How much do you stand to lose (deposits, etc) by walking out? If the house will only appraise for $425, I doubt the bank is going to lend $500,000 for construction. In the end, I'm assuming the discrepency will come out of your pocket. Did you get fixed price quotes from other builders before you started the build? Is that why you chose this builder, because it seemed he would be less?

the hardest thing to do is walk away when you have invested time and hope--walking away from a "dream" is tough...but if you know that this house won't appraise for what the costs will be--how will you buy it at the end of the process...do you have the extra cash to pay the difference between appraised value and mortgage amount and would that be smart even in a hot real estate market???

what has builder told the bank as projected cost (which he told you was overinflated) and has he gotten any more draws from there--
if you are saying 418 is price per sq ft--what about land cost--how does that figure into the deal--

what is his partner that he built w/doing--if he is building comparable home can you get price info from him to use when you talk to your builder...

You can always ask to see the cost sheets but sounds like accounting is not your builder's strong point--maybe he is one of those who never knows how much it really costs to build a house because he never plans and tracks--just waits to see if he has money in the bank when he is done...

what is he doing in this house that is so much more expensive than what other builders are doing??? if he hasn't gotten to dry wall what has been done that has wrecked the budget???

oops--made mistake with the price per sq foot number--sorry--165 vs 115 sq ft price...

Our builder is also carrying the loan through construction; and we put down $15,000 down payment which is being held in escrow right now. He gave us a flat rate also. We were given an exact price for any upgrades we wanted and these are added to the cost. We recently asked him where we were at as far as cost, and he gave us a printout of the base cost, a listing of our upgrades, the cost for each, and what the cost is now. That should not be that hard for your builder to do. If he was adamant, that the cost would be 415,000.00, how can it now cost $500,000.00 without him letting you know exactly where this extra $85,000 is coming from?

As awful as it would be, if it was me, I would have to walk awaythere is no way I would or could pay an extra 85,000 "just because." The fact that the contract says you can walk away for any reason seems like he feels he can do whatever he wants to with the house and you can simply take it or leave it.

I really hope it works out anyway for you.

Soonermagic-
How do you know that NEW construction would appraise at 425k max? Are all the homes in the area new construction & identical? Oh, the 425k is excluding land, correct?
I'm asking becasue in the NE it costs approx 450k to build a 2800 sqft colonial (that's using HD stuff) , excluding the land. The prices of contruction cannot vary that much. The cost of the land does.
If the house is the same as the other homes yes that would be accurate, but if it's built to your specifiations & not necessarily identical to others it may appraise differently (more) than the other homes.

Here's the problem your builder probably encountered:
he's a small time builder & therefore doesn't get the price breaks from the subs that big builders get because they give the subs repeat business. I'm just guessing.

We just had a house built & we left some items unfinished because we didn't want to pay the extra builder fees.
Man, are we ever sticker shocked. Everything costs THOUSANDS, not hundreds.

The inflation in this country went through the roof in the last few years.
We had a house built 13 years ago & the quality & prices were much better.

The bank will not lend over appraised value. In fact, most banks won't lend more than 80% of appraised value.

For me, this would be key. I would not purchase a house that cost more than the appraisal.

Maybe you should have a sit down with the builder and express your concerns.

Are you sure you can get out of this? What exactly does your contract say? Is there a deposit you stand to lose?

I ask this because if you have an out clause it would be in the builder's best interests to keep the costs in line. If you back out he will be stuck trying to unload a house that cost him more to build than it is worth.

I am honestly surprised he would agree to such a clause for a custom house. Depending on your selections, he could have a difficult time selling the house. When people build a custom house they often select features that are worth a lot to them, but which won't pay back 100% if sold in the short term.

Thanks for all of the thoughtful responses and questions.

To answer some of the questions:

- We stand to lose $12,500 - an amount we could walk away from

- Appraised Value - We are one of the first tear downs in an older area near the university, so there are very few comps. We have talked to various appraisers and all say they would not be able to appraise for more than $150 a foot, including the land.

