When we think about the value of a custom home, we typically focus on three things, the lot, the contract, and the framing package. In reality, the selections for the home will be the smallest lever to affect cost in the home. Advice to the client and the building of a home on terms close to spec is where the real value is for the homeowner, builder or architect. The following useful question can be posed to advise the client and to build a home on terms close to spec, Of all the various features that could have been included in a custom home to look expensive, which actually hold their cost through an appraisal, a resale and a decade of ownership?
Site and orientation decide value before design begins
A lot is a permanent constraint to a house. Its value can be affected after the house has been completed. In selecting a lot for a custom home, consideration must be given to the lot’s grade, soil bearing capacity, water table, setbacks, and solar orientation. All of these affect the floor plan efficiency and the cost of the foundation of a house. A sloped lot with a walkout basement can provide a large amount of above grade usable floor space at about half the cost per square foot of above grade floor space in a house of similar quality. This is one of the few remaining bargains in residential construction.
What to verify before the purchase agreement closes
- Geotechnical report with bearing capacity and expansive soil risk, not just a perc test
- Utility tie-in distances and whether the sewer connection is gravity or requires a grinder pump
- Recorded easements, drainage swales, and tree preservation requirements
- Whether the building envelope allows the intended footprint without a variance
Change orders and construction modifications can cost a lot more to complete after the home construction is underway. Typically, change orders and home construction modifications are completed at a higher markup than the original home construction contract. This is typically when the owner’s budget and the owner’s time are at their lowest point.
The features that survive an appraisal
Most appraisers today consider square footage, number of bedrooms and bathrooms, garage space, and finished basement space as positive attributes of a home. Most custom elements, no matter how well executed, tend to be considered when calculating the value of a home as neutral or even as a negative. Unique colors, handcrafted trim work, specialty ceilings, custom cabinetry, etc. Are all examples of customized elements in a home that are generally not considered to add value.
| Feature | Typical cost weight | Value retention | Why |
| Finished walkout lower level | Moderate | High | Adds counted or semi-counted area at low incremental cost |
| Third garage bay with storage depth | Low | High | Appears directly in comparable data and buyer filters |
| Main-floor primary suite | Moderate | High | Widens the buyer pool across age brackets |
| High-performance envelope and mechanicals | Moderate | Moderate to high | Lower operating cost, fewer callbacks, stronger inspection outcomes |
| Elaborate outdoor kitchen or water feature | High | Low | Rarely present in comparables, high maintenance burden |
| Specialty rooms with fixed millwork | High | Low | Narrows the buyer pool and resists reconfiguration |
Budgeting that exposes risk instead of hiding it
However, contracts based on allowances will inevitably be budgeted out by owners who have been shown above-average product in other aspects of their home. Categories of greatest price variation (or greatest potential for surprise) should be locked up as soon as possible in the contract. These categories are typically windows, cabinetry, plumbing fixtures, flooring, and lighting.
A sequence that keeps the number honest
- Establish a total project ceiling that includes land, site work, permits, and a 10 percent contingency
- Set the structural and envelope budget first, since it cannot be revised later without demolition
- Price a preliminary schematic before completing construction drawings
- Convert allowances to fixed selections category by category, starting with the longest lead times
- Re-price at permit set, and treat any variance above 3 percent as a scope conversation, not a rounding issue
Builder selection and the terms that matter
Unlike comparing the portfolios of custom home builders that can build specific homes, it is more valuable to compare the processes of custom home builders and how they can build homes. For example, instead of only looking at finished pictures of homes with custom features, you should also read reference checks from past clients of custom home builders. Buyers working north of the city will find it worthwhile to review how an established regional firm building custom homes in Columbus OH documents its process from schematic pricing through warranty service. In addition, it is wise to ask past clients of custom home builders how their builder responded to a defect or problem in their home 18 months after the home was completed. This will give you a sense of the builder’s process and how they handle problems.
Contract provisions worth negotiating
A fixed price or cost-plus contract with a GC is the best way to go. Determine how change orders will be priced. Will the builder self-perform the framing? Will any savings generated by purchasing the various categories of construction with an allowance be passed on to the owner? Finally, get a written schedule with named milestones. Determine what will happen in the event of a delay and make sure the builder will notify you within a set time frame.
Construction quality that buyers feel without naming it
Many of the important details to create a quiet, dry and comfortable house are not visible. This means that the continuously air-tight construction, correct detailing of all penetrations, the properly sized and balanced HVAC systems and the required stiffness in long floor spans are all aspects that create a perception that is difficult to describe in words but very easy to recognize or even feel. Houses that fail to achieve these details will have owners complain about drafts, noise and even humidity but will not be able to determine the cause of these problems. Other buyers will immediately recognize these problems.
The real money in custom home building is spent in places that will create permanent mistakes if not addressed properly. In other words, air sealing, detailing of flashings at penetrations, proper sizing of HVAC systems and proper design for structural stiffness to resist long floor spans are felt but cannot be seen on a list of features in a selection of homes of similar quality and price.
