“The pandemic has been a big source of unexpected shifts in supply and demand for all kinds of goods. It’s understandable that new- construction homes, and the materials to make them, are suffering from an unprecedented price increase that has many homebuyers and builders reeling from sticker shock.” Danielle Hale, chief economist, Realtor.com
TOP STORY: Building Your Dream Home
Like Goldilocks in search of the perfect bowl of porridge, house hunters often struggle to find a home where everything is just right—size, style, floorplan, location, finishes. This may be especially true in the current environment of shrunken inventories. It is tempting to think that, if the dream home doesn’t exist, maybe you could build it.
Maybe, maybe not. While there are a lot of options and possibilities, there are also many pitfalls. If you are thinking of building your own home, proceed with caution. Don’t let dreams get in the way of reality because the reality is—while there are many options for building—each is like a set of Russian dolls, with many more decisions (and possible pitfalls) nested inside.
The first decisions are the fun ones. What will your house look like? How will it function? Take some time here: There are hundreds of floor plans on line—some can be bought like a dress pattern—others are pitches from home builders or developers. You might find one that is perfect or pick ideas from several, and then hire an architect to piece together your version.
Every room in your potential home offers options—flooring, fixtures, heating systems, appliances, finishes. This is an opportunity to make choices and come up with some preliminary cost estimates. Can you possibly afford exotic hardwood flooring or will vinyl planks have to do? You could also plan ahead. Maybe the bonus room over the garage could be roughed in and finished when funds become available.
Big and less fun decisions, however, are:
Who, What, and Where?
You could do it yourself; a true DIY. But framing every wall and laying every brick is something to consider only if you have a lot of talent, a few useful friends, and a ton of time. A more realistic approach might be art own general contractor (GC), finding materials, locating tradespeople, scheduling the work. This would cut out the middleman standing between the work and your wallet, but first think about the many skill sets that go into home building—preparing the site and constructing the foundation, framing the walls, and there’s the roofing, plumbing, and electrical. It is a very long list and may require contacts with tradespeople you might not be familiar with. Being a GC will require hours and hours on site making sure the workers show up as scheduled and the work is getting done. You must also know about and need to stay on top of the necessary permits and building department inspections related to each phase.
“I Know a Guy”
Let’s assume you lack the skills, time, or maybe even the bravado, to think you could do any part of building on your own. There are other options. You could hire a GC, employ a home builder, or order a new home off the rack.
While there are many similarities in the roles of GC and homebuilder, there are also distinctions. A GC may or may not specialize in home building but has a more generalized portfolio including remodeling or even cabinetmaking, and usually comes on board when the land is purchased, the home plans complete; just in time to obtain the permits. He (it is increasingly possible it could be she, but he is the pronoun for today) may have a small crew but is more likely to call on a team of subcontractors to perform the various building functions as needed.
A home builder is typically involved in the project from the get-go, from looking over the blueprints or working with an architect (if one is needed) to handing over the keys to the house. In addition to having a crew to handle most of the work (except possibly those trades for which specific licenses “are required such as plumbers and electricians) he will usually have established contacts with specialists should they be needed.
Modular, Not Manufactured
Buying a home “off the rack” refers to modular houses. These are built in a controlled factory setting in sections or modules and transported to the site and installed on permanent foundations. These are NOT manufactured houses. A good modular company is essentially automating on-site stick construction using pre-cut components and robotic processes. Some claim they can shave up to 35% off the construction timeline and can save money by reducing labor and purchasing materials in bulk (no need to have stuff delivered and stored at specific sites). The shorter timeframe can also cut financing costs. Modular builders offer a variety of styles and plans and can modify them for a homebuyer.
“Lots” to Consider
If you go the route of a GC or use a modular builder, you will probably have to provide the land. A home builder may be willing to custom build in a subdivision he is developing or on a plot he had bought for a spec build. This eliminates a lot of issues but might limit some of your choices. The builder may insist on using one of his plans and/or keeping a certain look for his project. Some may refuse to build your dream yurt or other outre homestyle.
Acquiring land involves a bunch of other choices and possible pitfalls, especially raw land. This could mean clearing the land and bringing utilities to the site. If the parcel is located away from existing services you might need to perk test for a septic system, drill a well, maybe even consider alternate sources of energy such as solar or geothermal. Before you tackle buying raw land, we suggest hiring a consultant
Another way of acquiring land is to buy and tear down an existing home. In attractive, close-in suburbs, land may be worth’ more than the old or inefficient building that occupies it. There will be clearing and disposal costs, but they might be offset by having utilities already at the site. Financing may also be easier with an existing building, but be sure to inform the bank it won’t be there long. Also, make sure you can get a demolition permit and, as with any land’ purchase, that zoning and any deed covenants won’t prohibit building the type, size, height, and style home you envision.
Real estate agents were recently polled about bathroom trends that have gone “too far” and are about to tip from popular to dated. These were among the top ten:
Jetted tubs. They were hot in the early 2000s but “are fizzling out faster than a bath bomb.” Many homeowners are removing and replacing jacuzzi’s because of their mechanical and maintenance issues.
