“When I build a home, where does all the money go?”

Question: When I build a house, where does all my money go?

10/04/2015

I was recently asked this question by someone who was about to sign up to build with a very well-known project home builder in Bunbury.

She had asked the same question of that companies’ sales representative, and if her recollection of the answer is correct, then she had every right to seek further clarification before signing the agreement.

The response he gave circled around the cost of buying materials and paying people to put up the house. Of course these are necessary, but it isn’t what the client was angling at.

She wanted to know where the rest of the money went.

Well, there are lots of places your money is spent, and they fall into a few broad categories.

The first category we can call “Direct Costs”. This category takes in those costs that go directly into the build of your home. It is the wages paid to your bricklayer, along with the cost of the bricks he is laying, and the cement he is using. It also includes administration costs, such as getting your home drawn, engineered, rated for energy efficiency, or approved through shire.

The next category we can call “Overhead Costs”. This includes internal office staff who help you with your responsibilities in the building process. It also includes the building you lease, maintaining that glitzy show room, the amenities you pay for, supervisors’ costs, and office vehicles.

Finally we get to the category that no one wants to talk about “Marketing costs”. This category includes paying that salesman a commission for selling you the home, it includes the cost of building and running those expensive display homes. It also includes the reams and reams of advertising builders pay for along with all those shiny printed brochures they give away like candy.

So why should you care where the money you are spending is going? After all the project builders all mass produce their homes at around the same prices, and small builders are just too expensive, right?

Well, not really.

It is true that in the past, due to a lack of competition, and a parochial attitude toward building that small builders were an expensive alternative to the mass production lines of the project companies, but this hasn’t been the case for a long time.

We certainly don’t buy our materials as well as the larger impersonal companies, but we also have much lower overheads, and in Coastline Homes case almost zero marketing costs. So overall we are always competitive, and often even cheaper than the big end of town.

If that surprises you, then you are going to love what’s next.

Let’s say you give your builder $200,000 to build your home. Think about where would you like that to be spent? Would you prefer to see it spent on a more experienced bricklayer who is being paid enough that he doesn’t need to rush every wall to make ends meet? Or would you prefer to see it spent as part of a huge advertising budget that is there to bring in the next client willing to part with their hard earned cash?

I’m not putting too fine a point on it, when you build through the big builders, that’s where a significant portion of your money goes.

That sales consultant that looked at you blankly when you asked him to explain the basic design principles engaged in Energy Efficient housing design is generally getting paid anywhere between 3% and 6% of your money (yes that’s up to $12,000 on your $200,000 home) depending on bonuses.

Big builders budget amazing amounts of money a year, often as high as 8% of their turn over towards advertising and marketing. That’s $16,000 of your money.

They build huge premises designed to awe you into parting with even more cash at prestart time, and yes you pay for that too.

All this expensive extraneous noise doesn’t improve your building experience, nor the completed product. It actually detracts from what you really want, an inclusive building experience that culminates in a well-designed and well-built home that you are proud to say you own.

My suggestion is find a small personalised builder that is the same price as the big end of town (or cheaper), and let him spend your money making sure you get the best possible quality home. Let him spend the little bit extra on those tradesmen that have worked hand in hand with him for so long, trust me it is worth a lot more than all the worthless tackiness you pay for elsewhere.

 

Kevin Blackwood

Director Coastline Building Group WA Pty Ltd