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  • Writer's pictureScott Clark

How to Budget for your Custom Dream Home or Cottage

You’ve finally decided to embark on the exciting journey of designing and building your own custom home or cottage. One of the first steps is to put together your budget – no easy task. When budgeting for a construction project there are many factors to keep in mind, some of which may not be obvious at first glance.

One of the biggest budgeting errors we encounter appears in the design phase. Let's say you've decided on a total amount for your build, for example $700,000. Perhaps you are thinking that would be equal to $350 per square foot for a 2,000 square foot home. However, costs that are often not considered are those of design services, surveys, permits, developmental fees, insurance, site preparation, service installation and hookups, and of course taxes. This can mean that when all is said and done, you're actually a closer to being able to afford a cottage that is $370 per square foot for a 2,000 square foot build. Keep in mind that this also does not include landscaping, decks, appliances, contingencies, and of course taxes.

This can come as quite a shock to some and impact the size and quality of the home that you can realistically afford. Custom homes or cottages are generally more complicated and costly than production housing (subdivision housing) where many homes of the same basic design are built within a short timeframe. The design of a custom home is one-of-a-kind and the construction lacks the benefits of volume discounts. However, the final product is usually far superior to mass builds, and above all, unique to your family's needs.

A good builder will go over realistic costs with you well before you embark on your dream cottage. For now, we have put together a list of standard items to include in your plan and their approximate value. Note: each project is different so it is still best to shop around for a builder who can give you a realistic estimate.

1. Contingencies – Even the most meticulously planned projects can run into snags, changes, delays, and unforeseen circumstances that could cost money. For these situations, it is wise to set aside about 3% of your budget for such contingencies.

2. Demolition – Some lots have existing structures that need to be demolished and the contents disposed of safely. This will cost at least $10,000 and can increase substantially depending on the size, weight, and condition of existing buildings. Demolition will need to take place prior to any new construction.

3. Design Services – You will need a design for your custom home that is created by either an architect, engineer, or designer. The design will normally start with a rendering and upon completion and approval will then go into construction drawings that will include elevations, floor plans, roof plan, etc. These construction drawings direct the construction of your home and are required to obtain a building permit. Most municipalities also require HVAC, plumbing, grading, and electrical plans. Plan for about 2-4% of your total budget to go toward design services.

3. Development Fees – These charges are requested by most municipalities if your lot is vacant and has never been developed. Depending on the municipality and the public services you will be using (i.e. roads, sewer, water) the fees may range from $8,000 to $25,000 or more. You or your builder can check with your municipal office to confirm.

4. Insurance – A good builder will carry liability insurance and WSIB (mandatory in some jurisdictions) but will usually recommend that you take out builders risk insurance to protect your property and yourself. The builder’s liability will only cover claims where the builder is directly at fault, not claims such as material damage or theft during the construction phase of the project. Plan to spend about $5,000 on additional insurance for the duration of the build.

5. Landscaping – This can be wide-ranging in terms of price because of differences in personal taste and the scope of the project. For minimal landscaping like sod, seeding, and minor grading, budget around $5,000. For stonework steps, gardens, trees, ponds, and other ornamental features, the rule of thumb for cost is generally 10% of the cost of the build.

6. Major Appliances – The estimated cost of most custom homes will not include major appliances such as a stove, fridge, dishwasher, washer, and dryer unless you ask for this to be included in your estimate. If you plan on installing new appliances, you’ll want to budget an appropriate amount to meet your taste and standards.

7. Permits – You may be required to secure demolition, building, septic, entrance, and occupation permits. Each permit is priced differently with the most expensive usually ranging between $9 and $12 per $1,000 of construction value.

8. Price of the Lot (including land transfer tax and legal fees) – This can vary widely depending on your location. Budgeting for this amount depends on so many factors, but usually the prime factor is location, location, location!

9. Service Hook Ups – If municipal services such as piped water, sanitary sewers, natural gas, and hydro are available to your lot this can cut down on costs. However, there are still expenses involved in hooking up to the existing services and those costs will vary depending on the service provider and the distance from your lot to the services. At minimum, budget at least $3,000 per service hook-up.

10. Service Installation – Most rural lots will require private water and sewage services. A standard septic system will cost in the neighbourhood of $17,000 and a well will be closer to $19,000. Water can also be drawn from a lake or river if permitted. This type of pump and filter system will run about $7,000. If hydro is not available to your property, substantial costs could be involved in running wire from the nearest power supply. Again, speak to your builder about a realistic estimate.

11. Site Preparation – This includes blasting, tree removal, debris removal, driveway construction, grading, and any other activity necessary to prepare the site for construction. Site preparation costs vary greatly depending on the characteristics of the lot.

12. Survey – If you don’t already have one, a survey will be required to situate the dwelling and services, such as sewage disposal, on the lot. A survey will form the basis for a site plan which is required to obtain a building permit and costs in the range of $3,000 to $7,500 depending on lot size and required detail.

13. Taxes – Most construction costs are quoted with both federal and provincial taxes extra. You’ll need to add 13% HST to all products and services.

14. Building Construction – Here is where you use the price per square foot or stipulated price estimate from your builder or a selection of builders for your budget. The price per square foot for custom homes rarely includes any of the above items and covers just the construction of the home to your specifications. Your overall budget should include any of the applicable items above, the cost of actual construction, and any other costs particular to your project. If you would like estimates of the above costs included in your quote, you will need to specify this with your builder if they are handling those items for you.

For more information on how you can begin to build your own custom home or cottage, contact us today.

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