I just stumbled through this so I will let you know my thoughts. First, I would talk to the banks. See what you will/will not qualify for (amount of downpayment required, interest rates, points, etc.). We found it varied wildly for us but we were looking at jumbo loans. You may not have this issue with conventional loans. It took me a month to sort out who offered us the best deal.

Permitting is not an issue here so I don't really know how to answer that.

I would not sign something that is that vague or inapplicable. We have a lot of allowances built into our contract, but those allowances are based on many many bids by our proposed (and now agreed upon) builder. So, for example, our window/french door/front and side door allowance is based upon the Jeldwen Siteline EX quote. We are considering a couple of other window manufacturers that will be slightly more, but we know we can do the Siteline and stay on budget.

Our builder took our full plans and specs and bid out everything to compile his cost to build the house. There was a little fluff built in because we needed the worst case scenario to be sure we got a large enough loan (i.e., concrete prices were in flux so they used the higher one), and we have seen some DRAMATIC reductions in costs with a little pressure from the builder and a little bidding against each other from the suppliers. For example, the Kolbe bid is now very close to the siteline bid with a few agreed upon swaps by us (less expensive doors in basement), a reduction in cost from both Kolbe and from Randall Brothers (the distributor). He put all this together, very thoroughly, before any contract was signed.

All this to say, if this builder wants your business he needs to put in the work on the front end as well.

An allowance is not a contract price, it is a miniature cost-of-the-work contract stuck inside a fixed price contract so the allowances don't mean anything except to help you plan your financing. An enforceable fixed price contract would contain unit prices but no allowances.

Unfortunately some builders try to obligate an owner to a project cost with as little specific material and system design information as possible and call it a design-build contract. The cost of the design gets rolled into the builder's overhead so it's not free.

The downside is that the builder can increase the original project price each time an owner requests an "upgrade" like enough lights to be able to safely walk from one end of the house to the other after dark but the allowance was not large enough to do that.

I don't deal with these kinds of builders because I design buildings and put them out to bid or negotiate a contract with a selected builder so I don't know how an owner can protect themselves from this kind of bait and switch practice.

What I have done is hire a contractor as a consultant to advise me and the owner during the design phase and to then negotiate a contract when the scope is clearly documented with the understanding that if we are unsuccessful we will bid the project.

Basically, in a design-build contract the builder is in control of the project from start to finish. When an owner hires someone to provide design documents and then bid it, the owner is in control. Giving up control of somethig so expensive has never seemed wise to me but many people think the money they save in design fees is worth it.

You can look at it this way, when the builder charges you extra for something you think should have been included, you can pay for it with the money you saved by not hiring your own designer. I suspect that sometimes that works out and sometimes it doesn't. Others on the forum can tell you what their design-build contract cost.

We have a builders cost plus a fixed fee contract. Any contractor discounts are passed on to us. The allowances in our case are pretty accurate, but does relieve us from having to pick out every faucet and tile before we break ground.

So, thank you macv for confirming that indeed this is a design-build type contract/operation. I suspected but wasn't really sure.

Is there any recourse to still go forward with this company and get all of the design phase and permitting done first before committing to a build? Like break the contract into 2 separate parts or something or is that not done? I did already pay a fee for design, and I have no problem paying more to get complete construction plans and specs. I just don't want to commit to everything and certainly not to an open-book of vague or non-existent specifications and materials. (Yes, some of that design fee is rolled into the complete cost so I don't understand your saying I am saving money in design fees by going this route and paying for it later in change fees.)

Are you paying the builder as much as you would expect to pay an architect? If so, IMHO you should hire an architect and take advantage of the opportunity for competitive bids and the quality assurance he/she can provide during the construction phase.

I will just speak of my expereince.

We are building a custom home, we first went to the bank and found out what we would be approved for. That gave us an idea of what we could spend. The bank also gave us information on how the loan process would go (which has been a nightmare this past week with one thing after another popping up, mainly because of issues with seperating the land)

We found our builder, which had a model that we liked, but needed to shrink it a bit to meet our budget, which the builder happily did and drew up a new floor plan that was almost exactly like the one we went through. He also supplied us with a spec list (17 Pages) that spelled out many of the material/items (not everything though)

The next few weeks I emailed him daily with getting prices for certain upgrades (8' sliding door instead of 6', whole house surge protector, etc, etc) It must have been 20+ items he priced out for us. We went over the list and decided what to add to the house and what we could afford, still giving us a little room incase our allowance go above what is given (Cabinents/Appliances/Flooring/Landscaping/Lighting). I also found our "Credits" for items that I planned on buying on my own (Toilets/Kitchen Sink).

