Projects Fail at Known Points in Time. The typical stages of development for a custom residential project are outlined below, and indicate typical decision points within each stage of a typical custom residential construction project.
Feasibility and site work before design begins
The first money in a custom residential project should be spent to reduce risk on the site prior to the designer of the home commencing work. A site survey, soils report, confirmation of location and capacity of utilities and a written confirmation of all relevant items including zoning, setbacks, easements and covenants are critical before commencing the design of the home. Tree protection requirements and stormwater management on sloped or wooded lots can easily consume $100,000 or more of the site cost prior to commencing the design of the home.
In developing a site for your custom home, the purpose of this initial stage of your project is to establish a site development budget for the lot, and to establish a buildable envelope for your design to fit within. This will allow you to determine how your design will work with the site costs prior to breaking ground.
Questions worth answering in writing
- What is the permitted footprint after setbacks, easements, and any impervious surface caps?
- What does the septic or sewer connection actually cost, including any pump system?
- Are there rock, water table, or fill conditions that change foundation type?
- How long is the current permit review cycle in this jurisdiction?
Selecting a builder and structuring the agreement
Involving your builder in the design phase of your custom home will be far more beneficial than waiting until the construction phase. Your builder can establish a scope of work and even price out the framing assumptions as well as highlight the expensive details. He can even lock in the long lead time selections while the drawings are still in an editable format.
Review past projects completed by the builder. Ask to see examples of homes similar in size to the home you are looking to build. Find out the original contract price and the final price of completion. Review the reasons behind any cost overruns. Review information regarding the site supervisor that will be assigned to your project. Ask about the number of sites the site supervisor manages on a daily basis. Review the process the builder uses to complete change orders. Review a sample Schedule of Values and sample Change Orders.
Contract structures and where the risk sits
| Structure | Best suited to | Primary risk to owner |
| Fixed price | Complete drawings and finalized selections | Change orders on any deviation, hidden contingency in the number |
| Cost plus fixed fee | Complex or unusual sites, evolving scope | No ceiling without a stated cap, requires invoice-level oversight |
| Guaranteed maximum price | Design-assist projects with a defined program | Scope definition disputes at the ceiling, savings-sharing terms |
Design development and budget alignment
Design should be budgeted for 3 times. Once at the end of the Schematic Design Phase, again at the end of the Design Development Phase, and once again at the end of the Construction Documents Phase. This will allow for a difficult conversation with the designer regarding the resulting drawings to occur at the least flexible time in the design process.
Allowances are one of the more expensive items to negotiate over time, especially after construction has begun. Thus, it is wise to negotiate the greatest amount of detail and arrive at a signed agreement with the Client prior to commencement of construction. The greatest amount of disputes with regard to allowances will be with respect to plumbing fixtures and related items such as sinks, toilets, and showers, as well as appliances, tile, lighting, and cabinetry.
Sequencing selections against procurement
Window and door frames, structural steel members and specialty products such as architectural stone are typically purchased and installed during the construction phase of the project. They can be purchased prior to the start of framing to ensure that they are installed prior to completion of the framing. Permitting and window fabrication can occur simultaneously during the construction phase. For that reason, anyone preparing to build a custom home in Raleigh Durham or a comparable market should finalize selections for these items several months prior to the anticipated start of construction.
Construction, inspection, and quality control
Inspecting for field quality does not have to depend on good/bad intentions. Rather, the frequency of inspections can determine the quality of the work being completed. The following stages should be inspected with documented walkthroughs, the foundation and waterproofing before the site is backfilled, the framing before it is covered with insulation, the mechanical rough-in to be inspected against the reflected ceiling plan, the house being inspected for proper air sealing before the walls are covered with insulation, and the exterior envelope details (such as flashing and penetrations) before the walls are finished.
- Photograph every wall cavity before it closes, organized by room.
- Verify rough-in dimensions against fixture cut sheets rather than the plan alone.
- Run a blower door test before drywall, when defects are still repairable.
- Confirm manufacturer installation requirements were followed where warranties depend on it.
Closeout and the first year
Handover. Documentation of the eleven-month walkthrough of the completed custom residential project, handed over to the new owners of the property. The Closeout (Handover) date does not have to be the date of actual Handover of the property.
It is best to schedule the 11 month walkthrough for the time of the closeout of the project. This will allow time for any settling to occur and for you to be able to come back and inspect the home during the warranty period. The items to look for during the season are movement of exterior surfaces, any cracks in the interior or exterior surfaces of the home, and that all of the mechanical systems are operating properly. Builders that plan for this type of walkthrough typically build the home with this type of walkthrough in mind.
