We were told that after the foundation any overages would be because we added, changed, or upgraded. So far (oh please oh please) it's true.

Kate: Well, no wonder you're "happykate"! So, how far along ARE you in your build?

I can see why excavation could have overages, but I don't see why the foundation would. The amount of concrete can be calculated to within a few hundred dollars and you should be able to get a price for the labor from the sub.

Do you have septic or sewer? I can see where you might have overages in excavation and fill. Worst case scenario you have to blast, no way it would come to $60k. Often if the rock is soft/brittle enough you can use a hammer (excavator with a giant jackhammer) instead of blasting, that is what we did. It's much cheaper.

$54k should be enough for the unexpected as long as the GC doesn't try to charge you more. PLEASE have an attorney look at your contract. Once clause about the GC being able to raise prices based on X (weather, subs, availability of supplies, etc.) and your fixed price contract goes out the window.

Also, what about completion date? Who is carrying the consruction loan? If the build runs long and you have costs as a result of that (rent, interest, fees, etc.), that could cost you as well.

We did not have a carve out in our contract for any unexpected costs associated with excavation or foundation work. We actually have no carve outs in our contract. I still can't believe that our builder signed the contract. Anyway, we will end up being approximately 1% over our contract payable to the GC. However, we will be approximately 10% over in total. The other overage amounts are for things that we are paying cash for as we go...we are adding irrigation, a security system, etc. We did not plan on those costs upfront. These amounts will not be added into our loan.

I would be concerned about signing a contract where you are about at your limit...even a fixed price contract. We were comfortable with going at least 20% over our contract price...we didn't want to, but we could comfortably. I would not want to use up all of my spare cash on the build nor would I want to have to dip into an IRA. Having the items completely spec'd out upfront is fantastic, but make sure you make allowances for the possibility that a certain item will not be available at the time it will be purchased. Something like, "if this item is unavailable, out of stock, or discontinued, owner may choose any replacement item of their choice up to a cash price of X with no penalty for substitution."

Best of luck to you. You are definitely doing your due diligence...

Oooohhh, I'm not saying we're not OVER, pinktoes . . . it's just that we did it to ourselves.

And, what Sue said: I forgot about septic. Our septic bid went from c. $12000 to $18000; the plan, drawn by the company who does that kind of thing, was drawn on an apparently fictious plot of land; then the time came to install it there was just no room. Consequently, we've had to go to a Glendon pod system, and since it hasn't been installed yet, who can say . . . who can say. Goes in next week. [Sounds like it's time for an early cocktail.]

Fixed price with the exception of unexpected excavation and foundation costs. I'm a builder and I like it! As a homebuyer, maybe a cap on those expenses and/or a clause that there is a limit on the builder's cut of those costs might be in order.

Sue: I don't know enough about construction to know why the foundation might run over either; I'm just trying to anticipate possibilities. Perhaps if soil conditions in that area required a more extensive foundation? One thing our G.C. said is that if anything really bizarre turned up and they needed to bring in a soils engineer, we would have to pay the engineer's fee. And, I presume, any additional cost for construction related to his findings.

No septic; county sewer and water.

I rate-shop loans every few months. Consistently for us, our best deal is with Wachovia to do a C-P loan. We can lock in a permanent rate for 12 months, or pay an ace to get an 18-month rate lock. I have no idea whether to do that or not. We pay interest only during construction on the cumulative amount of the draws.

We own our current house free and clear and won't try to sell it till after we move into the new one. We paid cash for the property the new house will be built on. So, there won't be any unexpected expenses with our living situation. Of course, prorated property taxes and insurance for a longer build, but I've budgeted for a 15 month build on that and it's a small house that's expected to take 5 to 7 mos.

Two related issues on that, though. One, is I don't know what the homeowner's insurance company will do once we do the demo and start building. At first they'll have nothing to insure and gradually they'll have more and more of a house they're insuring.

Secondly, I don't know how the city and county will handle our property taxes. In Ga, for the county at least, the assessments are based on what you own on Jan.1, with taxes due in Sept. I don't know what I'll own on Jan. 1 and I don't know if they'll re-value it if it's a vacant lot (should and will also being 2 different things) or periodically during the build. Many mysteries here.

BTW, do you remember me? I'm the one who said "I don't buy a lawnmower without my attorney looking at the contract. We love our atty. and he loves us"? That's me. But I do all I can do first, to save attorney's fees. I spent a few years reviewing contracts in the legal dept. of a huge finance company, so I'm comfortable with the initial reading. And I know when I need help. My atty. usually gets contacted by me during the negotiation stage for some help. Then he gets the preliminary contract with a list of questions clause by clause. We work well together hammering things out that way.

dixiedoodle: we should all be so lucky as to have your deal! If we go more than 2.5% over the fixed price, for the unexpected, we have no choice but to dip into the IRAs. But it won't be the end of the world. We've been hacking down the size, etc. of this house till we can go no further. It's a stretch. And we are nervous.

