Craftsman Custom Home Builders, serving the Roanoke, Lynchburg & Smith Mountain Lake areas

  • Lynchburg:
    22174 Timberlake Rd
    Lynchburg, VA
    434-266-1070

  • Roanoke & SML:
    66 Builder's Pride Dr
    Hardy, VA
    540-912-0112

cort – Craftsman Home Builders

Did you know that there are actually three parts that make up the final cost of a custom home? This is something new to many customers when they start the journey, so we’re going to break it down for you here.

Many consider the cost of the home construction and the cost or value of their lot as factors, but there is actually one more key variable, and that is the cost in getting your lot ready to build on. This is also known for short as the “site prep“.

Site prep is figured separately from the price of the new home because those costs are highly variable and are almost 100% determined by characteristics of your specific lot, independent of the style home you choose to have constructed.

Site prep includes the following, among other items:

Basically site prep is everything required to be able to build the house on your lot, and these costs can vary from as little as $10,000-$15,000 to as much as $40,000, in total.  Additionally, it’s important to know that there are several different ways that builders charge for these costs.

If you’re building on a lot owned by the builder, these costs should be included  in the price of the home.  The builder most likely calculated them before he even purchased the property, knowing they’d be selling the lot as a package with everything included.

If you own or are purchasing your lot, as most of our customers are, there are three ways to account for the cost. 

Method 1 – Standard allowance

The most common method  is to give standard allowances for everything on the lot. This doesn’t require the builder to visit the site or obtain bids for all the work.  Of course, if your allowance is $15,000 and the cost turns out to be $30,000, you’re on the hook for the difference. 

Method 2 – Included in home price as a service

Another common way is for the builder to get the estimates, add his normal profit and overhead and include it in the final price of the home.  There’s certainly less risk for you that way, but now you’re paying several thousand dollars on top of the cost, if he includes his markup. There will also still be a clause that you have to pay the additional cost if say for example, they hit rock or have to go deeper for the well.  That’s fair since the builder can’t know those things for sure, but you’re still paying that additional profit of several thousand dollars for their management of this work.

Method 3 – Our Method

There are a few builders like us that will go out to lots you’re considering purchasing, and inspect and evaluate them with you. We’ll also obtain exact bids for all the work that will need done. If you choose to build your new home with us, we will include these items in the final contract price, at cost, without any markup, and you’ll see the same invoices that we do.

Of course, as unforeseen circumstances can occur with lot work, we do include a clause, as do all builders, that you’re responsible for any unforeseeable costs. But again you pay only cost for any work done, with zero markup by us, and of course we and the professional we work with evaluate the lot as thoroughly as we can to help lower the risk of surprises beneath the surface.  We feel our way is the fairest  for the customer.

Have questions on typical costs? Click here to get in touch.

We can provide you with an actual dollar for dollar detailed breakdown of what these typical site prep costs are and how much to they normally run. Just send us a note on our response page and we’ll send out a complete realistic breakdown.

Have a lot and are interested in a lot inspection? Just contact us via our contact page or give us ring at 434-266-1070 . There is no obligation, and we’ll out  take a look at your lot or one you’re considering buying, at no cost to you

It’s our most frequently asked question, and usually one we receive even before we sit down with a new customer: What is your price per square foot?

The hard fact is it’s not universal, and if one builder quotes you $100/SF and the next quotes $150/SF, you’re not one bit closer to determining which one is going to build you a better home or which one is a better value. There are dozens of factors that go into that price, and even the calculation method used to determine a home’s square footage varies among custom home builders. But the most basic difference, everything else being equal, is which style of home you choose to build. With the same specifications, the same amenities and the same finishes, certain styles of homes will always cost more than others.

The “hierarchy of home prices” is as follows, from highest to lowest and I’ll explain why.

  1. Single-story Ranch (most costly per square foot)
  2. Story and a half / Cape-style home
  3. Two-story home (most economical per square foot)

There is a simple explanation for the difference between a single story and two-story custom home. If you have a 2,000 square foot ranch home, you then have 2,000 square feet of roof and 2,000 square feet of basement. Whereas the same size two-story has half as much basement and half as much roof, so the two story will always be less per square foot of finished area. It’s important to remember that we’re talking finished square feet because in total area the ranch, if you finish the basement, potentially has 4,000 total square feet while the two story has a maximum of 3000 square feet (1,000 per floor).

