.

So what's cool about start build is we can literally take this link up here. We can right click it. Oops. We can right click it and say Copy. Sorry. I have about three different monitors going here, and then we can go into their budgeting tool that they have. Oops.

Sorry, gimme a minute here. Lemme just pull up their site and how you start with their application.

So this is how their website. You can literally drop the link here

and it will actually find the plan set online. You can see right here, which is cool. And then they'll use that information with their little magic wand. They pull all of the data out of here that's important to do budgeting, and they generate a report. It's pretty cool. So I can hit go and then up come some more choices to generate a more accurate report.

In [00:11:00] this case, it's asking for your zip code. The zip code's important because geographic data, economic data based on regions can affect the cost of labor. Sometimes materials, although I'm not sure about that and why. Roofing materials would cost more in Reno, Nevada versus California, et cetera. And I'm gonna show you that.

So you enter in your zip code, you enter in some variables here about the foundation type, and then you can select your quality level here, which is nice. So good, better, best, or what they call custom. So in my samples, I'm gonna show you I selected the better option. It's kind of a mid grade option.

So you do all that and then you purchase your report for this specific plan set. So now let's take a look at their report.

Here's their report, and you can see here's the zip code. Now the zip code I've selected is in Northern California in an [00:12:00] area called Silicon Valley. You've probably heard about. And that's where I'm originally from and where I did most of the work. Most new construction remodeling work. And this is also a more expensive area to build in and live in.

So that's why they've done it this way is you can pick your own zip code that will influence the numbers. And then you can see I selected the better class. So again, this is the same, this is the same statistics, the 2,607 square feet, blah, blah, blah. So we'll go through. Now what they've come up with is, or what I've come up with, is $250 cost per square foot with a hundred thousand dollars land allowance.

It does include soft costs and permits. So sorry about that note there. But it does include soft costs and permits. So we'll just glance through that. So up here you can see that they have plans and architects $6,400 engineering building permit fees. This is all soft costs. This is the money you spend before you [00:13:00] even break.

And then it gets into the construction aspects, and you can see it's organized pretty similar. Although it's not the same. It's similar to what the NAHB report that I showed you earlier does. And what we care about at this particular Juncture is what their construction cost is, plus the lot coming up to 652.

A 9 5 1 2 9 zip code and a midgrade mid-grade home. So what that means is about $250 a square foot. So that's called start, build. And it's a good start. What I can't show you today is how you can massage the numbers. You can do that on your own if you decide to buy a report from. And then you can go in and play with the different numbers and create a more accurate budget.

But you still have to have knowledge base. Actually I can show you that. So here is start build. Here's that particular project. You can see I can add decks I can change the [00:14:00] lot amount. And then this is where you can. Type in, like for example, $6,400 for architectural fees for this entire project is probably not enough.

So if we added $5,000, to that number, you can see us editing and changing it, but I'm not gonna change it right now. So this is what I like about start, build. And the other one we're gonna look at has some of those features, which I think you have to go to the more pro version. They have three different levels.

So here we go. We can change things here. So if I change this to minor slope upgrading like that, you can see it changes the amount. So I kinda like this tool. Here's what I don't like. The number's not even close to what it would cost to build a house. This is what drives me nuts, and this is what is gonna screw you over, frankly, if you depend on this to make big decisions.

So they probably don't like me saying that, but if you were to take this report as they generated it and took it [00:15:00] to a builder in the 9 5 1 2 9 zip code. This is my budget to build a 2,704 square foot home. They might just laugh you right out the door. It's probably double that in that particular zip code.

So this is why I'm showing you this. It's a great start. It's a cool tool. If you have the knowledge to be able to adjust the numbers more what you can do here, if you have the knowledge or a builder can say now you're not even close. We need to add this and add that. You can play with it and get to a more accurate number.

But a normal homeowner who doesn't have that knowledge won't be able to do that. So that's the problem with these. That's called Start Build. The next one is called home cost.com, and what's neat about them is it's integrated into this particular home plan website. So family home plans, you can just order a [00:16:00] cost to construct report and it will.

Use this system, which is a third party system. It's integrated into theirs to build a construction estimate. And that's exactly what I did here. All right, so this is that website and then the report, here's where I typed in that same zip code I specified their standard level. I believe this is using their, what they call their instant estimating system, which is not as comprehensive as some of the more premium versions of their tool, and it generated a report.

