getting paid

We are presently about 88 percent through the build. Our construction loan covers 61 percent of the build. Anyone want to guess how much interest we’ve paid on the home construction loan so far? What's that? Want a little time to think about it? That’s cool, that’s cool. I’ll wait.

(tap, tap, tap, tap...)

Alrightey then: If you guessed $400, you’d be right on the money (get it? “right” on the money! bwah ha ha!). 

What’s that? That can’t possibly be right? I hear ya. That sounds crazy, like sniffing-silicon-fumes-cause-I-been-sealing-all-the-cracks-(I-say-ALL-the-cracks!!!)-in-the-house crazy. But it’s the truth! And here’s why...

First off, we brought a fairly sizable hunk of cash to the build. Understandably, the bank wants you to spend that scratch first before you spend their money. Lowers their risk, you see. There’s also no interest on that money (the money we bring to the table). To bring our green to the deal, we had to put our bucks into an escrow-like account with the bank so the bank would know we weren’t spending it on something crazy like expensive toilet paper holders.

Secondly, the money goes to the builder in chunks. Early in the build, the builder had to submit with our and the bank’s approval the major completion phases of the house after which he could submit requests for reimbursement. Here is where you really want to make sure you are dealing with a financially-secure builder, otherwise he won’t be able to front the bucks to get things done. 

After the builder submits a request for reimbursement, we have to sign off the request (saying that, yes, he done did what he said he would done do) as does the bank. Before the bank signs off on the invoice, they verify that the invoiced work was completed. Once that’s done, the bank cuts a check to the builder. This whole process is done regardless of whether it’s our money or the bank’s money. Examples of major phases include the foundation, the framing, and the cladding. 

The builder didn’t start dipping into our construction loan until January. So far we’ve made two interest payments on that dip: $200 in February and $200 in March (another payment will be coming soon; it will be $400). Once the interior work is done, we’ll get hit with another invoice that will start acruing more interest, but so far the interest hit has not been bad!

There are other ways builders get reimbursed during a build, but this is how it has worked on our build. So far, it has worked out quite well!

ch-ch-ch-change orders

Theme music for this post.

There are many four letter words associated with building, but none are as expensive as "change order". A change order is a deviation from the building plan that invariably adds cost (a change order could theoretically lower cost, but that seems to be as rare as a dodo hunt).

Change orders occur for a variety of reasons: An owner changing his or her mind about something ("I now need a Jacuzzi tub for four in the master suite."), the code changing during the build ("We're gonna need a bigger vent."), incomplete or erroneous construction documents ("How is this wall held up?"), sudden unavailability of building supplies ("We done run out of nails."), and building surprises ("Look out everybody: QUICKSAND!!!"). Change orders are a big reason for having a healthy contingency fund (or contingency plan [Adios, landscaping!]), because if there's one constant in this (built) world, it's change (orders).

We've had one big change in the project thus far: The foundation. Because of the unexpected shallowness of the sewer line at the street, we had to raise the foundation six inches. To our surprise, the builder ate the additional cost of this. You could argue that he should have checked the depth of the sewer line before setting the forms; however, you could also argue that (perhaps) the architects should have checked that as well (although to be fair, I'm not sure how they would have done that or if that would even be considered part of their job). Nevertheless, no charge to us for this change.

We've changed some of the fixtures from the original bid to the current time. Instead of this faucet, that faucet. Instead of this light, that light. These changes have varied in costing more and costing less. Clearly, we're responsible for these changes. We changed our mind; we (invariably) pay more for the changes.

Some other change orders are a little irritating because ideally they shouldn't have happened. For example, consider the cubist wall pooper. The original hard bid had a standard toilet. After seeing how well we did on the hard bid, we upgraded the pooper to a cubist one that hung from the wall. This was discussed at a meeting and added to subsequent versions of the fixture wish list. However, it wasn't until the drain plumbing was being installed before the foundation pour that we learned that it would cost an additional $600 to install the toilet. Understandably (now), it's a more delicate exercise to install an in-wall toilet. Unfortunately, that increased installation cost wasn't included in the bid, so it wasn't included in the loan. In other words, break out the checkbook.

