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On Seeing Clearly: "The greatest thing a human soul ever does in this world is to see something and tell what it saw in a plain way. Hundreds of people can talk for one who can think, but thousands can think for one who can see. To see clearly is poetry, prophecy and religion - all in one." from
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Remodeling Topics, Philosophy and a few general ideas about custom residential architecture In Southern California real estate values will always fluctuate, and right now we happen to be in a growth period with low interest rates. It is a great time to build –or simply add on. While we continue in this growth period, the average home prices will also vary. Depending upon which natural disaster strikes next, which areas are affected by flooding, storms, fires, earthquakes or other calamities, builders understand that the home buying public perception pushes market values higher. This market is driven by supply, which entails higher investments and increases construction demand. This in turn increases construction costs and makes your residential values appreciate. When this perception bubble reaches a point where it bursts, prices then go through a downward ‘correction’. Today you receive greater rewards for your remodeling effort because the scale of your home equity value changes with this assessment evaluation increase. However, the main reason to renovate a residence should be : 1.) to positively influence the equity value of your investment Most clients do not engage in remodeling because they enjoy this process. Renovation is never an inexpensive proposition and often it is very stressful. Unless more than adequate funds are available, you should limit your financial exposure by insisting on a clearly defined scope of work and written, contractual construction costs. Every construction budget represents some monetary risk due to the many variables involved. Budgets are good management tools, however this is no guarantee that actual construction costs will meet your planned expectation. There is one rule in renovation and new home construction: Even with your deliberate, cautious and well-planned approach, it is likely your budget will fall short. Prepare for this by being conservative in your estimates, receive multiple bids for comparison, and shop for bargain offers. Perhaps with the help of this article you can make a more informed choice. Knowing your own limitations and maintaining reasonable cost assumptions with the help of competent professionals minimizes the harrowing construction experiences we have all heard about. With hindsight, everything can be corrected. Precautions, however, in the planning stage of your contractual agreements give all parties a better foundation from which to work. Here’s how I like to typically breakdown project costs: Construction Costs: 55% For example, adding habitable space to a typical detached, single-family house in the Palisades should cost approximately $250.00 per square foot in construction. Based upon the average Los Angeles County home sales prices (listed in the L.A. Times by zip code region) you can expect such home value improvements to range between $700-900.00 per “new” square foot added. While these prices listed include the value of land, adding on is a profitable venture and wise investment, especially in consideration of the after tax savings determinants. What do these numbers mean? Increasing your home’s curb appeal always commands higher a sales price. However, without considering land value, location or view, for every dollar you invest in increasing your home's square footage, expect a return of three dollars per square foot in the averaged assessed equity in profit. When you hire a competent architect you are engaging skills, which improve the aesthetic appeal of your home. While curb-appeal is certainly somewhat intangible, the ‘desirable’ factor of your home is not, as all potential buyers are comparing each home. This is a personal decision that varies from buyer to buyer. A beautiful house with similar square footage commands an unreasonably higher market value. Your architect’s skills and the execution of competent contractor building ability will modify a more conventional design and layouts in ways you may not think of. Project timing is also one of the most crucial factors affecting property development. Start your home renovation prior to leading economic indicators improving, will afford higher profits upon completion. In this current boom time starting with construction is a promising proposition because a very active market -combined with high buyer confidence levels- increases your sales price. In a down-turned market the residential construction industry follows a delayed rebound, (when compared to the general economy) which results in a substantial “lag time” for house prices to recover. Using this delay can also help form a timetable strategy, which offers you the highest return when real estate values do not increase. Consider a 1,000 square foot addition to an existing 2,000 square foot residence: The project has on average a construction duration of eight months. With architectural planning, design and permit application this time schedule increases by four months. This means the duration of a project started in early 2006 targets completion by the spring of 2007, the most active period of property exchanges. Using your specific real estate time considerations to your advantage obviously compounds cost savings, if the market turns upward during this period. Improving on your lifestyle by remodeling in a down-turned market has other benefits. When construction bids are lower, wait out the upturn and enjoy the increase of living enjoyment of your remodeled home for a few years. The surge in property values is always cyclical. The single project housing construction industry is more affected by economic downturn than many other industries because of the many independent, interactive trades and the competitive bid process. Most of the time, however, we do not know these market cycles. Historically, it is inevitable that residential values increase. Adding to your home at a time while contractors are scrambling for work is easier and one of the best investment bargains available, if you are cost conscious in your approach. Hiring contractors when the market is hot, makes all bid requests and construction cost estimates higher. Balancing your needs with that of the perception of where the real estate market is certainly adds to your profit. During busy times even the small operators will increase their margins, as supply and workforce demand determine these margins and the price of your improvement. As an architect I am often asked during the preliminary phase how much a project costs. I use a minimum $250.00/sqft. as average construction costs, but this, too, has to be qualified. When bids are presented at the completion of the construction document phase, all previous estimates