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ADU Information

ADU Posts and Information

Learn more about ADUs, DADUs, and Small Home Living

ADU living can be grand in a small form

GENERAL ADU INFORMATION

Accessory dwelling units (ADUs), also referred to as secondary dwelling units, in-law units, granny flats, or carriage houses, are small living spaces that are located on the same property or attached to a single-family home. They can be used to provide additional living quarters for a family member or rented out for extra income.

ADUs are typically equipped with a kitchen, living area, and separate entrance. They can be attached to the main house or built as a standalone unit, but they typically make use of the water and energy connections from the primary home. Due to zoning changes in recent years, ADUs have become more common in residential areas across the country. However, local zoning laws dictate the size and style of the units, and typically require that the owner live on the property.

Before investing in an ADU, it is important to determine if it is allowed by local zoning ordinances, and to consider the cost of construction, including necessary renovations, professional services, and possible tax consequences. Financing options include renovation loans, refinancing an existing mortgage, or using cash on hand.

The cost of building an ADU varies depending on design, materials, and contractors needed. Adding an ADU to a property is likely to increase property taxes, which can impact rental income. The value that an ADU adds to a property depends on the local housing market and is difficult to calculate. However, ADUs can provide additional living space and income, and can offer a more convenient and less expensive living option for a family member.

In conclusion, investing in an ADU has both pros and cons, and it is important to carefully consider all factors before making a decision. It may be helpful to consult with real estate agents, tax professionals, and lawyers who specialize in this area.

Site conditions are important elements to understand in ADU construction

ADU UTILITIES AND SITE WORK

Preparing for an Accessory Dwelling Unit (ADU) project can be an exciting process. However, before you start the construction process, it is essential to take into account the existing site conditions and utilities of your property. Understanding your property’s site conditions and utilities can help you avoid unexpected expenses and ensure that your ADU project is a success.

Site Access
Having easy access to the ADU construction site is crucial to ensuring a smooth and efficient build. The best scenario is to have a wide and straight driveway or side yard access. However, even if you don’t have this type of access, your builder can still work in tighter spaces, though this may require more manual labor.

Drainage
Drainage is a critical factor to consider for your ADU project. Poor drainage can cause damage to your ADU and main home and cause standing water or flooding. To ensure that your ADU project takes this into account, consider the location of your ADU and have a thorough site grading plan before construction. For more severe drainage issues, you may need to install a special type of foundation or have a professional drainage plan.

Trees
Protected trees, whether in a public park or in your backyard, are important to our environment. Many cities have regulations regarding the cutting down or pruning of trees. It is essential to let your ADU team know early on in the process if you have a large or protected tree in your backyard so they can design accordingly.

Slope
The amount of slope in your backyard space can significantly impact your budget. If your backyard has a slope, your ADU team will need to know so they can budget for additional grading and foundational support to prevent future drainage and lateral movement of your ADU unit.

Retaining Walls
If your backyard has retaining walls to hold soil and ground in place, it is essential to note the location of these walls. If your intended ADU location overlaps with an existing retaining wall, it can be costly to remove and relocate the wall, so it is important to know this potential cost upfront.

Power Lines & Easements
Existing power lines can be an immovable blocker for your project if not properly planned around. Most times, overhead power lines indicate that the local power company has easement access to the power lines and equipment on or spanning your property. In most cases, you are unable to build any habitable structure within the designated property easement area. These easements typically stretch either 5 or 10 feet from either side of the power lines.

In conclusion, before starting your ADU project, it is crucial to take into account the existing site conditions and utilities of your property. Understanding these conditions can help you avoid unexpected expenses and ensure that your ADU project is a success.

Great Design equals Great Living

5 Key Design Elements in ADU Design

Accessory Dwelling Units (ADUs) are becoming an increasingly popular housing option due to the trend of compact living and the need for affordable housing solutions. However, designing an ADU can be a challenging task given the limited space and stringent codes around living areas. To make the most of your ADU design, it’s crucial to focus on five key elements: daylight, privacy, storage, plumbing blocks, and focal points.

