Buy a Land-House Package or Hire a Builder?

Nadia writes: Hi, I’m planning to have a home built in an established subdivision with a couple of vacant lots. I have the option of either buying the lot and then building, or having the developer build and then buying the entire land-home package.  I’m leaning towards doing the land-home package, but I want to have control over the process.  I want to be able to make site visits, do some of the work myself, etc. It seems that I’d have more control over the process if I buy the land then pick the builder but then I may have to worry about permits and site prep.  Do you have a recommendation?  I haven’t spoken with the builder but my buyer agent has.  Should I hire a construction manager also?  Thanks.

Steve Bliss of responds: You are asking all the right questions. Unfortunately there is not simple answer that will fit all situations, and each approach will have pros and cons.

Buying the land-home package from the developer is certainly the easiest option as you only need to deal with one company and the developer certainly knows the site and all the costs of developing that site. However, you can still get hit with surprise costs that are not included in the developer’s package. If you are considering using the developer as the builder, I would suggest taking the following measures:

  • Visit other homes in the development that they have built. Do you like the  materials, workmanship, and design?
  • Ask the developer what is included in the package price and what is excluded. Costs that may not be included and that may surprise you later on include utility hook-up fees, various permitting fees (there are lots of them), and impact fees, which may be called a variety of names. These are fees paid to the municipality to cover the increased cost of schools, fire protection, etc., due to new housing.  Also ask about what landscaping is included in the contract price: a lawn, a few basic plantings, driveway and walkways, etc. Make sure you get all this in writing!  Use our land buying checklist as a guide.
  • Find out about the design process. Are these stock, custom, or semi-custom designs. Are there additional design fees if you vary from the developer’s standard plans? Are they willing to work with you to get you a design you like?  Do they have an in-house design team?
  • Ask about written specifications. These are critical to understanding what you are getting for your money. What materials are included in the base price and what are common upgrades that others in the development have chosen? For example, the price quote may be for vinyl siding, but you may want wood. Or the standard quote may assume vinyl windows and you may want aluminum clad, etc. The specification sheet should show you all the materials included in his basic build package. Ask what the upcharge will be for any material upgrades you want. Also ask about energy upgrades if that is a concern for you – such as higher insulation levels or a more efficient furnace.
  • Ask about allowances. How much is allowed for flooring, carpeting, kitchen cabinets, appliances, and bathroom fixtures. Often these numbers are unrealistically low and you end up spending a lot more for the quality that you want.
  • Ask for references and check them out. But also knock on a couple of doors of residents not on the developer’s reference list (naturally he’s going to give you names of his most satisfied customers). Ask if they are happy with the final project? How smoothly did the design and building process go?  Did they spend more than planned and why? Have there been any warranty or callback problems and has the developer been responsive.
  • Ask what the developer’s procedures are for site visits and work by the owner. In most cases, you’ll be able to visit the building site after hours or on weekends, but they won’t want you prowling around during workdays for safety reasons as well as to avoid distractions (just like auto mechanics don’t want you under the lift while they are working on your car).  As for owner-supplied labor, they may be open to having you paint or do other discreet tasks — you just need to ask and be clear about what you are doing and what they are providing.

If you get satisfactory answers to all the questions above, and you like the quality, price, and designs, you might be better off working with the developer.

In working with your own contractor and/or designer, you’ll need to address all the same questions. In addition, you’ll need to get a full understanding of what site development and permitting costs are included in the land-only price. In most cases, many of these costs will not be included in the builder’s contract price, so you can get hit with some really big costs for permits and fees, excavation, grading, trenching (for utilities), utility hook-ups, gas and electric meters, well and septic,  topsoil, landscaping, paving, etc.

The  building cost with an outside builder can look like a real bargain until you add in all the costs not included either in his price or the land-only price. Some items included in the land-house package may not be included in the land-only price. To get a handle on these, ask  the developer, outside builder, and town officials what other costs you should anticipate to complete the project. Call the local building and zoning office and ask them what permitting costs and fees you can expect to pay. They should be familiar with the specific development and be able to give you a complete list of  fees. They can also direct you to utility companies that may have their own hookup fees.

In the end, you will not nail down every last nickel, but the more homework you do, the fewer surprises you’ll have. It would be prudent to add 5% to 10% to your total price for unanticipated costs of items not covered in the bid as well as changes and upgrades you decide on during the building process.

As for hiring a construction manager, unless you are building a very high-end custom home, this is generally not practical or cost-effective. Better to work with a developer or builder who you can trust to use good materials, provide good workmanship, and stand by their product if there are problems later (and there always are — at least little ones like sticking doors, nail pops in the drywall, etc.) No one can watch everyone every minute, so at the end of the day you need to pick someone you can trust based on reputation, references, and your gut feeling and you will probably have a good building experience.

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