representing average cost vary according to finishes, mechanical systems and complexity of design will not correspond to the actual bid. Some projects may come in at under $175.00/sqft., while more elaborate designs may cost over $800.00/sqft. To a large extent these construction costs depend upon the cost and installation of specific finishes, and the extent of architectural construction documents with clear specifications. Submitting four sets of architectural construction documents to four different contractors is guaranteed to produce bids that vary substantially in their total bid amount. How is your architect supposed to calculate actual costs from such a diverse range? The same drawings, the same finishes, the same method of construction will have bids varying by 25-50%. This is an amazing truth, dependent upon many different factors and market criteria. The construction process has many intangibles, is complex, all subcontracts vary, the quality of workmanship varies, and the elusive homeowner contributes to these intangibles by adding just a few additional, small changes. Small changes add up tremendously in actual construction costs, because many other considerations are affected. Design features, re-stocking charges, dimensional modifications, functional considerations, and simple oversight contribute to changes during construction. This is why I recommend you have a budget reserve of 20% above the accepted construction bid cost before you agree to a specific, fixed price contract. Give every construction bid award due consideration. The contractor who has shown the most reasonable, comprehensive cost calculations, along with a documented history of successfully completed jobs (call the references your bidders offered!) while not necessarily the cheapest bid, may in your final evaluation represent the best deal. Factor in the inevitable change orders, the quality of work, and your cost-related project stress. To reiterate, your communication skills between contractor and architect is the single most essential tool to project success. Understanding the respective needs of each party of your contract is key to every successful project. With so many factors that can affect the outcome, this dialogue between parties is absolutely essential. The relationship and the communicative abilities between a client and a contractor represent one of the most important considerations of a project. As an architect I am faced with many different approaches to address contract terms. One of the most common questions is: What type of contract format is best to use for remodeling? This consideration largely depends upon the current market conditions, the type of project and the scope of work to be completed. A fixed price contract is defined either by a percentage of estimated construction cost or as a flat, stipulated fee. I recommend that you opt for fixed price contracts, with a defined completion date, with clearly indicated profit and overhead fees, and a guaranteed timetable, tied directly to the contractors’ construction payment schedule. With a guaranteed payment agreement specifying payment amount and due date, the job most probably will be completed at the specified cost and on time. A time and material contract is defined by the daily, weekly, monthly hourly billing rate of all employees, with a direct expense reimbursement for materials, services and work completed for your project. The contractor then adds flat percentage fees for supervision, management, overhead and profit. These factors are also often added as flat fee project rates. The disadvantages to time and materials contracts is that the owner has no idea of the actual final costs, and inherently there is no incentive for your builder to save on materials, or to complete the scheduled timetable as quickly as possible. I typically choose to use time and materials deals with small scope of work projects where limited exposure and fast completion is paramount. In slow economic periods a construction budget has simply fewer margins for errors, omissions or the eventuality in dealing with poor construction management. You don’t know about these shortfalls until you are in the process of dealing with this, and on a small job a time and materials contract allows for a more easy transfer of contractors, if you are dissatisfied with work progress or quality of workmanship. If the economy is in a rapid-growth cycle where an abundance of projects are being offered and built, contractors are more difficult to pin down with restrictive flat-rate bids because of their high work load, and demand. Such conditions suggest you consider a time and materials contract cost calculation basis. The contractor must be in the position where he is eager to complete your job as quickly as possible so that he can engage other projects. With his efficiency predicated upon the quick turn-around, he will seek to complete your job as fast as possible. As a manner of principle, all general contractors have some padding calculated into each cost category to cover unforeseen expenditures, delays, or miscalculations. This is termed as “overhead”, calculated usually at 10% of total costs. There is also the ubiquitous profit margin. A good profit is essential to every business. When it becomes easier to walk away from a very difficult job, rather than to absorb massive financial losses due to gross underbidding, the contractor will probably chose the former at the expense of the client. Know your bid costs well, understand your specific project parameters, figure out the specific subcontractor break-downs and scheduling as well as the person who prepared it. Adding on to your house has many benefits; the higher costs of a limited scope contract has a shorter duration. For efficiency sake it costs less to build more square footage at one time. Ultimately, the more work you complete, the better the market resale value and the greater your profit. Always use common sense: · Hire only licensed professionals, with references and
credentials Undoubtedly there are always additions and change orders during the construction process. It is important that you know how to address these, and that in advance, you have a process, which encompasses these unforeseen conditions and circumstances. If you begin with hiring a competent, creative and knowledgeable architect you’re taking that first step in the right direction. I believe the cost of fees for competent professionals always represents substantial construction cost savings, and much better project completion criteria. Remember to strive to maintain the best architect-client-contractor communications relationship in your daily business decisions. Remodeling is an exciting and gratifying experience as long as the constraints of budget, timetable and contractual obligations are clearly agreed to in writing beforehand. Then your stress, project expenses and your timetable schedule are held in clearly defined and controlled parameters.
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