- Appraised Value versus Bank Lending - You are correct that the bank would only lend builder 80% ... that's why he submitted the "inflated" cost estimate to the bank. We have recently learned that the builder traditionally runs out of his 80% and fronts with his own cash. When it's time for us to purchase, we know we would have to pay the cost difference between appraised and mortgage. Something we could do to a certain extent, but certainly don't want to do.

- Exceeding Appraised Value - We are willing to exceed the appraised value to some extent because we really think the area will turn over with more campus rentals being torn down for new construction, and see potential that the area will become hot down the road. It's the only neighborhood in which we want to live and are willing to pay a little more to have new construction in that neighborhood.

- Builder Discounts - dabunch is correct that our builder is not getting great price breaks: for example, our garage door, windows, front door, etc. were all at retail price, with no builder discount. We agreed to cost plus on the understanding that he would actually get builder discounts.

- The builder's office manager shares with us the actual costs as we go. We are projecting the $500K figure--not the builder--based on how "off" the builder's actual numbers are to-date from the estimate he provided to the bank. My brillant husband has devised a very complicated spreadsheet to track the costs, compare to the bank estimate, and project final costs.

- When we started this build, the builder insisted that he could save us thousands of dollars in the framing stage by using his two-guy framing crew. There would be much less waste, so lumber cost would be dramatically lower, and the two guys would be less expensive than a whole crew. Well (aside from the fact that it took 4 months to frame), when the final framing costs came in, the actuals are almost $5,000 more than the estimated lumber cost, and $10,000+ more than the estimated framing labor cost. If we're $15,000 over on just the framing--which he repeatedly touted as the area where he could really save us money--can you see why we are extremely nervous?

To the builder's credit, the actual cost of the foundation was thousands less than his estimate ... but does not offset the $15K overage on the framing.

Sue - I am certain of the contract. I am an attorney and negoiated and revised the contract myself. You are correct that the walk away clause is intended to be the builder's incentive to keep the costs in line. Without it, he had no incentive. We will lose our deposit, which was the amount the builder thought would compensate for our custom choices.

We are thinking about backing out at this stage (prior to drywall) because we think it will be more fair to him to chose the finish materials (flooring, cabinets, etc) for a spec house rather than putting in everything we would want and then backing out. We are just quickly losing confidence that he could finish it at a reasonable cost to us given the actual costs to date.

Please act not only on the $$$ value, but on your intuition. We chose a rather inexperienced builder, because the builder advertised and purported to be an "environmentally friendly" builder. The company has turned out to be anything but and we have been nickled and dimed literally out of our savings/vacation/contingency fund just to see this to the end. We had some nagging feelings early on and if we had to do it all over again, or if we ever build again, we would ACT on those misgivings - rather than letting those misgivings turn into a huge nightmare! See what else is out there, before making this decision. Good luck.

If the builder thinks you might walk away, do you think there's a chance to renegotiate the contract? Set it up with the material, appliances whatever spelled out and finalized before you sign? Probably not.

I worry about this scenario since we found ourselves in a cost-plus contract (signed in pre-GardenWeb days!). It's been one increase after another with more and more coming the closer we get to the finish. And, the closer you get the more tied into the invest you'll be.

$12,500 is a lot to loose but it might be cheap if something happens like our framing increase. The quality of GC's work could be considered 5 stars. His financing is another story. For that he rates and "F". Our house was better than 1/2 way done when GC came to DH with a HUGE increase on the framing charges. Seems GC wanted to do the work himself with his 3 man crew underestimating the time and cost of framing by as much as 1/3! Our options were to fire GC and hire someone else or, pay. Our bank said finding another contractor at that stage would be next to impossible and anyone worth hiring would have 4-5 homes to finish before even starting on ours. Or, we could "negotiate" which is what we finally did and split GC's error.....his HUGE error!!!

If you are seeing problems so early in your build you need to sit down with this guy and get the ground stable under your feet before you put another board on that lot.

If you do decide to back out be sure to tell him what you have expressed here - that you decided to do it at this point and not drag it out so that he can make the necessary adjustments to the finishes that may help him be able to still make some $ in the end. It seems that you are being very reasonable about this, I hope he sees it that way as well.

Cost-plus with no escape clause is a great deal for builders who can't estimate costs or contingencies.

From what you describe, you've got an escape clause that may make a great deal of sense to exercise.