I do love your wording about the substitutions. I have printed it out for my contract file.

Thanks to both of you. I'm always informed by what you...

I don't know what the homeowner's insurance company will do once we do the demo and start building.

Let the insurer know exactly what's going on. Shop for the best rates. And be sure to have a liability policy in place. Injury or death of workers (or trespassers) on your site can lead to some nasty judgements.

to answer your questions

- 12.5 % should be enough. BUT - i would start off from day one on high alert budget monitoring of the project. get periodic financial reports from the builder and keep your own seperate records of your budget (for allowance items), the quotes you got, and what was actually spent. if you add things - get quotes from the builder and then add that to your list. you would be amazed at how wuickly a bunch of little items will add up. watch our for areas where up charges can get you (like electrical - adding outlets and other things.)

the most critical - and riskiest - part of the build up to the point you are waether tight - so foundation, framing, windows, doors, roof. once you get to that point the rest of the project should be much easier to predict costs for.

try to save that 12.5% for the second half of the project when you are putting in the finishing materials. it's nice to have the ability to upgrade some items if you choose to.

i would also start now and have a plan B - identify the items you would be willing to trade off IF you had issues. anything cosmetic should be a candidate.

- on question 2: it isn't over until it's over. even though the risk is higher at the beginning and lower at the end you just never know when an issue will pop up. all I can say is fight as hard as you can early on to not touch that 12.5% so that at the end you have some flexibility.

good luck

happykate's comment about the septic system brought up another issue. Make sure that subcontractor work is, as much as possible, in the GC's fixed price. Your excavation is an exception, if there's unforeseen rock. But I would have a fit (and be looking for someone else to foot the bill) if something went over by 50% because someone drew the plan wrong.

You want the GC to take on the risk for pricing for materials, subs, etc. Otherwise, it isn't really a fixed price.

If you really are cutting it that close on having extra cash, I'd be darn sure that any allowance figures in your contract are super accurate.

And definitely spend the money on having a lawyer review your contract.

Our foundation ran over by nearly 50%. The reason? The county required that foundation footing be on native soil (our lot had been filled in about 20 years ago) and no one knew just how deep they'd have to excavate before reaching native soil.

The answer was, in places, nearly 16 feet down. We've got foundation footings that go down 8' in places. Result was much, much more concrete. And a much more expensive foundation than had been planned. Excavation costs were much higher than expected (in addition to foundation). Partly to the need to excavate 40 truckloads of fill out. Then when the build was done, they raised the level of the front yard nearly 2' (bring in fill).

We did our share with some upgrades. Overall we went over our fixed price contract about 20%.

Our builder told us that after foundation was completed, remaining costs could be pretty accurately estimated. They were right (we just underestimated the costs of the upgrades we wanted)

"...Perhaps if soil conditions in that area required a more extensive foundation?..."

I would try to learn about the soil conditions in the area. We have septic, so we knew based on the test pits. Neighbors might be a good source as well. We knew once of our neighbors had to blast. Looking at our lot and the surrounding terrain it was obvious there might be rock.

"We can lock in a permanent rate for 12 months, or pay an ace to get an 18-month rate lock."

Pay how much? Custom construction often extends beyond 12 months, especially if it is a large house with a lot of finish detail. On the other hand, if the GC gets "distracted" (which a lot of people on here seem to have an issue with), the extra six months might help as well. But DO NOT let the GC know if you get an extra six months.

"We pay interest only during construction on the cumulative amount of the draws."

But how is the rate calculated? Our rate almost tripled during our construction period due to what was happening in the financial markets.

"I don't know what the homeowner's insurance company will do once we do the demo and start building. At first they'll have nothing to insure and gradually they'll have more and more of a house they're insuring."

Tell the insurance company what you are doing. The way ours worked was we gave them an expected build cost and we insured that amount up front and we also had a construction rider and a large liability policy. I low-balled the estimate I gave them (and adjusted it later) because I didn't want to pay for a $800k house when I only had $100k into it. I believe I told them $350k and once we approached that amount I upped it to $550k (and they made me change it to $800k+ based on their dubious "appraisal").

"I don't know how the city and county will handle our property taxes."

This varies by area. Where we are they assess the property in April and you have a bill due in November and the next May based on that assessment. They estimate what the house will be worth based on the building permit (rooms, siding type, square footage, etc.) and then depreciate for the amount that is unfinished. On the other hand, where my father lives once the foundation is in they assume 20% complete as a minimum. I would contact the assessor in your area. Hopefully they are more forthcoming than ours is.

Good luck. It sounds like you have things well under control.

I went about 5% over my fixed price contract, most of it due to changes in the driveway. We had that 40 days and 40 nights of torrential rain in 2006, after my plans were permitted, but before construction began. As a result, the foundation guy and my contractor changed the layout, added some swails, and generally doubled the amount of concrete. I can't complain about it because it all seems to work perfectly, but an extra $17k was way, way unexpected.