We take up from where we left in the last Blog post.
3) Site Costs
This is a favourite cause of frustration from all the feedback we have received so far. How do you account for site costs? In our books, there is no easy way to do it.
In simplistic terms there are two major variables that affect site costs – the slope on the site, and the effort required to reach stable soil. Engineers and builders could tackle these two variables from a wide range of approaches. They are the ones guaranteeing your product, so rule 1 is that they should be comfortable with the approach. Each approach would have its cost, and it may not be the same.
As a Builder, we often have access to engineering reports from new estate developers. These reports do give limited information that is useful for limited estimation of the site costs – slope, fill etc. But the only way to get the correct estimate is to do a comprehensive soil test and contour profile on each plot. For peace of mind it may be worth your while to spend a few hundred dollars on these reports, so that the builders can cost you accurately.
We have heard of some Builders offering fixed site costs without the soil test and contour report. In our opinion this is best described as hedging your bets – some you win some you don’t. Or in other words, the majority of customers are paying more to subsidise the minority who require expensive site works.
It is also very advisable to look at total costs. Over the years we have been exposed to many site works – other builders of Course , that make us scratch our heads (putting it mildly). One standout case involved completely cutting out a slope about 3 meters away from the road. The customer then ended up with a driveway 3 meters deep, and large costs for retaining walls (these retaining walls fell very conveniently into landscaping costs and are not normally part of the building contract). It is highly recommended that you discuss the approach that your builder is taking, and feel comfortable in all aspects of this approach.
In the end all houses have a very similar theme- so many bedrooms, a kitchen, some living areas. What really sets yours apart is the customisation that you do to make it perfect for you. It may be as minor as colours, or as major as structural works. But in the longer term, without these customisations, your house would be a bigger compromise that it needs to be. So make sure the product or design that you shortlist ticks all the boxes you think is important. There are far too many people with regrets, when all it required was a clear head, at the beginning of the process.
And accept the fact that there are going to be variations – it is just human nature. It is impossible to think of everything right at the start. It may be an idea to consider working with a builder who does not consider a variation an opportunity to plunder the customer.
And do not hesitate to think outside the square. Will automation help your lifestyle? Is connectivity important? Is mobility going to be an issue? Thinking of these things may just help you enjoy your house that much longer.
5) Profit Margins
A few clients have told us that they believe that all builders make at least 30% profit, and therefore there should be a lot of room for negotiation. Considering that there are over 2000 builders in Victoria alone, there is a possibility that this could be true for some, but not any that we have met.
Most builders would have 3 components to their price: X (Cost of Build) + Y (Overheads) + Z (Profit)
X is the total of materials and subcontractor charges, Y is where the payments for salaries, advertising, office overheads and the BMW’s come from. Z is generally the small profit margin that will ensure that the business will remain a viable business in the years to come (and support your warranty claims if any).
Larger builders are generally able to achieve a smaller X (volumes and buying power), but have a larger Y (more staff and costs). Smaller builders have a more efficient Y, but often pay out more in X. We have only heard of examples and case studies of Builders who give up on Z, just to generate work, but it often comes at a disastrous cost.
If any builder is able to generate a 30% profit, they are in a very lucky place. When this figure includes both Y & Z components, it starts making more sense – for certain builders.
We hope, that we have cleared up at least some points for you. Feel free to call us on 1300 722 703 if you need any of these points to be further detailed. And come visit us at the InnoHomes display home at 4 Clovelly Way, Officer, Vic. 3809 to see what this new approach to home building is all about.