Bold Tiles. Extravagant motifs and bright colors are highly personalized. Restrict the drama to towels and shower curtains.
Double Sinks. These create more nooks and crannies to clean and steal valuable counter space.
All-White Bathrooms. They should be warm and cozy, not looking and feeling like a lab in which one is about to be experimented upon! Brittany Anas, Apartment Therapy
The Heart of the Matter
The old real estate saying “under all is the land” is horse hockey. Under all is the money and, unless you want to liven partially outdoors you need to be sure up front that you have enough to complete the home. Online estimates of new home building costs aren’t terribly useful. This Old House magazine found 2020 figures between $100 and $200 psf with location playing a major role in the variations. The Census Bureau did a regional estimate in 2019 and put costs in the West at $158.73 psf, $368,571.06 for an average size home of 2,322 sf. Remember, however, that the West is a big place. This Old House also notes a customized or luxury home will easily double the above estimates.
A home builder or even a GC will be helpful in nailing down costs in your area. Consult one early on with your plans; maybe consider hiring one as a consultant to ensure an honest estimate rather than a pitch for the construction job.
What If I Need a Loan?
Unless you have that kind of change rattling around under the sofa cushions, you will need to arrange for a construction loan, maybe more than one. This will be more complicated than getting a loan to purchase a finished home.
First, if land is being acquired in a different timeframe from building the house, a land loan will be required. Not all lenders write them and those that do consider them to have added risk— maybe the borrower will decide not to build or can’t obtain permits for any number of reasons. If the borrower defaults, the lender could be left with a property that will be hard to sell. Lenders who do these loans perform a lot of due diligence and rates will be relatively high. Consult with your own lender for advice.
A recent University of California Policy Lab study found “no evidence of a pronounced exodus from the state,” nor data suggesting that large numbers of wealthy residents are leaving. Two exceptions: San Francisco saw a large year-over-year loss, and the state saw more departures and fewer arrivals in Q4 of 2020. Some 267,000 people left California during the quarter while only 128,000 people moved in from other states.
U Cal’s analysis is based on credit reporting data, which doesn’t necessarily catch movement among young people some low income groups with little credit history. U.S. Postal Service data showed that Bay Area movers overwhelmingly stayed in the region. Lauren helper, Cal Matters
A construction loan is one of two types. A traditional one is a two-step process. A short-term loan covers buying the land and constructing the home. Once that is done, there is a “take out” loan, a regular mortgage that pays it off-almost like a refinancing. With a construction to permanent, or one-step loan, the borrower only pays interest during the construction phase then the loan converts to a conventional mortgage. This has the advantage of a single dosing and one set of closing costs.
The VA, FHA, USDA, and the GSE’s Fannie Mae and Freddie Mac offer permutations of construction loans.
Again, your loan officer will be the best source of information. Consult him or her early in the process, perhaps before you even start dreaming.
Construction loans function differently than a regular mortgage. If you buy a completed home from a builder, he will collect a check from the bank at closing and go merrily on his way.
Construction funds are paid out in “draws.” There may be five or six draws specified in the note, perhaps one when the foundation is poured, another when the roof is decked, a third when walls are dry walled and so on. A lending officer with construction knowhow will visit to check that the work is done and done correctly before authorizing a dispersal.
This draw system protects the bank, ensuring that it will get the collateral on which it is lending, but it also protects the borrower. It isn’t unheard of for a builder to stop building midway through the project and disappear, with any of the funds he has been given.
An “untethered class” of workers has been identified courtesy of the pandemic. Highly-educated, high-earning, working remotely and “on the precipice of settling down.” They rent, live alone or with an untethered partner, have no school-age children and probably don’t live in their native state. The largest share of these 8.7 million workers (5.6% of America’s workforce) live in high housing cost cities like San Francisco, Los Angeles, and Boston. Given that so many untethered workers are living in the nation’s most expensive housing markets, many may choose to relocate to markets where they can afford to purchase homes and raise families more comfortably. While such a trend would be unlikely to lead to the demise of superstar cities, it has significant potential to reshape the markets that they move to. Chris Salviati, ApartmentList
Even if you have hired an experienced: builder with good reviews, keep your eye on the ball. Tour the house, daily if possible, and make sure that work is being done as promised. Maybe the door to the bedroom isn’t placed exactly where it should be, or a less efficient than expected furnace has been delivered. These details should always be laid out in the building plans and specs so review them thoroughly before construction begins and throughout the entire process.
You may want to change some things too, but remember that any added costs will be your responsibility and that the earlier they are changed the better. Demand and review the builder’s invoices on a regular basis as well. There may come a time when you see you do need to give up those granite countertops, or that you can finish off the bonus room after all.
People who have done it always say that building a house can be incredibly stressful. But it can also be exciting and, hopefully, when it is all over, you will finally have your dream home. Or yurt.