Fifty years ago the Cape Cod was very economical per square foot because the builder just finished the attic area already built under the roof. But in today’s world the cape costs nearly the same as the ranch. The difference is that half of century ago labor was very inexpensive. Not so today. Because of that, most other style homes are built with a main roof structure that is engineered and constructed off site. These are the giant triangles, called roof trusses, that you can see on many modern homes if you take a peak under the roof. The framing crew simply has to set them up in place and then nail their sheathing on, usually in less than a day for a straight roof. The advantage of this, other than lower cost, is that the trusses are constructed in a controlled environment free of moisture and protected from the elements.

Capes on the other hand are usually built by hand with 2 x 12 rafters, on the site. Material cost for 2 x 12 rafters vs. 2 x 4 trusses is much higher, but the big difference is the labor cost to “stick frame” an entire roof. That additional labor and material brings the cost for capes right up there with ranches.

All of this is very important to consider in choosing your new home, especially if you’re a family that needs more square footage at a lower cost. Though for most customers, the decision on what style of new home to build won’t be determined simply by square foot cost. After all, you’re custom building a home because you have your own idea of what style you want and exactly what you want in it. And as you begin that journey, it’s important to keep in mind that price per square foot alone isn’t going to serve as a very good guide in comparing home building costs. It can still be useful, but you’ll need to dig a bit deeper to understand what that cost represents with any specific builder and consider how each style of home affects it.

In plain English, how does construction financing really work?

When clients come into our offices they have all kinds of ideas on how construction financing works.  Construction loans, permanent loans and single-closing construction-perm loans are all possible options. And while they all work the same during home construction, they vary greatly at the beginning and the end.

First, let’s see how they are the same.

With any type of construction loan, your payments during the building of your home are fairly small.  That is because they’re not based on how much you’ve borrowed, but just on how much the bank has paid out up to that point.  For example, let’s say you own your land and the cost of building your new home is $200,000.  When you close on your loan, you haven’t really borrowed any money, it’s just been made available.  Your builder is paid in instalments or “draws”, based on the amount of work that’s been done on your home at each stage.  For the first “draw”, usually banks will pay the builder 10% at the loan closing, or 15% when the foundation is finished.  Thus for your first payment 30 days later, you’ll be paying the interest on only a small percentage of the total loan – just on the amount that so far the bank has actually paid out to your builder.  

For instance, in the above example if your builder is given a draw of $20,000 at closing, then one month into construction you would have a payment of about $83, or 30 days interest on the $20,000.  Of course as construction goes on, and the money drawn out increases, likewise your payments also increase. This is why it is so crucial that construction remains on schedule – not just for your family, but for your finances as well.

Now, let’s take a look at how they’re different.

The biggest difference between the types of loans available is in the closing costs, legal fees and other costs associated with the bank process and the recording of your loan.  For example, if you have a construction loan and a permanent mortgage, which is typical, you’ll have two sets of closing costs.  Individually each set is not usually as high as those of a standard mortgage – so you won’t be paying double -, but the total of both together will be somewhat higher.  

A few Virginia banks have started offering single-closing construction-perm loans, which have been standard in other states for a number of years. With this type of loan, you only have one closing, at the beginning of construction.  When the home is complete, the loan simply “modifies’ into your permanent mortgage, thus saving you the second set of closing costs.  The closing costs will almost always be higher than for a construction loan, but rarely as much as the total of the two closing costs of the two-loan method discussed above. 

Depending on your individual circumstances one method or the other may be better for you.  

If you’d like more information on how each loan-type works, on the financing process in general, or some unbiased feedback on what specific area banks offer, please give us a call or contact us.