We've had something similar happen with the HVAC system. All along we've been asking for a three-zone system. It was in the specs that went out for soft and hard bids. We asked about the zonage when it wasn't clear that it was in the sub's soft and hard bid. Finally, after asking umteen times, we find out last week it wasn't in the sub's bid and, even worse, it's going to cost an additional $2,000 (!!!).

So who's fault is this? Did the builder not convey the details of the system to the sub? Did the sub not pay attention to the specs? Did the builder not verify that the sub paid attention to the specs? Did aliens alter the space-time continuum and monkey with our build? Given that the builder has been good in the past in conveying specs to subs, given that the sub hasn't been terribly responsive or detailed, and given that it is currently unknown whether life exists outside of our planet (setting aside the unknown shiny things on Mars), Occam's Razor suggests this is a screw-up with the sub. You could argue that the general contractor is ultimately responsible, but I think all we gain from that is bad blood (and attempts to "make up the cost" in subsequent change orders). And if the sub is indeed responsible and we try to hold him accountable, all he has to do is bail on the bid. It's a problem without a clear solution (except for writing a check...).

Furthermore, I get the sneaky feeling that items captured in change orders cost more than if they had been part of the original bid. This article suggests this feeling is not without merit. That's doubly frustrating since we asked for these things either before bidding or before we went for financing. grrr... We're all human, so mistakes happen. It just sucks when the bills for those mistakes all come to you.

Sooo..... if you're building a house, we recommend that you (1) work out and confirm all those details before you go for financing (including verifying that the builder and subs include all your desired items in writing), (2) make sure anything changed after the hard bids come in are re-hardbidded, and (3) have a contingency fund because despite your best efforts you almost assuredly will have changes, surprises, and unconsidered booboos.

And pay attention to those details, because no-one else is...

Further reading:

Coping with Change Orders

Change Orders: The Good, the Bad, and the Ugly

Change Orders: The Bane of All Construction Projects

The Trouble with Change Orders

appraise you

[music to accompany this post; will open in new page]

Got good news from the banker last Friday: The house appraised out for the loan! {wh00p! wh00p!} And the appraisal (all 43 pages of it) came in for much better than we had feared. We weren't concerned about the loan because we're bringing so much land equity (the lot is paid off) and cash to the table (all the equity from the house we sold plus some savings) that having the loan make at least 80 percent of the final property value was going to be a piece of cake. However, we were concerned about how much of a financial blunder we were making by building a house (if you're simply looking for a place to live, building a custom home is not the most cost effective approach). One of the ten common custom home mistakes noted by the Dummies people is thinking the house will be worth what it costs. So we were prepared.

And what did that darn appraiser say? He valued the finished product at 91 to 104 percent of what it will cost for us to build the house, soft costs included. Split the difference, and that's 97.5 percent. That's way better than we thought, especially since the budget is pretty tricked out with various geegaws (I was predicting 80 percent). That was a great way to start the weekend (especially after that food poisoning I got from eating healthy).

The housing market is pretty hot right now in Austin. Rental vacancies are low which has led to high rents which has led to demand in the home ownership sector. And people keep moving to town (they musta heard about the TexMex...).

Big smile.

making the lot whole again; permission to destroy; how to deal with bureaucracies; rise up to appraise

Busy day today...

making the lot whole again

Back in ye old days, some 60 plus years ago, our neighborhood-to-be was platted into various lots. However, when the developer finally developed, he (or she) didn't abide by the original platting and built instead on different lots without replatting with the city. That means I had to take a few hours off work today to research deeds at the Travis County clerk's office (needed to show that the lot existed in its current configuration before 1995 to avoid going through formal subdividing).

I've been to the clerk's office before to research the history of our previous property and to find out what lot holders paid for various lots we bidded on back in our lot-searching days. Searching them deeds is an interesting thing. Fortunately, most of them are digital and online, but you have to go to the office and print them there to be "official". And if you go way back, you have to deal with the dreaded microfilm readers. Not a good way to spend your morning unless you  have a solid prescription of Xanax.