He re-wrote the spec list to include the items we wanted, and gave us the quoted prices in the emails.

He gave us a Contract and told us to look it over, I researched it and found it was a very general contract that did not "Favor" the builder (BE CAREFUL THERE) I seen that there was a few things missing (Start and End Date) I also added a clause about if an item/material was not stated on the spec list, that the same item/brand/material used in the model home we toured would be included. The builder was happy to add these items and we signed the contract.

Our builder only requested 1% of the total cost to build in order to start, so your 15% seems very high IMO. That covered his cost for the revised floor plans, that he paid for in hopes we went with him, starting the permit process, and getting the lot staked out. Our builder submitted the permits to the city(which take around 2 weeks to be approved) We should be closing on our Construction loan soon (next week hopefully) We just locked in our 120 day build Mortgage rate and couldn't believe how low it is right now.

I have been keeping our builder updated on the loan process and he stated once he gets the green light he will pick up the permits and start.

In your case Jenwrens, it seems like things are being rushed on both ends. I assume the zoning board needs plans to review, but you shouldn't have to sign a contract in order to get the items needed for the zoning board from your contractor.

Research Research Research, this forum is a great place. Get all your prices before you sign the contract, otherwise you go through the Change Order process and who knows how much the cost of an item might be marked up once the contract is signed.

My .02 would be to Meet with the bank, find out what the zoning board needs, research the builder/contractor (references etc)get a more defined/updated spec list, before even looking at the contract.

I like the idea of having a lawyer look at it, just make sure the lawyer specializes in real estate or builder/buyer contracts and has some experience.

Going into talking with bank, builder, zoning board, make sure you get a list of questions (research) and not only have questions, but have an idea on how you want the question to be answered, followup with additional questions if the answer isn't something your hoped for our thought would be the answer.

My builder stated he hasn't had anyone in his 10+ years that has gone as far as I have in researching him and his company (a good thing IMO)

I also like the idea of getting an architect, if you can afford it, which we couldn't.

If you have more follow questions let me know, I don't know much, but I sure have done my research on things and am in the process now and can relate.

Our process was closer to what macv describes. We first bought our lot about 3 years ago. It was a tear down. We collected pictures and ideas and met with several architects. We choose one and drew up plans. The architect then recommended 4 builders that build homes in our budget. They all came up with bids and we met with them and choose the one we felt was the best fit. Interestingly, all the bids were very similar. We built cost plus. I've learned alot through the process and there are definately things I would do differently.

I think I would choose my builder a bit earlier in the process. There are things on our floor plan that added cost that my architect didn't point not or wasn't aware of. I would have listed more specific selections prior to the bid process. I thought we had already picked everything or had a pretty good idea but in reality we had no clue.

minnesotaguy - what did you mean when you said "issues separating the land"? How do you separate the land from the house?

Did you have any problems with comps and appraised value on your construction loan?

Our process was closer to what Macv described, so plans, permits and then bids. Our selected contractor is also the framing contractor and finish carpenter. It turns out that was critical for us. As things came up we could call Brian Kuelper, or Brian would call us, and say "ya know, this looked good on the plans, but maybe we should leave it there and do something different in the actual house." Then the next day it would be done. No change orders ever!Brian has the framing crews so he just had a guy make the change real quick.

My contractor never touched a penny. I pay the bills, I collect the lien releases and I submit the draws. My contractor got paid for framing. Then about 3/4 of the way through the build we gave him 1/2 his general contractor fee.

We had the standard allowances and that was mine and my wifes responsibility. I bought the material, if it went over, it was my fault not Brians. Brian did reel us in a couple of times, and he recommended some things that sent us over in line items.

We get our C of O this week! Brian Kuelper is an outstanding builder and we had a good time building. I think we are exactly on budget. My wife and I still have a week to screw that up though.

Spf5209 - My Inlaws owned a large piece of property and they gifted us a lot out of it. The process was rather lengthy and our house sold quicker then I thought.

Once the Seperation is complete (all's this is left is for the county to record it) Then we can close on our Construction Loan.

The land was valued at 90K and our house was valued at 270K (We are paying 240K to Build it) So the Land is essentually our Down payment and will prevent us from getting PMI.