I think John and Jessica Norton surprised themselves when their new house plans were appraised by the bank at $280,000. As of this writing, three weeks before groundbreaking, their construction budget stands at only $145,000. With the cost of land, their equity on completion will be about $80,000.
But it could be even more. The appraiser indicated to them that after the house is built, his appraisal will probably go up. And the Nortons believe their budget will go down, because they have been conservative on most of their cost estimates. In addition, they plan to apply a few more cost-saving techniques before they finish, and use the bright ideas of visitors to OwnerBuilderBook.com who comment on the project.
These are pretty impressive savings for a couple building their first home, not a full custom house, but just a step-up home. But John and Jessica have done a lot to prepare and to save money. Avid bargain shoppers like the Nortons can save a lot when they eliminate the general contractor and procure materials and services cafeteria-style.
Right out of the box the Nortons purchased their land at a savings. They offered less than the $57,000 asking price for the lot, but were forced to increase their offer to full price because of competition from other buyers. Then something unusual came up - the land was involved in a boundary dispute and the owner had to make a $2,000 price concession. Then while things got straightened out with the planning and zoning board, the Nortons held off paying for the land until the last minute, saving another $1,800 in interest costs.
Showing their ingenuity, the Nortons bought their land in the community in their county that had the lowest impact fees for new construction of all, a $3,000 - $5,000 savings for thinking ahead. And the lot they chose was such that they didn't need to spend any money on excavation for their foundation. This fact they verified through a laser line survey of elevations performed free of charge by a professional who was a family friend.
When an opportunity arose to acquire fill dirt from neighbors who were digging their foundations, John, not even yet owning the land, took a chance and had it hauled over to his land and placed out of the way. Ever resourceful, he set up a deal and paid a local hauler to run two trucks and a front end loader simultaneously to move 100 loads for him at a savings of about $2,000.
Looking at each line item in their budget, the Nortons have so far batted 1,000 by finding a bargain at every turn. The designer developed a beautiful and cost-saving plan for their house at a bargain rate of $900. The plan saves money by facilitating the use of roof trusses in stead of stick-built framing, and requires dimensional lumber cut only to standard lengths.
I admire the Nortons because they are saving money the old fashioned way, through good old fashioned American values: innovation, skill, initiative, ingenuity, and frugality. There is a money-saving lesson here for all of us.
Some of the inventions the Nortons have brought to the process of owner-building are worthy of publication, and perhaps more solid than the ideas in dozens of books written on this subject. One idea for efficiency in getting subcontractor bids outmodes the approach suggested in my own Owner-Builder Book. In the book, Elaine and I promoted the use of a plan room concept where O-B's invite subcontractors to their homes to see the plans and make bids on their specialties.
The Nortons have beat this approach hands down by circulating their plans electronically to a large number of subs at a very low cost. John scanned his plans and associated documents into the computer and transferred them to a web site where he could send an instant fax of them, known as an efax at a moments notice. Where practical he simply sent them via email to his candidate subs. John advises that if you try this, it's best to have the plans drawn up digitally using a CAD system because such plans can be scaled down to any size accurately.
A wonderful innovation in bidding that John and Jessica conceived is a "Round Robin". This is where they get improved prices from their sub and supplier bidders on their project by calling back each of them in a given category a month or so before they are needed and asking for a revised bid. They explain that they have some bids that are better in some respects than the one at hand but that they want to give a chance to the vendor to revise, if they want. This probes the market for a "soft spot" which I think come up often in construction. Whether the sub has too little work and needs to keep crews busy, or whether a given material has gone into a low season dip, such soft spots are out there.
The Nortons have a skill, or maybe just courage to get out and ask people for their best prices. I watched John negotiate with a framer who was interested in his job because John was considering some late technology materials the framer wanted to work with. John "got on the same side of the table" with the framer by asking the question: "Shall we run some numbers on this?" Together they ran numbers on different approaches to the project and effectively solved problems as a team. Forget about an adversary approach - John ensured a cooperative approach very skillfully.
John exercised initiative during the time his lot was being contested by the city planning commission because of boundary problems. He went to the Planing Commission and represented his interests in the lot, and later appeared before the City Council to ask that it be rezoned and present his arguments, thus saving the sale at a bargain price.
In the process John met with the City Engineer and discussed his plans to build on the contested site. He made friends with the official and got his suggestions to meet all city codes for his house. Later, that official approved his plans without a hitch, even though it is common to require an engineer's stamp on the plans. John saved $500.
Jessica called around to find out which community had the lowest impact fees in the county. At the same time she charted out the availability of services, shopping, good schools, and all of the family's preferences for neighborhood amenities. After she zeroed in on the town, they had to find a development that didn't require contracting with a general contractor. Jessica had the bright idea of calling planning officials in each town and asking whether they knew of a development that qualified.