I'm a builder/renovator in Toronto of mostly luxury homes and usually get my costs within 5% or less of projections.

I'm currently halfway through a 3,100 sf.custom build as a project manager and am over by 4%, largely due to unforseeables--excavation wall collapse. But my clients are driving the cost up with extras of their own design and choosing--radiant heating, pricey cabinetry, overdepth basement, window wells, oak trim, dog runs etc.

I poured on 3 January and plumbing and HVAC are in. Within three weeks at the outside we'll be ready for boarding.

Next time, consider a fixed-cost contract nailing down all details.

So you need to back into the numbers and see if they make sense. I'm not real familiar w/ building costs in Dallas but if it is in a college area & teardowns are being used for new construction that makes the case that the land cost will be more than the "norm".

Start with the going appraised rate of $150/sq ft including land will result in an appraised home value of $420,000. I'm guessing here but with it being a tear-down area the lot is most likely in the range of 25 to 30% of the appraised value. Let's assume the lower range of 25%. That means the lot cost would have been $105,000 (not including demolition, dump charges, etc). That means at a minimum the builder would be trying to come in at $315,000/2800 sq ft equals $112.50/sq ft including his overhead and profit.

Now let's assume he is trying to hit a 20% figure for overhead & profit so we have to decide whether that includes the land acquisition or not. Worst case for him lets assume that does thus he needs a profit/overhead of $415,000 time 20% equals $83,000. The net cost would thus be $415,000 - $105,000 (land cost) - $83,000 (his profit/overhead) equals $227,000 or $81/sq ft.

That is not likely unless he is using his own labor for framing, electrical, plumbing, mechanical & roofing and for that he needs to be licensed (at least for electrical, plumbing, & mechanical). Even if he was licensed for the above & doing all the subwork himself (w/ $10/hr workers) he would most likely still have to use cheap finishes like linoleum floors, cheap carpet, laminate countertops, builder-grade plumbing & light fixtures, moulding, cabinets, vinyl siding vs hardiplank vs brick, etc. to meet that number.

I'm not sure what type finishes you signed up for but I would be quite suspicious, which it sounds like you are, so gut feel is to walk or run away. However, if it really is in an area of potential "good" appreciation it might be worth it.

To answer your question of general % costs up to but not including drywall is not an exact science by any means. And it totally depends on the selection of finishes. If you were going after a minimum "builder-grade" finish level, I'm thinking of a 40% ballpark number up to but before drywall (this would obviously include rough electrical, rough plumbing, rough mechanical).

Mike - Thanks for the analysis. The builder got the land for super-cheap $68,000. So from your analysis (assuming $105K land cost) to this actual, the builder stands to make an extra $37,000. We certainly have never considered going "minimum builder-grade" on any of the finishes. Builder knew this from outset and when he told us he could do it for $415,000. Mike - Did your 40% number include exterior, such as Hardie? We're about 70% done with the Hardie plank and shingle install. When it's finished, is that included in your rough 40% ballpark number?

I think we can get our confidence back in this by compiling the bids for the remaining subs and projecting actual costs that way. It's the unknown that's scaring us now. If those bids indeed hit a number we can't handle, we'll know to walk.

A little different perspective than Mike's---and thanks for that info by the way...

About the comps--guess when you mention Dallas and university you are talking SMU area and not DBU--that covers lot of different type of housing and prices...you say you are first to do a teardown/rebuild in this particular area so you expected the comps would not reflect what you are building--but you also need to be realistic about how soon that area will become "gentrified"...2800 sq ft works out to a little over $148 a ft at $415,000, at $500,000 it is $178 a sq. ft. and at $550 = 196 a sq ft---and the more custom the interior finish, the higher the price per sq ft would be...
that seemed like a pretty expensive price increase for the 2700 sq footage since we don't know how custom you intend for this finish out to be....

I did an MLS search in Dallas general area--not specific subdivisions-- for newer homes (2002+) 2700 sq ft+ and 400-550 thousand price range...