Key 1: Daylight – Maximizing daylight in your ADU design is essential for creating a comfortable and inviting living space. To ensure that each room in the ADU receives light from at least two directions, you can use exterior windows, interior openings, or skylights. It’s important to consider the impact of window placement on comfort and energy use when choosing your exposure. For example, south-facing exposure will provide warm, ambient light throughout the day, but large openings in hot climates can lead to increased heat and reliance on air conditioning.

Key 2: Privacy – While large windows with outdoor views are appealing, privacy is also an important consideration for ADU design. Depending on the layout of your property and your use case, you’ll need to determine the right level of visual separation between the main home and the ADU to ensure that the unit meets your long-term needs.

Key 3: Storage – In designing tight spaces, it’s easy to overlook the importance of storage. However, it’s essential to ensure that your ADU has enough storage space to accommodate the resident’s needs comfortably. You can utilize various areas of the home for storage, such as bedroom closets, entry coat storage, and bathroom or linen storage. The kitchen layout should also be efficient and make the most of unoccupied spaces, such as utility closets, attics, and under-counter areas.

Key 4: Plumbing Blocks – Plumbing is a technical consideration for your ADU, but it can still impact the design and quality of your space. When laying out the elements of your ADU, it’s important to optimize plumbing blocks by reducing the length of plumbing spans and avoiding unnecessary utility dead-ends. By optimizing plumbing blocks, you can save on construction time and money and leave room and budget for other features that you’ll use every day.

Key 5: Focal Points – A great ADU design should have stunning visual highlights that create a feeling of luxury. This can be achieved by paying careful attention to details, such as locating typical eyesores away from view, making the most of every nook and cranny, and incorporating design elements that will become the focal point of the space.

In conclusion, by focusing on these five key design elements, you can create an effective and high-quality ADU that meets your needs and exceeds your expectations. Whether you’re looking for a compact living solution, an affordable housing option, or just a space to call your own, an ADU is a great choice that combines the convenience of a small space with the comfort of a traditional home.

California is the leading State for ADUs

California Is Actually Making Progress on Building More Housing

The chronic housing shortage in America’s prosperous regions is partly due to local governments acting like private clubs, with limited state control. However, California, a state at the heart of the housing crisis, is taking back power. State leaders are restricting local interference and prioritizing housing construction for all Californians. The California Legislature has been passing pro-housing bills every year for the last 6 years, including bills to ease the conversion of commercial buildings into homes and ban parking requirements near public transit. The state is also enforcing these laws, with the Attorney General warning local governments that his office will not stand by if they don’t comply with state laws. In 2016, California passed a pro-housing law to make it easier to add accessory units to single-family homes. But local governments undermined the law, so the state passed more laws to clear obstacles and strengthen the legal basis for lawsuits against obstructionist municipalities. The number of permits for accessory units has increased from 1,205 in 2015 to 12,569 in 2020. Governor Newsom set a goal of 3.5 million new housing units by 2025, but only 120,000 permits were issued by local governments in 2021. Despite this, the state’s progress should not be overshadowed. The crisis has brought a sea change in California politics, with the tech sector pumping money into advocacy for more housing. Some cities have deep pockets to resist state laws, but this tech-sector support for more housing has helped reshape the housing politics.