Often, by the time clients receive our brochure, they have already found a plan they’ve fallen in love with.  Whether it’s something they found online, something they’ve had drawn, or a plan they’ve created themselves, we can usually figure a cost to build the home on their property.  For a custom builder, pricing that home is a costly, time consuming process.  It’s very common for clients to tell us that they’ve gone to other builders, but never received any final pricing.  There can be a few reasons – the builder may be booked up for the year, the plan may be more complicated than they want to take on, but it’s usually just that it’s going to take them too much time to price.  Here are a few tips that will help you get better results when looking for custom home pricing.

Finally, if you’re understanding the complexity of what the builder has to do – estimating all the pieces and parts that go into a plan, estimating the cost of labor to put all those pieces together and estimating cost increases over 8 months – you’re going to have varying, sometimes widely, prices.  Because a builder happens to be the highest price on your home doesn’t mean he’s a “high priced builder”.  His estimating on your plans may have just come out higher (or everyone else is low) because none of them have built the plan before and none know the cost for sure.   So a word of warning, prices will always vary regardless of overhead or profit margins because everyone is estimating.  If you have two estimates at $275,000 and one at $225,000, STEER CLEAR! Of the fifteen to twenty homes we build each year at least three are for customers who had a contract with a builder and it never got started (after a long period of time and a lot of money paid to the bank) because the builder realized he couldn’t build it for the price he quoted.  Last year was out of the ordinary.  We had six, nearly a third of our customers, who came from another builder who didn’t deliver.  My best advice, which I give at all First-time Homebuyers Seminars that I do for builders in Virginia, is that price is undoubtedly important, but reputation is the only thing you can count on. Unfortunately, it’s impossible to compare apples with apples because there are a hundred places for a builder to reduce cost that you’ll never, ever know to ask about.  Ask for references from recent customers, check reviews, talk to local banks to see if they’ve had issues.  In short, do your homework to find out if the builder has a reputation for delivering on time and on budget.  You would do it before you buy a car, do it before you make the biggest investment of your life.

If you would like to talk with one of our highly experienced building consultants about finding the right lot and a free site inspection, building your new home or how financing works, please give us a call in Lynchburg at 434-266-1070 or Smith Mountain Lake at 540-912-0112.

With regard to land, our customers tend to fall into one of three categories: those that already own property, those that that have purchased property but are still paying on it and finally those that are planning to purchase property as part of their entire custom home package. The financing is structured the same way in all cases, but the initial steps differ slightly. In all land situations, you will need at a minimum a “Construction Agreement” with your builder, detailing pricing, specifications, terms and plans in order to apply for financing. A lender will not accept a mortgage application without this agreement as it’s a key component in determining the final value of the property and loan.

All construction financing is based on the total value of the house, site preparation (well, septic, excavation, etc.) and the land. The difference is simply in how much the value of the land counts as down payment (or as the bank looks at it, how it affects the LTV or loan to value).

Let’s just look at the three scenarios separately.

Scenario 1: Owning your land outright
In the cases of owning your land, or partially owning your land, you can often finance even your loan closing costs out of the equity in your property, allowing you to build with no money out of pocket. If you already own your property outright, the bank will still do exactly the same appraisal process. They’ll take your home plans out to your property and the appraiser will estimate the value of the entire property when the house has been built. In that scenario, if the appraiser feels the entire property will be worth $200,000 when completed, and you need $160,000 to build, then it is an 80% LTV. Your land is the same as cash to the bank so you have 20% down.

Scenario 2: Land purchased but not yet owned outright
In a similar scenario, the appraiser says the property will be worth $200,000 when it’s completed, but you still owe $10,000 on the land. In that case you’ll need to borrow the $160,000 to build plus the $10,000 to pay off the land, a total of $170,000, which would then be an 85% loan to value, or 15% down. Still a very good loan for you and the bank.

Scenario 3: Buying the property & the home at once
Buying the property and building the home in the same mortgage? The process is the same, but you would have to bring your normal down payment to the closing. The property is still appraised with the new home on it – let’s stick with the $200,000 figure. In that case the maximum you could borrow would be 97%, so you would need at least $6000 plus your loan closing costs.

Stay tuned for the next edition of “Craftsman Custom Tips”: What style home will really give me the most house for the money – and why?