When it comes to building a custom home, we know lots of people have two budgets in their head—the lower number they tell a builder and the higher number they're actually willing to spend.
Should you share your actual budget with your builder at the beginning of the relationship? Let's talk about a couple options to help you decide which is best for you.
First, there's the strategy of holding your cards close to the vest and not letting the builder know your exact budget. After all, if you divulge that number too early, the builder might take advantage of you and artificially inflate the price in order to get more money. That is certainly a risk with some builders.
If you suspect the builder you're talking to has such a mindset, ask yourself if you really trust that builder to build your home. After all, you can't supervise every single moment of construction (unless you just like torturing yourself). Plus, you don't really know what tricks an unscrupulous builder might have up his sleeve that you wouldn't catch even if done in plain sight.
But for now, let's pretend that you're just not sure you trust your builder yet, so you're keeping the budget a secret. If you're planning to build a 100% custom home on your land, then that home has, by definition, never been built before. How can the builder help you design your home and choose the appropriate features without knowing how much money you have to spend?
We once had a client tell us their budget was $40,000 less than it actually was. Most people have a bigger wish list than budget, so what do you think happened as we designed the house? We made some compromises in the design that weren't necessary, and we later had to revise it to add some key features that fit within our client's real budget. Had we known the real budget, we would have saved time from the beginning.
Some people like to check their builder by sharing their budget then asking around for other builders to bid the project to make sure the preferred builder's price is reasonable. The drawback is you may get bids from builders with limited experience who only build a handful of houses a year. They're quick to bid any project to add to their portfolio, but their bid may fall short of an experienced custom home builder's bid in more ways than one.
Now, let's look at the strategy of sharing your actual budget with the builder up front. In order to share that number, you have to trust that the builder isn't going to take advantage of you.
Yes, I said trust. You have to trust your builder first.
With this strategy, you're putting research into the builder's reputation first and budget second. You're going to have to establish trust at some point before you hire a builder anyway, so you might as well do it first.
Once you've established that trust, you can get on with the business of designing a custom home that is built for you and only you. With your actual budget in mind, your builder can make important decisions during the design phase to incorporate what you really want and stick to your budget. You won't be left with a bunch of design compromises because your builder was trying to hit a fictitious smaller budget.
The bottom line? Find a builder you trust and be honest about your budget. It will save both you and your builder a lot of time and frustration.