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CONSTRUCTION FINANCING

CONSTRUCTION FINANCING
Ideally, financing your custom home is first step you take in the custom homebuilding process because it establishes your budget and helps you prioritize the “must-haves” vs. the “nice-to-haves” for your new home. There are 3 ways to finance your custom home:
• Cash
• Buyer-Financed Construction Loan
• Builder-Financed Construction Loan
Cash
The old adage “cash is king” is not necessarily true in custom homebuilding. While cash is great to have, it does not protect the home buyer and home builder the same way that a buyer-financed or builder-financed project does.
All parties to a construction contract should make an initial determination that answers this question:
What happens if the other party becomes incapacitated, or unable to perform, for any reason?
For a home builder, the loss of revenue during a construction project can have devastating effects.
For the home buyer, the questions that need to be answered include:
• How is the cash disbursed each month to the home builder?
• How are monthly progress inspections made?
• How can I guarantee there are no outstanding liens?
• What happens if the cash runs out?
If it is a cash transaction, home builders will often require a third party to handle inspections and disbursements. Typically, a law firm will handle the transaction, and a required amount of cash must be in the construction account for disbursement every month. “Cash in fund” is typically two (2) months of construction activity. Every month when there is a draw against the fund, that amount must be replenished within 5 working days. This ensures that:
• There is always cash in the fund to pay the home builder.
• The money is disbursed only after a third-party inspection.
• If there are issues during construction, a third party can assist in solving them.
Buyer-Financed Construction Loan
Buyer-financed construction projects are the most popular type of financing. Often called “construction loans” or “custom home loans”, the key element is that the home buyer — rather than the home builder — takes out the loan.
Key Elements
• The contract is a personal-services contact between the home buyer and the home builder to build the home.
• It is not a real-estate transaction.
• Each month, the buyer-financed loan pays the home builder only for the work that was completed and inspected by a qualified, third-party inspector.
• Home buyers typically save significant amounts of money when they finance construction of their home. (When the home builder finances construction, the financing costs are added to the total project cost, and the home buyer ends up paying more as there are two loans vs. just one loan when the project is buyer-financed.)
• An average savings between a buyer-financed project and a project financed by the home builder can vary between 2% to 4% of the total cost.
• Many buyer-financed loans provide an initial “soft draw” that is used by the home builder to pay initial costs such as engineering, blueprints, permits, mitigation fees, and any commissions or franchise fees.
• If any issues do happen to arise during construction, the bank can act as a third party to resolve the issue, and the home builder’s concern about timely payment is mitigated.
Builder-Financed Construction Loan
Builder-financed projects are real-estate transactions because the home builder owns the land and construction until the project is completed. Many home builders prefer a builder-financed project because it allows them to control the entire process from start to finish. If there is an issue, the home builder is in control.
Key Elements
• It is a real-estate transaction.
• The home builder controls the construction project because they are financing it.
• The home buyer is limited to making minor changes (if any) to the home. (The home builder assumes that if their client does not purchase of the home once it is completed, the home builder will have to resell the home.)
• The home builder’s cost to finance the project is added to the total cost of the project — and it often exceeds 4% of the contract price. (For a $500,000 home, for example, this means an additional $20,000 is added to the cost of the home.)
• The home buyer’s mortgage to pay for the home is an additional cost for the home buyer.
Ask for More Information
Sullivan Homes PNW believes the more information our custom homeowners have, the better their decisions will be. Contact us for a video conference call. Any questions and all the answers. We love to talk construction!
Call or text (208) 755-1017