So here's what their reports look like

it looks pretty similar, doesn't it, to the other one. Sorry, that's a different one. That's the Reno one. I want to show you that. That's really interesting. This is the same zip code, 9 5 1 2 9. We don't need to go into all these details, but there's some key elements here. I don't see any cost allocated to soft costs, which could be anywhere from seven to [00:17:00] 20% of the cost of the project.

Architectural fees, interior design fees, permit fees, consultant fees. I'll show you that in, in the last presentation here of a budget spreadsheet that I have. So they've come up with that zip code of $765,000. So it's, although it's more than the other one. They don't have the soft costs included, and they don't have any land included.

So here's what I did. I came up with $294 a square foot with no land, and then $331 a square foot based on a hundred thousand dollars allowance for land. The NAHB one you may remember was 91,000. Here's the point. The point is, again, we're not, this is not a thorough, comprehensive construction budget, but for people who don't understand.

This business or don't know what to look for. A lot of people, their instincts are to just go to the bottom line and say, oh, is that my budget? That's all you really care about is, and honestly, that's all you really should [00:18:00] care about. Do you really care how much the tub enclosure is gonna be?

Which by the way, is zero. And the site work, which by the way is zero. So there's things that aren't included in here. Do you care how much the baseboards are? They do have their contract, general contracting fee. Now, if you're an owner builder, if you are a d iyer, if you're planning to be right in the middle of this, managing the project yourself, meaning subcontracting, meaning doing work with your own hands.

Maybe doing the plans yourself and hiring a drafts person. These tools can be helpful. And if you were to do that, you probably would want to invest in the more premium versions of this application so that you have the flexibility to add things, change things, and create budgets that are more accurate.

This, again, is that instant version. So this is the problem I have with these. There's no way that a builder. Would build that house and that zip code for that [00:19:00] money. There's no way it would never happen. I've built there for 35 years. It's not even close. It's probably close to double. Okay. 50% more, 70% more, whatever.

It's not even close. So that's the problem. Now, there's another thing I wanna show you that's with the same report you can enter zip codes in. What I did is I entered a different zip code for the same exact plan and they came up with, for that valuation, they came up with $552,000 versus $765,000 in the Northern California Silicon Valley zip code versus 5 52 in Reno, Nevada.

I'm also now, I am now close to Reno, Nevada where we've relocated our business and our residences. And here's a problem I have with these alls they've done is they've added a percentage across the board, every single light on 'em, both in the labor column and the material column. So you'll [00:20:00] notice that every single line item is different.

There's no real smart. Factoring here, they've just added a percentage and it's probably they've probably used some general economic factoring and geographic factoring to come up with a revised amount. But here's the problem. Does a sheet of drywall cost more in Reno than it does in the Bay Area?

Maybe. But is it. Double. Is it 50% more, 38% more, whatever. It's the material aspect of this thing is not accurate, so I don't think it costs, even though the 9 5 1 2 9 zip code is not enough, the more expensive territory this. It's not enough either, and it's distorted by the way that they've created this.

So you can only go so far with all of these standard algorithms and factoring to get to an accurate [00:21:00] cost. So that's what I believe these are doing. I don't know for sure. I don't know. I don't know the technology they're using, but when I start looking at the NAHB data, I start looking at two different applications coming up with very similar numbers and very similar formats.

Eh, I got a pretty good idea what's happening here, but none of that really matters because this is the problem. You can't build this house for this amount a custom home. Now, if you're a production home builder. Maybe you can. I still don't think they can, honestly. And you'll also notice, like on this one, there is no site work.

There is no land costs. So this one here is 294. This one here is $211 per square foot. So this is why I'm showing you this because as a homeowner, when it comes to budgeting, there are tools like this out here that you can play with. I've talked to homeowners that have used these. They gravitate [00:22:00] towards the dollar amount, the total dollar amount to see if they can afford it.

If they think 700 thousand's a possibility, and they start hiring contractor or start hiring architects and contractors, and they start going down that path, paying tens of thousands of dollars, then come to find out that it's, $1.1 million, not $700,000. This is the big problem.

Then you compound that with all of the people on Facebook groups that are talking about how much it costs to build their home. I paid $125 to square foot to build my home. I paid $200 square foot to build my own home. I think that is one of the biggest delusions out there. And there's people talking about, but then you'll see messages right after that saying I don't believe that I spent $400, I spent $500.

So it's all over the gamut. So what I'm trying to accomplish is I'm building this application, not just a budgeting application, but I'm building an application for homeowners, [00:23:00] not contractors. Not designers, although it's gonna turn out to be a great tool for designers and contractors, mostly designers.

