There are many hidden costs building a house, including upgrades, utility hookups and interest. We will start at the beginning with a walkthrough of hidden costs throughout the process. The upgrade process alone is a minefield of added expenses, but that is only the beginning.
There is a lot of controversy around the upgrade method of selling new homes. It is only logical to have available extras and options, and most builders do, but the heavy handed way some builders deal with this, just isn’t right. If you listen closely to those who have encountered the upgrade method it obviously does not make them happy. It’s literally designed to breed dissatisfied customers. On the up-side, at least for home builders who use the method, it breeds the kind of dissatisfaction that makes their clients spend more money.
Often the builders who emphasize upgrades seem to choose the absolute ugliest carpets, fixtures and countertops just so people will buy the more expensive ones. There are better ways to save money, and still get decent countertops. This kind of thing just proves you might be better off buying a shell, and finishing it yourself, or better yet find a homebuilder with nicer budget packages.
In the typical situation, with the big ten national homebuilding companies, prospective home buyers tour a model home which has maximum upgrades and all the frills. They are shown a price, but then they find out that the price is for a very bare bones house with the most basic fixtures, cheap carpet, and Formica countertops. More importantly sometimes they come with a slab foundation, and an upgrade is necessary, just to get a crawl space.
Foundation Upgrades – In moist or flood prone climates you will want to upgrade to a crawl space, and in cold climates you will want to upgrade to a basement.
Structural Upgrades – Two by six studs, and bigger floor joists are a good investment, as is spacing the floor joists closer together. These upgrades make the home stronger.
Energy Star Upgrades – Anything that improves your R-value or reduces power consumption is good. Always look at the real numbers. Don’t be satisfied with the energy star label alone. Research and do the math on how much you will save.
Hardwood Floor Upgrades – Real hardwood floors are worth the money, however thin veneer strips covering a ply-wood floor are not nearly the same thing. Make sure you understand exactly what the salesman means when he says hardwood. If he’s talking about real tongue and grove old fashioned hardwood floors then, you might be interested.
Fireplace Upgrades – Whether you want a fireplace or not is a matter of personal taste, but if you are interested in one, make sure that if you get one it is energy efficient, like a buck stove or something with blowers that draw on a built in airspace behind the firebricks and a way to prevent heat loss up the chimney.
Cabinet and Countertop Upgrades – Countertop upgrades and cabinet upgrades include granite and higher quality cabinets.
Floor Covering Upgrades – People get so frustrated and confused with carpet upgrades that they sometimes have the cheap rugs installed, and arrange to have them ripped up and better carpets installed after the closing. This just seems crazy. There has to be a better way.
It is easy to get caught up in the upgrades, but you can also just say no. This kind of selling has been called bait and switch, and in spirit it is, just not technically or legally. Even though bait and switch is illegal, and considered a scam tactic, there are subtle ways to almost bait and switch, and squeak by the laws. Upgrades can still feel like bait and switch though, and have the same effect. Try to avoid builders who rely too heavily on these tactics, and instead find a reliable, no nonsense home builder who will do their best to get nicest appliances, carpets and countertops with the money that’s in your budget for these items. There are still plenty of sensible home builders out there who want to build you a nice home at a price you can afford. Keep looking till you find one.
There are other things during the building process that cost more than planned. Some of these may be included in the price from your contractor while others aren’t. Be sure to ask who pays for the following, and remember to budget all the things that are not included.
City Water and Sewer Hook Ups, or Well and Septic Tank
Connection to Electric and Natural Gas Utilities
Attorney Fees for Closing
Bank Fees and Loan Points
Unless you choose those energy efficient options, you can end up wasting a lot of extra money on electricity and other utilities for the life of your home. Energy efficiency is like having your home help pay for your mortgage. If you choose to install solar panels, and make your home extra energy efficient, there are programs that actually give you the chance to make a little money instead of paying each month. That’s right. The electric company can send you a check for your electricity instead of sending a bill. Wouldn’t that be nice?
The largest extra cost that no one counts is the interest rate. It’s easily possible to pay 175 percent to double the price of your home by the time you finish paying you 30 year mortgage. If you think that is inevitable, it isn’t. With a 15 year mortgage you can save over half of the interest cost.
The secret to dealing with all of these extra costs is to drive a hard bargain. Be ready to walk away if you don’t like the deal. Home builders need buyers much more than you need one specific builder to build your home. The phone book is full of honest quality home builders who want to build your home. Choose one that plays fair. Sound business sense, rather than excitement and emotional reaction can save you many hidden costs building a home. For more ways to save money and avoid hidden costs building a house, download our 98 page free book, and read the many articles on this site.