29 homes came up--(and I have no way of knowing how many are close to your buidng zone) but Dallas apparently has many infill/rebuilds happening. A higher price range would probably have targeted more homes---actually I was surprised to see that many newer homes come up but guess there is real market for teardown/rebuilds in areas inside the loop--(I don't live in Dallas but in Tarrant co but can understand why you might like to live inside the Loop)

the MOST expensive sq ft rate I found was $140 for 3100 sq ft house built in 2005 in Ross Avenue Annex area across
I-75 and Highland Park area...some of the houses are caught are outside the loop and some of them are David Weekley homes --which I know is not what you are doing--
but there was nothing that was over 140 -- that should be a real bell ringer of a wake-up...
either your builder thought you would go along for the ride inspite of the contract or he has no clue about how to price this build...

What if you do ride this out and bite the bullet for increased costs right now....
What if it takes more than 5 years for this area to be redeveloped? Can you wait for that? What if something unexpected happens and you have to move and are forced to sell--would you see return on your costs?

depending on if you are paying cash or private financing (like parents) or getting conventional fixed-rate mortgage or 5/15 split with higher rate to come--if house does not appraise upwards in future, then you are even more in hole if appraisal does not come through then...

don't think it is in your best interests to continue--but I also don't know if you have enough information based on what you have found out from builder to have an accurate financial overview--and that might make a big difference...

Walk. Never be anyone's "first" build. How about finding another teardown you like and hiring an experienced GC. $12,500 is an expensive lesson. We had one with the "first-timer" architect we fired ($4000).

I feel for you, wanting THAT neighborhood; same here. We paid six percent over market for our lot. Fortunately within two years it was worth 30% more than what we paid. But we bought in 2001 -- different, "boom" market years since then...up to 2006.

Re: "Mike - Did your 40% number include exterior, such as Hardie? We're about 70% done with the Hardie plank and shingle install. When it's finished, is that included in your rough 40% ballpark number?"

No, I was thinking of it being blacked-in which to me means exterior doors, windows, housewrap, and roof felt paper but no roof shingles, no exterior siding be it Hardie, etc, and no driveway/sidewalk.

Re: "So from your analysis (assuming $105K land cost) to this actual, the builder stands to make an extra $37,000. We certainly have never considered going "minimum builder-grade" on any of the finishes. "

I would think that extra $37,000 is now going to allow for better finishes which is what you asked for & he agreed to. I don't think he could have provided that if the land cost was $105K & he kept the same sale price of $415,000 given he would have only had $81/sq ft for construction costs. From your original post it seems the builder is keeping a flat profit/overhead of 20% or $83,000.

However, I think I may have misled you with the 40% factor. I was thinking of that in terms only of construction costs, not builder profit/overhead or land. Given the $415,000 I was breaking that down by roughly 20% to builder, 25% for land, and the remaining 55% for construction. That would have allowed $228,000 to build a 2,800 sq ft house. My quess was that 40% of that $228,000 would have been spent at the construction stage as described above.

In rough approximations again but as a % of the total $415,000 w/ the actual land cost plugged-in & knowing your higher grade of finishes, the numbers may play out as follow:

$ 68,000 16% Land Cost
$ 83,000 20% Builder's profit/overhead
$115,000 28% As described above, blacked-in w/ rough electrical, rough plumbing, & rough HVAC but before drywall.
$149,000 36% To completion
-----------------------------
$415,000 100%

I should have also said that at a $94/sq ft construction costs ($115K + $149K = $264K/2800 sq ft) I don't think that is sufficient for mid-to-high end finishes.

And by the builder saying the cost is what it is I would be very suspicious in a cost-plus arrangement.

How flexible are you in making a decision from a time perspective? Can you wait it out until he gives you a price & then make a go/no-go decision? It sounds like your walk-away cost will be $12,500 whether you do it today or a day before closing.

loves2read - Clarification: We're no longer in Dallas. We're building in OK, 2 blocks from OU's campus. I couldn't afford a tear down in Highland Park or anywhere close to SMU ... though it's a gorgeous area. We just moved from that neighborhood where houses were being sold at lot value for $500K, not counting the cost of construction to rebuild.

Mike, Thanks again for all of the valuable information and calculations. We have all the flexibility in the world to make the decision, as you're right we can walk the day before closing. But, in fairness to the builder, I'd rather walk sooner than later.