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SPECIFICATIONS/SELECTIONS

Specifications and Selections
How is your house built, what type of materials, how are those materials installed and what decisions can you make versus the homebuilder are important elements to understand.
Construction Specifications
Construction specifications are the critical components regarding the material used to build your home and how those materials will be installed. With thousands of different materials and installation processes, it is especially important that homeowners have a thorough understanding of their specifications.
Basic specifications should include:
• Exterior wall stud framing
• Best practices are to frame all exterior walls in 2×6 studs that are spaced 16″ apart.
• Many homebuilders are now spacing their wall studs 24″ apart to save lumber. This creates walls that have less wood studs and the walls may appear uneven as the wall studs dry and warp. Certain homebuilders claim that 24″ wall studs provide more insulation (due to less wall studs). That is extreme marketing.
• Floor systems
• Best practice is to specify and build with engineered floor systems. The floor joist is engineered for proper lengths and will not warp and move. With the correct 4×8 TG flooring that is glued and screwed down, squeaks and floor movement is minimized.
• Many homebuilders are using 2×10 floor joist. The problem is that the 2×10 floor joist is conventional lumber and will dry out and twist over time. The reason some homebuilders are going back to 2×10 is a matter of cost. Floor joist cost more than dimensional lumber and new fire codes require fireproof sheetrock to be installed underneath the engineered floor joist which can add several thousands of dollars to the project.
• Siding materials
• Best practice is using a siding material that has industry acceptance and nominal warranty issues. As every home utilizes different materials to provide specific looks, it is difficult to make statements as to what material is good, and what material has issues. For climates that have snow, we do not recommend using a cement type siding as the snow against the siding allows water to migrate into the concrete. Once wet, the concrete siding expands and contracts with freeze/thaw cycles and eventually destroys the material
• Our recommendation is LP Smart Trim. This material has marine grade glue and resist most types of water intrusion which is the main destroyer of siding material.
• Plumbing materials
• There is a variety of plumbing materials for water lines available. Our absolute favorite is PEX piping. Unlike copper and other plastics, PEX is flexible, resistant to scale, does not corrode or develop pinholes. For colder climates, PEX can often withstand freezing temperatures as the material can expand without breaking. Another benefit for PEX is the ability to route all the plumbing to a master manifold which provides the homeowner one location for controlling all the water lines in the house.
Product Selections
The most exciting part of custom homebuilding! Selecting appliances, carpet, tile, lighting, and so many more items for your new home.
There are several noteworthy issues with selections and selections fall into two key categories; items you select and allowances that the homebuilder provides you.
Builder allowed selections
Homebuilders often limit the selections that a homeowner may make. Some homebuilders will only provide a basic list of items to choose from that may consist of colors, window grids, plumbing, appliances, light fixtures, and basic electrical upgrades. Other homebuilders will allow a large variety of selections for a custom home.
Why would a homebuilder limit your selections? First, the homebuilder is liable for all products that go into your home and includes warranty issues and callbacks. The products must be proven for a homebuilder to take that risk. Secondly, the homebuilder must have accounts setup with every vendor providing the selections. This can be a hassle for a busy homebuilder to setup different accounts for their client and can include billing issues as a most homebuilders draw funds for items completed, and then makes payments to the vendors.
Builder Allowances
Certain products are difficult to provide selection options. Items such as carpet, wood flooring, countertops, lighting fixtures and tile have so many variations and product changes that it is exceedingly difficult to provide meaningful selections. These categories are handled by the
homebuilder providing the homeowner an allowance amount that should represent the value of the standard selection. The homeowner will then select the product directly with the vendor, make changes, and finally pay for those changes that are above the allowance amount directly to the vendor.
Conflicts can arise between the allowance amount and the homeowner’s final product selections. While it’s not uncommon for custom homeowner’s to spend more on interior products then their allowance, the allowance amount must be fair and the homeowner must understand what the allowance amount was based on.
Best practices is for the homebuilder to secure a current bid for the product and that amount becomes the allowance amount. For instance, homebuilder receives a bid for the carpet, and it is based on Shaw “moonshadow” carpet. That actual amount and bid goes to the homeowner. This provides a true basis for the allowance and if the homeowner orders a more expensive carpet, they knew what the original amount was based on and conflict is avoided.
By providing a current bid that is based on a specific product clearly identified to the homeowner, the homebuilder would be less inclined to supply a “standard” material that is actually substandard.
Ask for More Information
Sullivan Homes PNW believes the more information our custom homeowners have, the better their decisions will be. Contact us for a video conference call. Any questions and all the answers. We love to talk construction!
Call or text (208) 755-1017

