Are you considering being an owner-builder? You’ve just bought the perfect piece of land and are ready to build your dream home. Most people will use a licensed general contractor (a “GC”) to build their home from the ground up. But some people – those who wish to be an “owner-builder” or “owner-contractor” – will plan to physically build the house themselves. Opinions seem to be pretty mixed about whether it makes sense to be an owner-builder. It’s safe to say that being an owner-builder can be like an adventure – where you may have good, bad and unexpected experiences. What it’s going to come down to is: Do you really want to embark on the owner-builder adventure, and is it really going to save you money?
Why Build Your Own Home as an Owner-Builder?
The role of an owner-builder can vary dramatically. A skilled (and handy!) person who chooses to be an owner-builder could literally build their own home nail-by-nail, pipe-by-pipe, wire-by-wire and shingle-by-shingle. But this usually is an extreme scenario.
Often, when considering being their own builder, the owner is taking on this extra responsibility largely in an effort to save money. Some still want to work with a contractor in some capacity, but also want to physically handle some of the work on his or her own. Others want to exclude GCs altogether (and their fees), and intend to directly oversee all the skilled trade subcontractors who do the actual field work. Builder fees vary, but in some cases the fees can make up about 25% of the cost of building a new home. That’s definitely a big number, and is the primary motivator for most owner-builders.
There certainly are fascinating accounts of people building their own homes. From a man’s “hobbit house” that he built in Wales for under $5,000 to the “wikihouse” that can be framed in a weekend by two people using pieces of timber that snap together, there are many creative concepts that can help bring home design and building to the masses.
Whether it’s a hobbit house or a traditional home, anyone considering building their own home needs to focus on more than just the GC’s fee and must look at the whole process to understand whether it really makes sense for them.
The Reality (and Risks) of Being an Owner-Builder
If you are considering the owner-builder route, you need decide whether you are ready to take on the role, the risk and the responsibility.
Even though you may be highly skilled in carpentry, you may not be able to install plumbing or wire the house to code. So in most cases you will at least have to subcontract some of the work. This is where your dream home can start to become a big headache. Likewise, eliminating a general contractor often shifts the risks and responsibilities to you when things go wrong.
For the owner-builder, these building problems can develop for many reasons and have a range of impact on the project, its cost and your home’s long-term value:
- Risk of out-of-control construction costs and blowing your budget
- Inability to control your schedule properly, causing costly time overruns and delays in project completion
- Complicated construction issues, requiring solutions that may be beyond your capabilities
- Failing to build to local code (and the unbudgeted costs of correcting issues)
- Many of the best subcontractors won’t work with owner-builders
- Banks may not want to give the best terms on a construction loan without a licensed builder on the job
- Being taken advantage of by shady contractors
- Mechanic’s Liens filed against your property by subcontractors or suppliers
- Difficultly refinancing a construction loan (especially when off schedule)
- Foreclosure or other loan-related distress caused by budget and cash flow problems
- Depressed resale value when home is not built by a known professional
And if you are thinking that an easy solution is to just get a licensed contractor to work with you as an owner-builder, remember that there are a lot of headaches for the builder when setting up the relationship that way. As one contractor noted about working with a potential owner-builder, “they end up taking so long that 3 month projects drag out to 8 or 9 months, quality suffers because of the items they do, and we struggle to get the projects completed.” And now that the home building market has picked up there just is not as much incentive for busy builders to work with owner-builders and risk being caught up in the related problems.
You also need to be able to properly estimate the cost of materials and labor in building the new home, as well as the construction schedule. This is something that you need to make sure that you do not over, or especially under, estimate. Estimating job costs, materials and the schedule accurately is essential in knowing whether you have the correct budget to finish your new home and for obtaining a loan.
There also are other costs associated with building your own home, such as having to purchase specialized insurance. You should have both construction insurance and general liability insurance if you are an owner-builder, and in some cases you even could be responsible for worker’s compensation coverage for laborers too. As an owner-builder you must do the legwork to make sure each of your subcontractors keeps their insurance coverage in place. Banks will require proper insurance coverage for you to get approval for a construction loan.
And being the owner-builder means you are responsible. So, even if you are getting help from a contractor overseeing the project, you are responsible for the integrity of the completed home and will be liable if anything goes wrong (like an injury on the site). In addition to managing and scheduling subcontractors and pulling all permits, you are the person who must order materials, ensure they are delivered to the site in a timely manner and pay the suppliers. You must keep the site free of hazards and be sure it complies with all safety requirements. In some circumstances you also could be considered an “employer” for tax purposes and would be obligated to register with the state and federal government and be liable for the administrative and withholding responsibilities of an employer. Likewise, are you prepared for handling the administrative responsibilities and indirect costs like processing permits, plan review, HOA approval, meter installation and connecting utilities and costs related to impact fees or possible fines for storm water management violations?
In some states there are laws that govern owner-builders and attempt to keep people from skirting construction licensing laws. For example, California regulations state that to meet the exemptions to be a non-licensed owner-builder an individual must own the property and in most circumstances will have limits on both the number of homes it can build and sell and when it can sell those homes.
These are just a few of the things that you will need to consider when building your own home as an owner-builder. Outside of all these practical, legal and financial issues, you also should take into account that being an owner-builder can cause a tremendous amount of stress. You have to ask yourself the question “When do I have time to do this?” Chances are you are not going to be running over to the jobsite on your lunch break from the office in order to help pour a footer for your foundation. Just building after work as daylight permits, and on weekends leaves very little to no time for a personal life and the demands of family. Of course these personal constraints can not only affect your mental well-being and happiness, but also can throw the whole project off schedule and result in serious construction delays.
Granted, the scale of the project can make a difference. If you really just want to build a one room cabin, then the task may be manageable if you have the right skills and patience. But the bigger and more complicated the home design, the more daunting the challenge will be for an owner-builder.
Be sure to include plenty of contingencies in your budget for mistakes and miscalculations – things that are inevitable for someone who is new at building a home on their own – so you can thoroughly evaluate the financial costs, along with the intangible and personal costs that we’ve described. Only then can you conclude whether being an owner-builder really is going to “save” you anything.
If you’ve decided to take a shot at being an owner-builder, then we wish you the best. There are websites that can provide support and advice for owner builders, as well as many construction consulting firms that are specifically designed to assist a person who decides to be an owner-builder.
The Value of General Contractors
Ask people who have tried being an owner-builder – or subcontractors and municipal inspectors who have worked with owner-builders – and many believe that being an owner-builder almost is more trouble than it is worth. It is for these and many other reasons that most people will hire a reputable builder with years of home building experience under their tool belts to build a home for them.
Of course, just because you hire a licensed general contractor does not mean they are going to do a great job. Just like in every profession, some are better than others so check references and do your due diligence first.
But when it comes down to it, there are so many benefits of working with a skilled, licensed builder as your general contractor — ultimately, a quality builder can add a lot of value to your home and the homebuilding process. For more details, read this article about the benefits of working with licensed builders.
Each person has different skills, free time, patience, needs and financial ability. Ultimately it is up to the individual to decide if they want to go the owner-builder route. So if you still are feeling ambitious and plan to build yourself, then by all means have at it! We’d like to know how it turns out for you.
- 9 Benefits of Working with a Licensed Builder (lotnetwork.com)
- Checklist for Hiring a Home Builder (lotnetwork.com)
- Choosing Your Builder: Tip #2 for Buying Lots and Land (lotnetwork.com)