This is directed towards homeowners to, and part of that will be a budgeting, but it's not going to be a budgeting tool that is how much your baseboard costs or how much your framing costs. It's gonna be a. Tool to give you a more realistic sense of, how much it's gonna cost to build the home.

And that's all. As a homeowner, I think you should care about at the early stages of planning to understand where you're going so that you can convey that to potential architect or maybe your contractor if they also do the, so what I'm gonna. Again, one of them was called start build.com. You can see it up here.

And one of 'em was called Home Cost, and you can go in there and play with these tools. What's really cool is these online home plans that are out there [00:24:00] at least can give you a sense of the style that you like, the size of the home, the configuration, and that's another way unrelated to our conversation today.

But that's how you can start managing your inspirations. And then you can use those plans to maybe capture a budget of some sort. And then when you have that budget in hand, take it to a builder or an architect and say, I love this house. I wanna make some changes. But I ran through the cost report and I came up with $700,000.

Do you think it's realistic? That's who really matters. And a contractor or a home builder really has a better grip on the cost, even more so than an architect, unless an architect has been involved during the construction and during the bidding process, which some of them are. It's called a construction administration, and they'll have a good sense if they're involved at that level.

So that's where we're at now. The next thing I'm gonna show you. Is a spreadsheet tool that I'm using [00:25:00] as a baseline for an application I'm building. So I'm sharing the progress of what I'm doing, this application's in development now. And it's not just a budgeting tool, like I mentioned it's gonna be one of the components of this tool for early planning.

Project so that you can set ex expectations. This tool called Build Quest is going to start with picking your home, setting up the project, picking up picking your square footage in your rooms that you want. Then it's gonna get into what's called Vision Spec. It's going to help you gather inspirations based.

Then it gets into a budgeting tool, and then it gets into how to find resources to help you design and build a project. So that's coming, that's in development right now. But this is a spreadsheet that I wanna show you that you can see here that I've entered in 2,704 square feet at $400 a square foot, not 200.

Not [00:26:00] 250 or whatever it was, and that comes up with 1,081,600. Now that we're not done yet, as you get into, if, as we get into more of the questions that'll be asked in the application, we put a garage in at around $200 a square foot, and that gets you an $80,000 number. And then there's gonna be some other areas that you'll be able to enter costs in, such as landscaping.

I don't think I saw that anywhere on some of the other budgeting tools. This costs money sometimes a lot of money, and sometimes it's a requirement by the cities, by the counties, by the HOAs, but it must be done and it should be put in your budget. 6,000 square foot lot. You could spend, let's call it 60,000, or maybe it's less, maybe it's, whatever.

It's gonna cost you some money to budget in for this purpose. I'm gonna delete that for right now. Now we're at 1.16, 1 million for this house, [00:27:00] and then you've got the design fees. The cost of design is a real cost. There's different ways that you can manage this design. And no matter what you do, you need a design and the lower the quality and thoroughness of the design and the specifications, the less you're gonna meet your expectations.

Most importantly, the more change orders and cost escalations and schedule delays that you'll have. So I want you to keep that in mind when you're thinking about a project. Now you can search all day and night online. And I've also studied this myself because in my business I operated what's called a design build business.

I employed my own design staff and my own construction staff. I have a separate. Design contract. I have a separate construction contract and I've been able to analyze that over the years of what, how, what the percentage of design fees are [00:28:00] relative to the construction costs. And I have a number here in here of six to 12%.

And that's a big range because a simple project is a lot easier design than a more complex project. Pretty simple. So I put in the low amount here. People are out there, claiming that they're, doing it for 2% or whatever. So you saw some of the architectural fees out there that were six and 7,000 on some of the reports that we looked at.

So I'll put 2% for now, and then you will have to hire some consultants to do your work. Even if you buy those plans online, you can't take, you can't print out those plans and run down to the city and get a permit. You need a site plan. You need what's called MEP me Mechanical Electrical Plumbing Plans.

You'll need detailed sections and elevations. Sometimes they come with that, but they're not necessarily thorough enough. You need a lot more than what is just provided by those online plan sets, but it does give you a good headstart. So [00:29:00] there's nothing wrong with 'em necessarily, as long as you know what they're good for and what they're not good for.