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CONSTRUCTION PROCESS

CONSTRUCTION PROCESS
It’s time to swing a hammer and start construction. What you need to know about the process and setting expectations
Nature of the Construction Process
For an outsider, the construction process can seem chaotic, hectic, and uncertain. Some activities go fast, and some drag out. The physical dimensions of the home appear to change. The foundation may appear smaller than envisioned, the framing may create larger spaces than anticipated, and sheetrock will shrink everything again.
Some days, multiple crews will be on-site. Parking may be difficult, and garbage and construction debris pile up. On other days, no one is there.
It often seems like there’s little rhyme and reason to the process and chaos rules.
Homebuilders are masters of taming chaos. It’s what we do.
Without excellent management systems, tools, and experience, it is easy for the process to overwhelm a homebuilder if they have multiple projects going on at the same time.
Subcontractor Management
The vast majority of homebuilders rely on subcontractors to do the work. The subcontractors are separate entities, normally comprised of a small crew. Subcontractors can be foundation crews, plumbing crews, framing crews, roofing, sheetrock, painting, trim work, and finish work. The reason for independent subcontractors is that it’s not economically feasible for a homebuilder to employ a large labor force of disparate skills required to build a home.
There’s certain advantages and disadvantages to subcontractor crews. The advantages are scalability, access to quality work crews, and the ability to build in different locations and projects. The downside of subcontracting the work is scheduling. Most subcontractor crews need to be scheduled well in advance of their scheduled activity. They also work for different homebuilders. If a prior subcontractor does not finish in their allocated time, the next subcontractor crew may not be able to start work on time and will go to another job. This creates a chain reaction with the schedule.
This is another reason to avoid change orders! A change order stops the construction schedule, and it may take several weeks to have the next scheduled subcontractor show up.
That’s why some days there may be several crews on-site, and some days, none. The homebuilder understands this and provides a buffer in their construction contract for such delays and issues. A 6-month project with daily activity will typically extend another month due to the nature of the labor force. Add other potential delays for product delivery, weather, inspections, etc., and a 9-month contract to build is understandable.
Components of a Construction Schedule
Although homebuilders use many different types of scheduling systems and individual activities to schedule, most schedules are broken down to the following categories.
• Permitting: depending on the jurisdiction, this can take several weeks to several months. The average time for permitting is an important question to ask as the homebuilder’s schedule will not start until after the building permits are released. Remember, your construction loan starts to “run” at the time the loan is issue and not the start of construction. A 9 month construction contract should have a 1 year loan maturity date to protect the homeowner.
• Excavation and Foundation: the homebuilder will layout the foundation and elevations. This is a critical component for the homeowner to approve. Once the foundation is excavated, it’s very difficult to change. If there is a basement, the drain lines will be placed prior to the basement slab being poured.
• Framing: floor systems, exterior walls, and interior walls are framed. Trusses are then delivered and installed with windows toward the end of the framing job. Roof systems are then installed to secure the building frame against the weather.
• Rough-In: installation of the plumbing, HVAC systems, and finally, electrical rough. It is important for the homeowner to physically inspect the location of the HVAC and electrical outlets and future fixtures prior to sheetrock covering everything up. It’s a good idea to completely document all systems by photographs prior to sheetrock.
• Sheetrock, tape, and texture.
• Interior/exterior paint.
• Hard surface flooring, cabinet installation and doors, base, and case installed.
• Tile and other hard wall surfaces (showers, etc.)
• Soft goods and appliances.
• Final plumbing, HVAC, and electrical fixtures installed.
• Final clean and homebuilder correction list is completed.
• Final walk-through with homeowner and homebuilder.
• Final “punch list” is completed.
• Move-in!
Ask for More Information
Sullivan Homes PNW believes the more information our custom homeowners have, the better their decisions will be. Contact us for a video conference call. Any questions and all the answers. We love to talk construction!
Call or text (208) 755-1017

