Contracting Part IV: Estimating and Creating a Budget

The most common failure when building a home occurs in the estimating of costs. This is one of the most important parts of the job to get right. If you make major mistakes, your job is doomed to fail before it even begins.

Historical Data for Estimating New Jobs

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Photo: Library of Congress; reproduction number: LC-USZ62-92466

The most accurate form of estimating is to use numbers from similar jobs in the past. For example, the best way to know how long it will take to frame a 1700 SF house is to look at how long it has taken on previous jobs. Of course, if you do not have records of previous jobs or don’t have previous jobs to consider at all, then this will not help you. Be sure to keep track of all of the jobs you complete. With that information, you can create your own estimating tables.

Estimating Books and Resources

Estimating books do exist that consider industry standards for each aspect of home construction. These are an okay place to start if you don’t have other options to help you nail down costs. However, you must consider that the costs in these books have been compiled by material from professionals. Everybody works at a different pace, so assuming that the numbers in any book will be accurate for you can be dangerous. Be sure to consider your own pace and compare it to those outlined in the book.

Professional Estimates and Quotes

Estimating with a Professional

Whether you plan to do all of the work yourself or not, you should still get some estimates (quotes) from sub contractors. This will help you in two ways. 1) It will show you if the numbers you’ve assigned to a task are in acceptable. 2) If you decide not to do the work yourself, you’ll have an accurate quote from a local contractor. Finally, you’ll know that you have enough money in the budget to at least cover the contractor’s cost. When you plan to use sub contractors, always get good recommendations from other people in your area and get at least three quotes for each aspect of the construction you plan to bid out. Do not take the lowest bid just because it is the cheapest. This may come back to bite you.

Build a Spreadsheet

When you create your budget, it is really easy to build a spreadsheet with 400 line items over 20 pages. This is a lot of detail and probably more than you need. It may be a good way for you to personally learn about the individual costs in your home project, but any bank will not want to see that many line items. Use the details as you will, but create categories to file those subtotals under. For example, “Framing Materials” can cover the cost of all framing materials in the house whereas you may want to know the details like: floor construction, bearing wall construction, window and door frames, interior walls, and so on. That is fine, but list it all under framing materials for the bank.

Contingency Fund

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Photo: www.island-decorandmore.com

Always include one, always. Even if you think you have nailed the cost of the project on the head and you are so confident in your numbers that you would bet the family jewels on them, don’t. Construction is a very organic experience. Things change during construction that you likely will not have anticipated, no matter how well you planned. You have to have a fund designed specifically to address these concerns. create a contingency fund of 10% of the construction cost with your bank. If you don’t use it, you don’t have to pay interest on it. If you do use it, use it wisely. No drunken sailors here with a pocket full of gold. Use it only when you need it and you will be happy you planned that far ahead.

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One Response to Contracting Part IV: Estimating and Creating a Budget

  1. Archie Medes Sun, November 14, 2010 at 6:54 am #

    Great tips on budgeting and I employ a contingency fund on most things. Even the best number crunchers do use a margin of error to accommodate for the unknown and surprises are now welcome in these circumstances.

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