On the plus side, I love researching this stuff and trying to fill in the blanks on the history of the land. For grins, I went ahead and pulled the original deed for the property from way back in the 1860s:

After a couple hours at the county office, I hoop-hogged down to permitting for a pleasant five minute wait before talking to staff and submitting paperwork. We should be whole again tomorrow.

permission to destroy

Got a note from the architect that although there is nothing on the lot to demo, we need to file for a demolition permit. Apparently whomever demo'd the original house (our neighbors say it was the city after they condemned the property) didn't file a demo permit (which kinda makes sense if it was, indeed, the city...). Despite that the house was prolly demo'd back in the early 1990s, the city wants to see a demo permit on file. That will cost a to-be-determined permit fee, and the paperwork (of course) requires notarization. grrrr...

how to deal with bureaucracies

In short, jump through the hoops and smile (unless you reach a point where you truly need to raise hell). No one likes bureaucracy, but it doesn't get you anywhere to rip into the dude or dudette in front of you who had nothing to do with putting the bureaucracy in place. I've never understood the propensity for folks to shoot the messenger, especially if you need that messenger to do something for you. Shoot the messenger, and the messenger may passive-aggressively delay your permit (or cause other problems). Would you go out of your way to help someone if they just ripped you a new one for something you have no control over? Didn't think so. My advice is to get through the process and then talk to the folks that can really deal with the issue, generally the elected officials. Run for mayor if you need to. We may even put your sign in our front yard.

Note that the county and city folks we dealt with today were quite pleasant. In fact, the city guy seemed surprised I didn't yell or complain. Maybe that's why he said he could get our paperwork done by tomorrow (despite the paperwork saying it takes two weeks).

The other thing to do is to READ THE PAPERWORK CAREFULLY. Make sure you have addressed everything. Saves a trip (and a potential blow-up).

rise up to appraise

After some struggles with digital files (I'm discovering that the building bidness is still pretty much oldskool), the appraiser is at work appraising the property. From what I've read (it's in that Dummies book...), unless you're in a sooper-hot market (ha!), don't expect the house you're going to build to appraise for what it costs to build it. OK. We won't expect that. So I guess the question at this point (oooo: suspense!) is: How much lower will the appraisal be? Since we're rolling a lot of cash from our previous nearly-paid-off house into this one, it won't be an issue for us, but if you're minimizing your cash outlay on a build, it could impact your ability to get a construction loan.

Despite the aforementioned "ha!", the housing market is Austin is, indeed, hot right now. It is a seller's market with reports of houses going under contract in mere hours in certain neighborhoods. In fact, we've had two inquiries about buying the lot (it would take a bit of coin at this point...). That bodes well, wethinks. We shall see...

housewerk: permits, loan, pain

permits

The architects heard back from permitting. Them permitters redlined the plans with some (reportedly) minor stuff for the architects to deal with, and we have to deal with a land status determination. Apparently, when the lot was developed, the lot did not line up with the original platting, which means our lot is not a legally buildable lot (our lot includes bits of two original lots). But before you (or we!) have a heart attack, we can seek a land status determination and take advantage of an exception from platting. All we need is to prepare some paperwork, write a check for $171.60 (no joke), and stand in line between 9am and noon somewhere downtown. After that, we should be in bidness.

loan

The loan is progressing with a closing date set for August 14th. The Good Faith Estimate (what the cool kids call "The GFE!") isn't made for construction loans, so we had to talk to the banker to make sure that (1) we only paid interest on the construction money as we used it and (2) if we don't use all of the money the payment will snap to reflect what we used. We included something north of 10 percent of a contingency in the loan amount; ideally we won't need it, but in case we do, it will be there. The builder was approved by the bank (yay!), the loan approval is in process ("Shouldn't be a problem," says the banker.), and an appraisal of the project is in the works.

pain

This part of the process has been painful (in a first world sort of way). Not horrible, mind you, because of what we have to do, but painful in the sense that: WE WANT TO GET ROLLING!!! It will start in good time.

Need to find a golden shovel...