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HOMEPLANS and DESIGN

Home Plans and Design
Understanding home plans and great design are core foundational building blocks and controlling cost
• Home plan designers – the Good and Bad
• Different cost for different types of home plans
• Cost effective home plans
Home Plan Designers
With financing and a budget, it’s time to talk about home plans and who designs homes?
There are four core categories for home plan designers.
Architects
First, there’s the residential architect that designs home plans for their clients. Leading residential architects design and draft beautiful home designs. In producing stunning design and documentation, the challenge with architects is two-fold. First, an architect is hired and works for the homeowner. While this may be elemental, their work product is to satisfy the desires and dreams of their client. The challenge is that their work product is not tied directly to the project budget. This often creates a final project cost (as bid from a homebuilder) that is outside of the budget. Another challenge is the design often uses expensive and non-production construction methodologies that can further drive up price. The second challenge is an architect’s fee structure is expensive. Typically, fees range from 8% to 15% of the project cost.
Online Home Plans
The second category of home designers is the online home plans sold everywhere. There are numerous issues with such plans. The primary issue is that those home plans are designed for a general audience and any changes and modifications can be costly. Every region has different building codes and online plans do not address such issues. Most online home plans will need to be redrafted by a local draftsperson to update for local building permit submittal. Don’t buy online home plans.
The third category of home designers is the local draft person. Often, they will have a plan book of stock home plans that have been designed for the local market. The good news is that a local draftsperson knows the local codes, is available and is cost effective. The challenge can be the design element (stock plans that may be years old) and there is no direct relationship to final pricing.
Like an architect and online plan sales, pricing is handled by the homebuilder and budgets can be overwhelmed quickly.
Homebuilder Home Plans
Local homebuilders that will provide their standard home plans to clients in return for the construction of the home. This fourth category can be effective as the homebuilder provides a fixed price. The downside is that custom changes and modifications are difficult to make, if allowed at all. Often, these home plans have been built multiple times in the region.
Design/Build Home Plans
The last category of home designers is the true design/build homebuilder. While fairly rare in new construction due to the experience required, design staff and technology, the design/build process can be very rewarding. The important element is the design directly links to the final cost. This direct linkage of design/cost is the responsibility of the design/build homebuilder which produces a project that is on budget. If the budget is not met, then the homebuilder will not build the project. The one downside to recognize is the design/build homebuilder will control project square footage and construction products to meet the budget. Good communication between the homeowner and the builder is essential for a design/build program.
Sullivan Homes PNW is a true design/build firm. With hundreds of homes designed and constructed for clients over the last 30 years, we know how to design beautiful homes and keep the cost manageable.
Types of Home Plans and Cost
Homeowners will often ask the square footage cost to understand total project cost. Unfortunately, you can only compare the same type of home with similar home types and products to make an accurate determination of value.
Types of home plans are categorized by the following (no basements):
Single story homes (often called “ranchers”), Two story homes, Main floor master bedroom, two story homes.
The best way to understand is by an example. Image a 2,000 square foot home.
The most cost intensive component of a home is the foundation.
A single story home has a 2,000 square foot foundation. A 2,000 square foot two story has a 1,000 square foot foundation (assuming 1,000 square foot per floor). Similar comparison to the roof system.
The single-story foundation and roof will cost twice the amount versus the two story.
The main floor master bedroom, two story is the most expensive type of home plan. The reason is that a main floor master bedroom requires a main floor size equivalent to a single story (for the master bedroom and any secondary bedrooms), and you are adding a second floor.
With proper design, there’s ways to minimize cost by utilizing certain elements of a plan for additional finished square footage. Smaller single-story home plans with a lower level walkout basement are great examples as well as utilizing space over the garage in a two story for additional space.
Cost Effective Home Plans
Home plans that are cost effective efficiently utilize all space available while minimizing foundation and roof systems.
While your budget may be more flexible, it’s good information to understand cost associated with different types of floor plans.
The main design criteria for cost effective plans is:
• Small foundation
• Living space located over all the foundation components, including garage space
• Minimize foundation by building up, or down (basements and/or walkout basements)
• Minimize interior wasted space such as grand foyers, dining rooms, and long hallways
• Utilizing great design, bring in the exterior view inside to provide a larger living experience.
The following types of home plans are ranked in terms of least cost to high cost:
• California split level
• Three (or four) level homes
• Two stories
• Single stories
• Main floor master bedroom with second floor
Great home design does not have to be expensive. The best process to preserve the budget is to link the design and the construction cost with one entity (homebuilder). Without that direct linkage, the design process can quickly overtake the budget as there is little to limit the dreams and desires that create the design.
Ask for More Information
Sullivan Homes PNW believes the more information our custom homeowners have, the better their decisions will be. Contact us for a video conference call. Any questions and all the answers. We love to talk construction!
Call or text (208) 755-1017