In the lowest fee town of Lehi, they found two or three developments that met their requirements. Within those developments they found just one lot that met their price parameters. Then they hung on through various difficulties to secure the lot they wanted.
The couple found a like minded couple building a home next door. John and Jessica arranged a trade with the neighbors for some concrete work in exchange for some tile work which John and Jessica performed for them long before their own groundbreaking.
Shopping for bargains
The Nortons shopped for each item in their plans long before need, making some ingenious arrangements to meet their needs at a savings. A family friend who is a busy electrician sent his college-age son to review their electrical plans. This young man, with ten years experience in the business, offered to help them wire their house for $20 an hour with a promise to rough in the place in one eight hour day. This particularly valuable because of all the electrical and electronic sophistication John's technical mind has planned for the house.
John found a way to kill two birds with one stone by persuading a family friend who is a general contractor to loan John his license for the benefit of the lender. In so doing John got a favorable rate for the loan which require only one close and few fees. The GC also consented to perform independent inspections on the house for a total of $700.
Through another friend, John obtained course of construction insurance at a bargain rate of $230. He and Jessica talked to other owner builder in the area and pursued the best bargains the others had found. From Elaine and I they got the name f a great sub who plumbed our house for a vacuum system for only $240. From Erik and Nicole, they found a lady who repairs factory damaged doors and sells them in new condition for 50% off. They also got Nicole's low cost and trustworthy finish carpenter-painter. From Kevin they got his favorite subs, an over achieving plumber and a bargain cabinet man on their team.
It's nice to see a hardworking couple get the house of their dreams and a huge chuck of financial security in a few months of time. I commend their project to you and ask you to chip in your questions and comments. The Nortons are looking at $80,000 in equity. Maybe our visitors can suggest sources or approaches that put the savings over $100,000.
At the end of the project I sat down with John and Jessica as before. We gathered in front of the computer and I typed as they answered my questions. I noticed the answers were shorter, much shorter than before. After a few minutes it dawned on me that these were two exhausted people. They didn't much want to talk, and would probably have loved a nap.
I began to chuckle inwardly as I remembered how I felt when I finished my home. Elaine and I were exhausted and absolutely without ambition. After six months of relaxing in our new home, I felt the strength to want to do one thing - help other people to have an easier time of it when they build.
All of our work is centered around this premise: that owner-building is a lonely and tiring endeavor. Only through careful preparation can it be otherwise. So when we encouraged John and Jessica to owner-build we never told them it would be easy. Only that it would be worth it.
Was it worth it?
A recent article in Reader's Digest, "Staying Ahead in Tough Times", (August, 2001) reveals that over the last ten years, average net worth for American households grew by 2% a year. A typical young couple has a negative net worth in their twenties. School and car loans exceed savings. But John and Jessica, inside of a year, generated equity in their new home of, I estimate, $75,000. Though tired, this couple increased their net worth by maybe 1000% in a single year.
Readers Digest indicates that the average savings rates for American household has dropped to a negative .1%. People are actually consuming rather than generating savings. Not the Nortons. They have socked away a very valuable nest egg on their first home. And what a home it is. Absolutely in tune with their market, they have designed and built a house that will rise with the tide of real estate locally. I estimate that they will enjoy $100,000 in equity with a year.
Not a bad start. And very difficult to do if you buy a contractor built home. You expect to pay market price, and thus have no equity beyond your down payment when you do so. And then if you come upon economic difficulties in the first couple of years and need to sell, the in and out costs of borrowing and selling can easily consume that equity for most people.
By owner-building, the Nortons have beat the system and developed a large initial chunk of equity that they could tap should the need arise. This is economic security and is worth the effort.
The Nortons love their new home. By working through their features in advance they got the home they wanted and needed. For instance, they admit to getting a better kitchen than they expected, through a series of bargains they found on cabinets, lighting, tile work, flooring, and stainless steel sink.
Their process of asking and answering questions saved them money. John did a careful analysis of SIP's and ICF's for the house and was surprised that they would cost more than conventional systems, but not save much more in energy costs. He researched and selected an insulating system using cellulose that performed above expectations but cost less to install.
One of the things that impressed me about the process the Nortons followed was their use of a cell phone. I watched John field calls and get answers to immediate needs with the phone, as on the day the trucks were hauling fill dirt and he redirected them from inexpensive fill to free fill that was even closer to his location the moment it became available.
Another advantage the Nortons had was the preconstruction interviews they did with subs and vendors on the phone. They learned and gained confidence, and developed a wealth of contacts who helped them later when they needed replacements and alternatives to their original choices.