I'm also rethinking some of the upgrades I had intended, to scale back costs. I'd much rather be in this house with a fully carpeted (or carpeted and tiled) upstairs than to walk away from it because I had intended beautiful hardwoods for up and downstairs and couldn't afford it. I've already changed out the plumbing fixtures for upstairs ... the future kiddos don't need fancy faucets. I'm on the hunt for a nice porcelain tile for the master bath instead of the sparkling glass tile I had originally wanted. Reality check.

soonermagic,

I think ALL of building is a reality check.

Good luck on your decision. We'll be here for you whether it's this house or another you decide to build. :)

ok--just could not see your numbers working inside the loop in any decent area in Dallas---

sounds like you have gotten some reassurance soonermagic--hope your builder is willing to go along with cutting into his profit margin--and don't you think YOU could have gotten better prices than he did on some of that stuff...

Mike13 is good man to have around--will be asking some questions of him when we get past the floorplan stage for our own building

Re: "But, in fairness to the builder, I'd rather walk sooner than later."

Given what you have said above about the builder's non-communication & non-responsive answers to where the actual costs are I would not be too concerned about trying to be fair w/ the builder.

If he had responded fairly promptly to your questions & you now had a good understanding what the final cost would be then I would agree & want to be upfront w/ the builder.

Personally, given the info above, I would continue to ask for the finishes I want and if & when before closing the builder communicates that the build is running $500K or above then you can make the decision to walk or not. If you decide to walk & the builder complains I would simply reply that since he had not responded to earlier multiple requests about where the actual costs were you were assuming they were still on track to hit the target of $415,000.

Who knows, the builder may come in at $430,000 & you'd be happy with that.

if you continue to ride with this project, you would be wise to make every attempt to make sure the builder is paying his subs and suppliers for the work/materials being used so that no liens might be filed at end of the job...
also how will the items that you order because of upgrades be paid for--what is your obligation if he puts in something you want that is an "upgrade" over what he would choose---do you reemburse him at the time or is it just carried forward to closing--
will he expect to be paid for what you individualize on what comes out to be his "spec" house if you opt to walk away...

Since the builder owns the lot & is funding the construction (minus the $12,500 down payment), at closing a title search should have been done & the title insurance company paid at closing. Thus, they should be covered from a lien perspective.

From previous comments, it sounds like their maximum exposure is the $12,500, whether they walk now or later.

I am jumping into this one fairly late but would like to add my two cents"so that you can take my advice for what it is worth>. It looks to me like the mistakes were made fairly early in the process probably by both the client and the GC. I am not familiar with the OK building market but a 20% fee is high...I mean really high in the midwest. Maybe there is some room there to bring the costs back in line. It is also a conflict for the GC to provide construction financing. It muddles the relationship and takes the client out of the drivers seat. I assume by "walking away" you leave the house with the GC and it becomes his problem to deal with. That doesn't seem entirely fair either. You said that you have asked for estimates but not received them but you have been getting monthly cost data from the office manager. Through all of this you have continued on with the project. aware of where you were going financially and I truly hope that you see it all the way to the end.

We are a GC and run into this kind of situation all of the time. I am not sure if you originally looked at other options but in most bidding situations the client chooses the contractor with the middle bid so my question to you would be....if you knew that the house would cost over 500k would you have proceeded? I am guessing not, which is why some contractors aren't prepared to give enough information up front.

I am really sorry to hear about your situation. On the Gardenweb contractors get kicked around quite a lot and you have been respectful and honest in portraying your situation. Sit down with the contractor and place a maximun price on the project along with all of your material selections to completion. He can cut costs if he needs to without destroying the integrity of your home.

Take care.

I really cannot express how thankful I am for all of the supportive and thoughtful responses I received to this question. The latest round of invoices we received were in line with expected costs. The framing is really the only thing that has been unexpectedly (ridiculously) high. We've decided not to walk ... at least for now.