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CHANGE ORDERS

CHANGE ORDERS
Change orders is an important tool for a homeowner during the course of construction. It’s important to understand exactly what a change order is, how to control change orders, and to endure that your homebuilder is not using change orders as a significant profit center
To Change the Past
A change order is a written directive to the homebuilder to make a change to the project which will affect scheduling, cost and material for an item or activity that has already occurred or has been scheduled and material ordered. A change order should not be for a future change.
Often, a change order will consist of the cost of the change, including homebuilder profit, and a penalty. The penalty can range from small ($250+-) to large amounts, depending on the homebuilder and their change order policies. Ask your homebuilder how much the change order fee is before signing the contract.
To Change the Future
Change orders are not a change of selection. Change of selections is making a change in something selected for the future. For example, your custom home’s plumbing fixtures were initially selected as Moen Chateau in chrome. Prior to ordering the valve assemblies (at the start of framing of the home), you want to change the plumbing fixture to Moen Eva brushed nickel finish. This change in selection should not be a change order as it is for a future selection change and there should not be a penalty for making such a future change.
There’s often confusion as many homebuilders will use the term “change order” to indicate a change in selections. The way to determine a change of selection/change order is if there is a penalty fee associated with the written change order.
THE GOOD, THE BAD, and THE UGLY Change Order
Homebuilders
Homebuilders are a diverse group of entrepreneurs. Most homes are built by homebuilders with less than 5 employees. Knowing what type of homebuilder you have selected will make your custom home experience wonderful, or a nightmare. By understanding your homebuilder’s policies regarding change orders, you will have an important insight on how your relationship with your homebuilder will
go. The following list and information are subjective, but with 30 years plus of homebuilding, we have an exceptionally good understanding of our industry.
This may be the most important information for a homeowner selecting a homebuilder in these blogs.
The Good
The good homebuilder is transparent in all information and actions. Although no homebuilder will share their actual cost to build your home with a fixed-price contract, most margins are similar for a region.
The goal with a good homebuilder is to build a quality home for their client and minimize conflict and issues. Full disclosure on all specifications and selection, contracts, scheduling systems, change orders, and what a client can do, and what they cannot do during the construction process is important. Everything is in writing, or online systems that can be reviewed and verified.
A homebuilder’s specifications and selection documentation should be extensive and presented in a clear and concise fashion. Change of selections and change orders are straight forward and simple.
A good homebuilder’s business philosophy regarding change orders is that a change order is when something has gone wrong and it needs to be corrected. It is not used as a tool to make more revenue or punish the client. Typical change orders would be moving a framed wall, enlarging windows, changing door locations, etc. These types of changes are initiated by the client who simply did not understand the blueprints or wants to change an item in the home.
A typical change order will result in stopping certain work on the project to change the requested item. This can have multiple consequences as once work is stopped, it will need to be rescheduled and subcontractors are often scheduled several weeks with other projects before they can return to the job.
The goal of a good homebuilder is to minimize change orders, not create change orders for additional revenue.
The Bad
The bad homebuilder will often use change orders to fix construction mistakes that originated from poor information, lack of communication, or hectic and confused scheduling. Instead of taking the blame and fixing the issue which can be an expensive proposition, the bad homebuilder will place the blame on their client and try to recoup the cost by enforcing a change order situation. This creates conflict in the construction process.
Often, it is difficult to determine if your homebuilder operates in this fashion prior to the start of construction. The best method is reviewing your homebuilder’s documentation, selection system, scheduling system, etc. If the processes are poorly documented and confusing, you may have a future issue.
To make the selection process more confusing, there are great custom homebuilders that only build several projects a year and are on-site and hands-on during the project. They may not have great documentation and systems but are excellent homebuilders that care deeply for their clients.
The Ugly
The ugly homebuilder is easy to spot. They depend on providing a low price for the project and depend on making-up their revenue in change orders and extras. There is a lot of homebuilders that operate in this fashion. The typical relationship between the ugly homebuilder and their client becomes stressful and full of conflict.
It is important to understand that most homebuilders pay similar rates for material and labor. Profit margins are standardized in the industry. If you receive a low-priced bid versus other bids, look very closely at the homebuilder and do your research. Once you sign the construction contract, it is too
late without significant penalties and legal action. There is nothing in this world for free. You truly get what you pay for in custom homebuilding.
Another glaring component to the ugly homebuilder is if their initial price is low and they offer “homeowner help”. We’ve seen certain homebuilders that provide a very low price, but require the homeowner to excavate, paint, hook-up utilities, and more. While the low price may seem appealing, the ugly homebuilder depends on their client not being able to do the work according to the schedule and will complete those items for a large premium. That’s where their profit comes from, not the original contract price.
More harm has been done to the general homebuilder’s reputation and trade due to this type of ugly homebuilder than any other action or issue. Please beware of the ugly homebuilder.
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CONSTRUCTION CONTRACTS

