What Are The Things That You Should Know Prior To Building A Custom Home?

The process of building a custom home is often the most misunderstood segment of house hunting. Said differently, a considerably high percentage of prospective home buyers start out thinking they may want to build a custom home but then end up purchasing an already built “spec” home or working directly with a custom home builder to modify a home which is in the process of being built. Choose the layouts where you will have fewer maintenance costs including that of electricity bills and the right floor plan that fits your living space.

The major reason for this confusion is that most of the would-be custom home buyers usually have the basic sequencing wrong. They usually end up thinking that they will probably be able to find & purchase a perfect plot, then hire an architect to design their dream house, and then take the architect’s plans to a handful of builders who will eagerly bid out the project and then eventually pick the custom home builder with the lowest bid. The reality is that the order is usually reversed.

Custom Home

This process is generally faster, smoother & less expensive for the buyer. Here are the reasons for the same:

Firstly, let us start by identifying the options to purchase. In order to do so, this is critical to understand the new construction market/builder. In the local real estate market, you have probably noticed a ton of new constructions. While some of the construction is “custom” projects in which a property owner has hired an architect & builder for constructing a home on their lot, the vast majority of these projects are “spec” homes.

What happens when the real estate markets are strong?

When the real estate markets are strong, you will notice increased spec home activity. The builders & developers usually invest an enormous amount of resources & energy into trying to identify the best lots on which to build a spec home. When they finally find a potential lot, they are prepared to pounce & quickly prepare a clean, cash-written offer that has limited contingencies and closing terms customized for the seller’s requirements like rent-back period, short or long settlement, etc.

Another major question is how does a builder identify & price the lots that they want to purchase? This all starts with the “outsell” price. Then from the outsell price, the builder backs out the hard costs & soft costs of building/selling as well as the profit margin they expect to capture. The hard costs are the direct costs of the physical construction whereas the soft costs are the “non-built” costs that include architectural fees, carrying costs, real estate commissions, engineering fees, etc. Whatever amount is left over is how much the builder can pay for the lot. If you go for EMI payment options, then also check the monthly installment patterns, and how the home can be built in a more energy-saving way.

Custom Home Buildes

Why in some cases, there is more risk for the builder?

In case the neighborhood does not have adequate new construction, there is more risk for the builder because there is absolutely no precedent for the outsell price, On the contrary, if a neighborhood has several newly constructed homes that have been sold over a period of few years, there is a lesser risk for the builders as they will have access to certain supporting data with comparable and relevant sales. The general features for house plans include the yard structural warranty, the space given as per government norms, and the price taken per square foot in the long run.

The above-discussed parameters and market intelligence should strictly be considered before you opt to build a custom home and choose the right custom home builder.