The Nortons shivered over the winter while doing and managing interior work in the house, but saved money through building in the offseason. The framer, the roofer, the painter were all priced at below usual rates. Though they spent more on the project than expected, they got better features for the price than expected, as well.
How much did they go over?
At first the Nortons thought they would spend $125,000 for a 1,600 finished square foot house. They ended up spending maybe $180,000 for a 2,000 square foot house, about the same cost per square foot. Along the way they spent on a few things that they had not anticipated, like a $4,000 rock retaining wall and a $750 fireplace, both of which enhance their equity. I did the same when I built, going over my first budget by $40,000 but adding square footage and features.
They used a construction consultant who did little for them. In the beginning they thought they would need him, but soon he was left behind as they got into the thick of things. They experienced a shock as I did when I built in that the designer made the house the wrong shape for the lot. A flurry of changes made it all better at no extra cost, but with considerable hassle. The lesson learned is not to rely on anyone but yourself for a check on dimensions and setbacks.
The Nortons went over their intended construction schedule by a month and a half. Jessica was ill and John had his hands full with work and family. The frustration level rose. John was surprised that I published all his frustrations and emotions in the web site diary, but I think the story is real and benefits everyone.
Lessons for all
The Nortons managed to put in about 500 hours of preparation before they built. They pushed ahead and broke ground at the intended date. While they were building they found instances of stress and difficulty that might have been alleviated through better preparation. The lesson is to record your time and try to allow for 1,000 hours of preparation before you build.
The diaries show moments of high anxiety. You need to buckle your safety belt when you embark on Mr. Toad's Wild Ride. I think thorough preparation helps, and limiting the self-work you must do to meet your budget. But it's usually quite a ride, and not to be taken lightly.
Follow the steps the Norton's did of listing all your questions as they come up and getting satisfactory answers. For instance, Jessica wanted to know what "environmental impact fees" were and how much they were. She went through several "experts" before she found out they were called just "impact fees", a form of taxes for new homeowners and that the amounts varied by community. She found the community with the lowest fees and focused the search for land there, saving themselves as much as $5,000.
Also, list your resources. John knew an owner-builder who was an attorney, and willing to help. Unexpectedly, he was hit by a threat from a subcontractor's attorney. The owner-builder attorney helped by writing a return letter on short notice at no charge. John had friends who would help in a pinch, give advice or loan tools, and the couple knew many people who put them in touch with good subcontractors and good deals.
Avoid depending on family members and friends to get the work done. Sometimes the circumstances are not very happy when under the gun. John and I both learned this when we built. Occasionally misunderstandings and feelings arise that you would rather not have to face at the family reunion next summer.
When you plan to do a lot of self-work, you discover that you are interrupted constantly with general contractor concerns and that it's hard to do both. The typical owner-builder takes ten times as long to do trade work as a professional does. Limit your self-work to high yield areas, and plan your time and your task well in advance. Be especially cautious about depending on yourself for trade work in the last stages of your job when finish work needs to be of the highest quality and your are fatigued and pressured by time and money.
Never assume. John found this out with his plumber, who ran lines below the joists in the basement ceiling, instead of through the joists. If you can't be there to check every little thing, you need to spell out every little thing in advance.
Don't be surprised by clashes with your inspector. Some personalities will clash with certain others no matter what you do. John spent the time in advance to establish communication with the head inspector and was able to appeal to him to clear up a conflict later. Also don't be surprised by subs who show up late, sometimes weeks late. Anticipate this plague and develop relationships in advance. The Owner Builder Book offers many suggestions to remedy this.
I'd like to offer two tributes in closing. John and Jessica have earned my admiration by pulling off a fine house with huge equity at a young age and through sickness and travail. They showed courage that I admire. When they stood up to adversity, they showed courage, as they did when in conflict with the framer and later with the plumber. They stuck to their guns and got substantial savings that they rightly deserved.
The Norton job diaries are well worth study by anyone planning to build. They are a fine, thorough, candid and real presentation of the day to day work of an owner-builder. There are substantial savings ideas on every page, and there are hundreds of pages. I'm proud to share them with you on our web site.
Another tribute goes to Lynn Bracken, the man who designed the Norton's house. Lynn passed away after the Nortons finished building. I was with John when he went back to meet with Lynn and asked him to change his plan because the revised lot size hadn't been communicated clearly to him. Lynn was entirely gracious and helpful. At no charge he made several changes to the plan which the Nortons feel improved their house while solving the immediate problem.
I was privileged to attend Lynn Bracken's funeral. I learned that his hard working grace had been enjoyed by many in John and Jessica's situation. He provided a great example of skilled service and self sacrifice that we all could emulate.