CONSTRUCTION CONTRACTS
It’s the heart of the matter. The controlling document if things go wrong. The most important document in your relationship with your homebuilder
Nature of the Construction Contract
A construction contract is not a real estate transaction. It is a personal service contract between the homebuilder and the homeowner for services to be rendered.
This creates interesting differences between the normal real estate contract that many homeowners are aware of and the construction contract.
Differences
• Construction contracts are not recorded like a real estate transaction
• As a non-recorded contract, the actual amount of the construction contract is private and not recorded in any county record.
• As there is no record of the value of the contract (custom home), the value is not available for appraisal purposes. This can create an issue as many custom homes are more valuable than a new tract built home, and appraisers can only locate new homes that are real estate transactions (builder financed) for valuation purposes.
• A savvy custom homebuilder will have recent transactions that they can provide the appraiser with for valuation purposes. Failure to provide such information may result in a low appraisal and project failure.
• Construction contracts will have a pre-determined length of time
• Typical construction contracts will range from 9 months to 2 years, depending on complexity and the homebuilder’s schedule.
• The timing for the construction contract will typically start at the issuance of the building permits.
• If water availability (well) and septic engineering must be completed prior to submitting a building permit, this can add significant delays to the start of the project.
• If there is a delay due to pre-permitting requirements, the construction loan will start to run at the signing of the loan documents. This can create a situation where the homebuilder is within their contractual time limits, but the loan expires prior to completion and the homeowner is forced to renegotiate the loan. This will add extra expense to the homeowner. A good practice is to ensure that the construction loan is for 1 year, if the construction contract is for 9 months.
Components to a Construction Contract
Although every construction contract is as different as the homebuilders creating them, most contracts will have the following items.
• Recitals: who the parties are, addresses and intent of the contract
• Contract Price: the actual amount of the contract which should include the taxable amount (taxable amounts are often broken-out for the client to understand how much tax is paid)
• Homebuilder Services: a recital that includes the complete construction of the home and what is included and what is excluded
• Homeowner Responsibilities: a recital that includes the responsibility for the homeowner to make timely payments to the homebuilder if the lender fails in their responsibilities
• This clause can be an issue if the lender is not timely in their inspection and payment systems.
• Typically, the homebuilder will submit a draw sheet for the prior month’s work completed to the homeowner for approval and then submit the signed draw request to the lender. The lender will then order an inspection and once completed, will finalize the amount requested and approved for payment to the homebuilder.
• The homebuilder will typically submit the draw sheet at the end of the month and will make all payments to their subcontractors/vendors by the following 10th of the month.
• If the lender is not timely in paying the homebuilder, most construction contracts will require the homeowner to make the draw payment after X number of days to the homebuilder. The homebuilder is not in contract with the lender but is at the lender’s mercy for prompt payment.
• Allowances: the construction contract should state the key allowance categories and those amounts
• Homebuilder Disclaimers: include items that if they occur, the homebuilder is not responsible for. Common disclaimers are excavation of rock, or if water is encountered, strikes, “acts of god”, weather related issues, and material shortages.
• Warranty Section: how the homebuilder warranty works and how the product and installation warranties work.
• Boilerplate: the legal components that make the contract viable, selects jurisdiction, mediation requirements, etc.
A good construction contract is designed to define, explain, and mitigate issues that may arise during the course of construction. In case of either party’s failure, the contract provides a legal framework on the resolution of those issues.
Ask for More Information
Sullivan Homes PNW believes the more information our custom homeowners have, the better their decisions will be. Contact us for a video conference call. Any questions and all the answers. We love to talk construction!
Call or text (208) 755-1017