Someone posted the link below in another thread yesterday, and it has given me great assurance that we can build this house very close to the originally estimated $415K. When I ran the numbers for our build and adjusted for our builder's 20% profit and the cost of our land, it comes in $40K under $415K. That gives us quite a bit of room for our planned upgrades. Also, when I ran our actual costs to-date versus the figures generated in this cost estimate, we're $8000 under its estimate (and that's counting about $12,000 of line items that we've had to date that I could not precisely match up with their line items). It certainly made me feel better about the framing, because it showed we really were $2,000 under on framing rather than the $10,000 that I thought we were over. I have my confidence back in this build.

WOW Sooner, that calculator is amazing. It came within 2000.00 of our estimated costs. Some of the estimates were just about exactly what we paid. I'm saving this one.

Charlie - That's good to know. With my builder telling me his numbers were not "real" and I shouldn't use his numbers as an actual cost estimate, I was floundering for some way to guage our expenses. You're not the first to say that the linked calculator was almost exactly accurate as to actual costs spent in construction.

We too built in Norman and had a nightmare (different builder). I already privately emailed this to "soonermagic," but if anyone else out there is reading this and seeing something similar I would run, not walk away when you get a misgiving. The earlier you exit, the better. If we'd balked at the framing stage when our first major issues appeared we would have lost $10,000-$15,000, at worst, which sounded like a worst case scenario at the time but would have been a major blessing, the way things turned out.

We were frequently "reassured" along the way (thinking we'd made changes to get back on track), only to find at the end, when it was way (WAY) too late to do anything about it, that we had shoddy (terrible!) work for double the going price.

By the way, a 20% builder's fee is not out of line here for a high-end home. (And with a median home price of about $115K, $415 is definitely high-end.)15% is about the minimum we saw from anyone. And now I definitely wished we'd paid 20% and got someone who knew what the hell they were doing!

Like another poster here, our builder (and bankers) also discouraged us from making changes (firing subs, etc.) even when we knew things were going terribly sideways. That was a HUGE part of the problem. Wait and see sounded like our only option, but now I wish wed walked away at ANY point, no matter how much it cost us because now we have a house that cost $200,000 more than it appraised for and probably $250,000-$300,000 more than it would actually sell for.

I, too, thought I was "smarter than that" and talked (until I was blue) in the face about what I wanted (submitted a ten page, room-by-room list of all finishes in each room to builder before getting bid), and what I didnt, and then got called "picky" (and a whole lot worse) when I actually had the nerve to say this isnt what I asked for/wanted. In the end, I lost most of those fights and it still galls me. (Our money and they STILL cant do what we want. They just do whatever the hell they feel like and were supposed to be grateful they show up at all.)

We researched our builders other homes, and talked to his other clients. We got other bids and references. We checked legal proceedings and court documents. We even priced/sourced all the major materialsfloor covering, countertops, appliances and fixturesBEFORE we ever even signed a contract.

We, too, knew we were probably a bit over the neighborhood, but planned to live there long enough not to matter. But wed thought about a $50,000-$75,000 difference--at worst--between house cost and appraised value. Our house is 4,001 sq. ft. total and our appraisal came in at $505,000, or $126.22 per sq. ft. And, that was with a very good, generous (but fair) appraiser. Another appraiser lowballed us at an unbelievable $112/sq. ft. saying that NOTHING in our house mattered except for the sq. ft. (typical in this area) and neighborhood comps. He wouldnt even look inside.

Well be lucky to reach the "break even" point of ownership in 15-20 years--which is just ridiculous. Were not "upside down" in the house (in terms of mortgage anyway), because we used our savings to pay the overages. The fact the work we did get was subpar, at best, is the real kickerwe paid top dollar and got bargin basement work that our builderwho hasnt spoken to us in almost a year nowrefuses to do anything about (even big problems like foundation issues).

I wouldn't wish our problems and issues on even my worst enemy.

-Susan W.

Susan, As much as I appreciate your honest comments and advise (here and privately), we have not walked away from the build. Construction is still not completed, so we have not yet closed. As much as I love our builder, he has no concept of time and how long things should take. For example, three weeks ago he said interior painting would take two weeks maximum. Friday marked the final day of those two weeks, and only the kitchen island had been stained. No paint anywhere else. The three-man crew took two entire weeks to tape off, fill nail holes and sand the site-built cabinetry. It'll probably take an additional two weeks for the actual painting ... so that delays us two weeks. We continued with the build when the builder offered to reduce his fee from the original 20%, as he saw the costs & therefore his fee mounting beyond what he "needed" to make on the house. We don't know the final number yet, but we're trusting the builder. The bank tells us that our house will appraise for $150/ft. We have $300,000 in costs in the house today. Thanks to the builder's generosity, We should finish about where we need to, but above $150/ft.