If you want to make changes to those plans, you'll have to hire a designer or an architect to, to add a room or whatever changes you're gonna wanna make. But anyway, you're gonna need some consultants. It's usually a structural engineer. You may need a civil engineer if the property is large or sloping or you need special situations such as grading and drainage plans for the county.

And there's other soils reports you might need you need to factor a dollar amount in there for these reports. And I talk about a lot of these consultants in the Awakened Homeowner book, under the consultant section. And I put descriptions of what each one of them do.

And there's several. You can learn about, and then interior design is something that could apply and should apply. If you want to meet your expectations, if you want your project to look like all the pictures that you've saved online. So I put a dollar amount in there.

Now, an interior designer, remember [00:30:00] if you don't remember, an interior designer is not your pillow fluffer your paint color picker and furniture buyer, although they do that. A qualified interior designer for residential construction helps you select and specify all of the materials for the project, from the flooring to the baseboards, to the cabinetry and the countertops and the tiles and the back splashes, and the light fixtures and the plumbing fixtures, and they can think about the project holistically because that's their profession.

Then an a qualified interior designer documents all those materials. They provide drawings and details to hand off to the subcontractors or the general contractor for example, a big one is always tile design. And who's doing that? Somebody's gotta do that. Or you're not gonna, you're not gonna get what you want.

So I always factor a cost element into that, and that'll be your choice. So you could try to do it yourself and you'll have zero cost [00:31:00] 'cause you're on a tighter budget. Okay, that's great. Permits are another amount that you need to factor in. I've analyzed that and it's probably in the one to 3% cost of the construction enough to at least get some budgeting going here.

And you can see what I've come up with. So this same house, same square footage, same garage size. Is now at 1.2 million where the other ones were six and $700,000, and those six and $700,000 number was not inclusive of some of the elements that we talked about earlier, site work and soft costs and other things that were just not.

And then some of the numbers in there were just not accurate or accurate enough. Then as we get to the budget summary page or summary section. You're gonna see I've dropped it a hundred thousand dollars amount here for land. There's the construction budget that's dropped in from up here, and then we've got the design fees and the [00:32:00] permits, and now we're at 1.337 million.

And then lastly, I've put a 5% provision in because things change. You might change something. If it's a major renovation, some unknowns might come up. Having a provision of anywhere from five to 10% is recommended, and the more complex the project is, the less quality design work, the inadequate specifications.

In other words, you haven't made all the choices if you don't have an interior designer. The higher the provision you should put in, because there's gonna be mistakes made. There's gonna be things that need to be redone, and a lot of it's gonna land on you to get it redone because the information wasn't provided.

So now we're at 1.4 million for this project. Pretty much double what that one report was at 700,000. So here we go. That's what I came up with for this project. And in the 9 5 1 [00:33:00] 2 9 zip code, which is the city of San Jose, California, it's not a real high area, but it's right smack dab in the same region of Silicon Valley where Apple headquarters is located and Google and all of them.

And that's all the work that I did for those people. It's pretty damn accurate. In fact, it might even be a little low, frankly. Now if you're in a, a region that's not as expensive. And you try to do some of these things yourself and you find less expensive resources and you pick lesser quality materials, maybe you might be able to chip that number back closer to that $700,000 number, but not that much closer.

You can pick up 20 or 30%. And now you're still over the million dollar mark on this project that you may have thought was gonna cost you $600,000. That's what I'm up to today, is to rattle the cage, shake you up a little bit, and make you understand that all the things you see online, [00:34:00] all the Facebook groups, you might be in the online estimating tools.

Don't mean that much. It gets you started and the best thing you can do to get a sense of what a new home's gonna cost, even if it's not the exact home you want, is to get into that plan set, run the budget. Then the secret sauce is to go to an architect and a builder and say, look, I want to build something similar to this on this lot.

I ran some numbers through some of these tools and I came up with 700,000 before we even get started. I'm, am I even close? And get their opinion. And that's where you're gonna really feel empowered to meet your expectations. So that's what I have for you today, and that is the, that kinda runs to the end of our discovery series.

For The Awakened Homeowner. I'm gonna post this on a podcast and I'm gonna post this on YouTube. I realize this isn't necessarily a podcast, but I'm gonna put it there [00:35:00] anyway, and for those of you who are really interested in this, and I recommend you go over to YouTube, The Awakened Homeowner channel and watch this video so they can see some of these spreadsheets.

Now I feel like you're in a much better position to meet your expectations. That's what I have for you today. This is Bill Reid with The Awakened Homeowner Show