”Lot with Plans” — this is something I would sometimes see on For Sale signs on bare land. As a Realtor, I never knew why a seller would pay for design and engineering to add to a lot sale when a home’s design is so personal to the owner, and you might not recoup that expense. But after the process that my family has gone through in the past year, I get it. And I think that I now have a lot with plans for sale, too.
I have written a couple times in the past year about our building process. My family and I were hopeful, ambitious, and, in hindsight, maybe a little naïve about our expectations on building a home. While I don’t think we went in totally blind — we did have an idea of the costs of permit and utility tie-in fees, design, and engineering, and we interviewed people who recently constructed homes in our price point — we got quite a ways into the process ($100,000, to be exact) before realizing that we could not afford to build. We have since canceled construction.
At a glance, I’m sure it seems a bit silly to tackle something as big as building a home and not have a grasp of the costs. The reality is, if you are obtaining a construction loan in this lending climate of both optimism and caution, you are required to have stamped building plans and a signed bid from a contractor prior to having the bank even begin the loan application process. Getting to that point took the better part of nine months and $26,000 for design and engineering. Only then did we sit down with our lender to order a building appraisal to assess if we had enough skin in the game to give us a loan. If we didn’t, based on the estimated value of the finished product via a building appraisal, we needed to come in with more money. This was becoming a theme in building: more money. Anything that we wanted to pay for in cash to save money and not finance, the bank wanted up front to then give back in building draws. Granted, the issues we encountered are specific to financing a build with a bank as opposed to private money or paying cash. Then again, if we were able to pay cash, I don’t think I would be writing about not being able to afford to build.
By approaching our project carefully and with a lot of forethought, I wanted to prove that my husband and I could do this within our means, but the timing also worked against us — interest rates jumped a full point the day we sat down with our lender to talk dollars and cents. Lumber had gone up 30 to 40 percent this past spring. Building costs were higher than I had estimated. New fire codes I didn’t know about were now required, adding money to each square foot. I had thought that owning the lot and paying for as many things in cash as possible would make everything else more affordable. There are just so many moving parts to a build, not just lumber and nails. I don’t think the scope of constructing a home is readily apparent to a building neophyte. It is not just the cost to build, but the cost to tie into utilities, the town or county’s (depending if you are building in Placer or Nevada county) various fees, the building appraisal, the money to have a construction management company give your contractor the dollars to build, and then if costs run over or changes are made during the build, these cost money too.
All of these things together drove the price above our comfort level. If we were more courageous, perhaps we would’ve thrown caution to the wind and built anyway, hoping it would all work out and that we could afford a mortgage that was now about $200,000 north of what I previously thought. (I have met locals embarking on building who were taking on that tactic). But my livelihood is real estate, and do you know who I have seen short sale and foreclose more than any other trade? Yup, Realtors. Since a number of these folks are friends and colleagues, I saw what they went through firsthand, which has made me much more risk-averse.
There we were on the edge of the cliff about to jump off. Well, we didn’t jump. Some time has passed and my family and I feel good about our decision. We are currently renting and have a roof over our heads. I wrote in my November column that there is something very hopeful about starting from scratch. I still feel that way, and I still would love to build that house that was so lovingly designed for us and our land. It broke my heart to not have the build come to fruition, not just for my family, but also for the architect who spent many hours coming up with it and expressing it in plans, as well as the engineer who set it exactly where it should go, and the builder who worked hard to secure us a good price. We all wanted it to happen, and maybe it will in the future. If not, then we have an awesome lot with plans for sale.
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