"Soonermagic," and anyone else in the situation, please don't misunderstand ... I certainly hope that everything works out for you and do think our builder was especially incompetentent. I think I've also told you that, if everything had been done as it should have been and as we wanted, even we would be OK with the massive cost overruns because it would be our dream home with no need to ever move. (Maybe not "OK," but we certainly wouldn't be livid and considering legal action.)

I would never, EVER judge anyone for their decision to stay and/or walk away from a build. I'm actually very glad you were able to work something out and hope it all goes as planned. By the way, our painting (which was terrible, one of the worst things in the house) took MONTHS and, to be honest, they never actually finished.

My advice is more "trust your gut" rather than listen to me, or anyone else, who tells you you "can't back out now" or anything that just doesn't make good sense to you personally. In the end, you're the one that has to live with, and live in, not to mention pay for, the final product.

-Susan W.

Susan, you've always given me good advice and do I appreciate it, even if I haven't always followed it!

Well I must say that I am not a fan of cost plus builds for the reasons that have shown up in your situation. However your walk away clause gives you great leverage. I cant believe that your bulder is taking so long. If he is carrying the note the time has got to be costing him a fortune! Maybe he is inflating some of the costs. I have been able to negotiate contracter pricing on th eitems that I have allowances for (cabinets flooring lighting appliances ect. So how your GC isnt getting discounts in this slow market I find difficult to believe.
Perhaps you should try to renegotiate your contract into a fixed price deal. Take his estimate add in anything additional you have added. Than draw up a VERY detailed spec sheet. Add in anything that is above what you discussed. Then add a reasonable margin of error from the combined total above, say 12%. so the total would be $415000 plus any extras plus 40 - 50 K. aprach him and ask if it is reasonable for him to be within 50K of his estimate. This seems reasonable to me especially if you are already paying for anything extra you are adding.
Your builder has a lot to lose if he doesnt sell to you. He has all the carrying fees and would have to first start trying to sell the house now in a slow market. If his inexperiance is causing this project to come in way over budget you sould not have to bear the full brunt of the mistakes. Keep us posted,
remember that even though you have a lot invested emotionally and time wise this is still a buisness decision. 12k is not that much to lose if it means not overpaying 100k for the house
Good luck

Housecrazy - Though it is a business decision, there is so much emotion tied up into the build as well that it's difficult to look at it from a purely business perspective. Very difficult, but I completely understand your points. Our builder is working with us on the final number, which is why we felt comfortable continuing even after we saw the mounting expenses. It is a very slow market and the house is so custom that he will have difficulty getting as much for the house from anyone other than us. I'm confident that we will come to an agreed price with the builder that isn't exactly the initial forumla (cost + 20%). We now have significantly more than $12K in the house, having paid out of our pocket for a number of things, which also makes it more difficult to walk away. I completely agree that the delay is expensive ... we're up to $100 a day in interest. It kills me when I go by the house and see less than $100 worth of work performed in any given day. That interest eventually gets passed through to us, as the builder includes it in his "cost," so I don't think he's much motivated by cutting off that expense. It will, though, be big a point of our ultimate negotiation with him. I appreciate all of the thoughts and comments ... and I cannot wait for this process to be over with. I'm worn out.

Your situation is very difficult. Were all with you. Stick to your guns and try to keep your out of pocket outlays as small as possible. This way when you come down to the final negotiations your builder will have more to lose than you. Remember you should not be responsible financially for him learning the ropes of building.

So you are paying $120 per day in interest? Is the builder charging you 20% of the "cost" of the interest? Ouch.
It almost sounds like it IS in his best interest to delay the job... Good luck and I hope this all turns out well for you!

We have a laundry list of line items that are excluded from the 20%, interest is one of them. That's beside the point now, though, as the builder has renegotiated to a fixed fee (his idea) ... which is lower than 20%.