April 6, 2015 | 7 Comments It takes a village to raise a child. And, I’m learning, it takes an army of contractors and service providers to build a house. And a lot of money. Since I started this house building journey the number one thing people have been saying is, “have you hired a general contractor or are you going to do it yourself?” My answer is always the same: “Yes!” You see, even when you hire a general contractor you still have to be in charge. There are so many parts, people and pieces to building a new house – particularly in a city as restrictive and bureaucratic as Vancouver – that I have become the defacto project manager. Let me tell you about the planning I’ve had to do, the people I’ve had to hire and the cheques I’ve had to write to get from nothing to permit applications. Here is a list of all the service providers involved thus far. After listing them, I will offer my thoughts on how I made my decision who to hire and my experience with each thus far. I will post on a few here and more in the future. I will also share their costs – something that I had trouble finding anywhere! Realtor Land Surveyor Lender Architect/Designer Certified Energy Advisor Structural Engineer Geo-technical Engineer General Contractor Interior Designer ISA Certified Arborist Landscape Designer/Landscape Architect Lawyer/Notary Realtor A competent Realtor is a must for any real estate transaction. Knowing market value, projecting future value and understanding neighbourhoods are all key services a real estate professional can provide. Sometimes, what you might think is no big deal – such as social housing near by or an apartment building in the neighbourhood – can be a big deterrent for future buyers. Before buying any land for future development you should ask your real estate professional what challenges there would be if they tried to sell the home in the future. Conveniently, I am a Realtor and saved myself from making the first hiring decision. I thought it over myself and consulted with some office colleagues before choosing the lot I ultimately bought. I am aware of the downsides and I am excited about the upsides. If you are going to hire a Realtor to help with your land purchase and development, I highly recommend someone who really understands the process and isn’t just ‘blowing smoke’ about how they can sell anything. Make an informed decision and choose wisely. Lender Borrowing money to build a home is not the same as getting a traditional mortgage. You can’t do this with 5% down and CMHC insurance. If you are building a home for yourself, a typical construction loan requires 20% – 40% equity in the project or outright ownership of the land. When a ‘builder’ builds a home, it is a business loan – which is a totally different set up. As someone who is building a home for myself, I applied for financing at 2 different places. I asked a mortgage broker to prepare a package and I visited the branch manager at my commercial bank, Canadian Western Financial. The documentation required to get a land and construction loan are similar to those necessary to get a regular mortgage: 2 – 3 years of tax documents (T1 General, Notice of assessment, GST Returns), investment statements, credit reports, proof of down payment etc. The extra paperwork, however, is sometimes more complicated. Before a bank will loan on land and a construction project they want to look at building plans, contractor resumes and permits. And herein lies the first problem I encountered. I couldn’t get the money until I had plans. I couldn’t hire a contractor until I had plans. And, I didn’t want to pay for plans until I had money confirmed. What came first, the chicken or the egg…..The financing approval or the building plans? Not knowing what to do, I did everything. After receiving conditional approvals from two different lenders, I proceeded with the planning stage. My mortgage broker of choice is Steve D’Souza. He’s a top notch broker, a creative problem solver and an all around smart guy. He ran my numbers, told me I was close and figured he could make it happen. After some back and forth, he was able to secure a construction and property loan from Scotiabank. It is an attractive product designed just for my scenario but interest rates are bit higher on a product like this. The approval was conditional on building plans, contractor resume approval and a few other minor things. My corporate bank, Canadian Western Financial, was able to put together a similar set up with better terms and rates given my relationship. Assuming you have the income, the credit score, employment history and the assets to support a large loan, the structure looks like this: An initial appraisal of the property is done. A future value appraisal of the property is done based on the building plans to ensure that it will be worth more than all parties are putting into it. 80% Loan to Value on the first $1,000,000 60% Loan to Value on the remainder The buyer’s equity has to be in the property before the bank’s loan becomes available. After the land has been financed you will access your construction loan in 4 quarterly draws. The bank will hold back 10% of all funding in accordance with the builder’s lien act. So, what would this look like for a typical home in the middle of Vancouver. FOR EXAMPLE PURPOSES ONLY Land: $1Million Construction Costs: $600,000 Total Costs: $1,600,000 Future Value: $1,800,000 Loan Amount: $800,000 on $1,000,000 $360,000 on $600,000 Total Loan: $1,160,000 -10% hold back =1,044,000 Property transfer tax on purchase: $18,000 Minimum cash needed for this project: $574,000 Don’t forget about carrying costs during the term of construction which are sometimes interest only and sometimes principal AND interest payments. You can see, its not as easy as putting 10% down on an old house and building a new one. Getting money to build a house – particularly in a market as expensive as Vancouver – is difficult. As one banker said, “The worst case scenario for any bank is being stuck with a half finished house. We need to make sure that you can afford to finish the product, your contractor knows how to finish the product and your house will be worth more than the value of the loan when its done” Apparently, my bank thinks I meet all of these requirements and agreed to lend me the money I need to buy the land and build a new house! And so, I’m off to the next step. Architect/Designer This is a process I was not familiar with! When I was interviewing contractors most just kept telling me I could hire a drafts person to do up the plans. I was in real estate, they said, I’d be able to whip together a floor plan in no time!. Boy were they wrong! One general contractor I met with worked for design/build firm. They opened my eyes to the design process and helped me understand that I wouldn’t be able to get an accurate quote on the cost of building a home without plans. DUH! How did I miss this part?!? Anyways, I changed my interviews from General Contractors to Designers right away! This was the next step and it wasn’t going to short and sweet. It leads down a long and time consuming path that is interrupted by a few more service providers. I interviewed 3 designers for my house. The previously mentioned design/build firm. A local design firm with a strong track record on this type of product. A real estate client of mine who is also an architect at a major firm and runs a small design studio on the side. The first firm quoted me $20,000 to design the house and the laneway. They would then prepare a fixed price quote for building it and if they were chosen, the design fee would be reduced to $10,000. I figured they would be getting their money one way or the other. While I was impressed with the design – build firm I interviewed, I ultimately decided against this model because I felt it left too much control in one place. I am a firm believer in checks and balances. The 2nd firm I interviewed was VERY GOOD. I would actually recommend them to anyone doing a major renovation or new build. The team was responsive, the senior designer knowledgeable and the fees reasonable. The house and laneway were quoted at $14,700. I felt their price was reasonable, but timing was my biggest concern. I didn’t think they were going to be as available as I needed them and I already felt I was behind on my project. I ultimately hired Antonio Rigor. He is creative, knowledgeable, responsive and was ultimately the most cost effective. Cost of plans: $13,500. He met all of my criteria for hiring, including my most important one: Availability. Antonio only works on one project at a time, so he doesn’t miss anything. When I swung by his house one day to discuss the plans we sat at the computer for 30 mins and made changes. He answers his phone, returns calls and meets me on my timeline. He has also been great about bringing the other consultants on board. Certified Energy Advisor What!?!? That was my reaction, but yes, I had to hire a certified energy advisory. This another crazy City of Vancouver requirement. I am going to write a whole post on this in the future, but for now I will just share with you that I wrote a cheque for $1575 to these guys: http://netzerosolutions.ca/ so they could look at my plans, and run a blower test on my house once its built to make sure its energy efficient. From what I understand the city requires that I have an Energuide Number. They don’t actually care what it is, just that I have one. I will investigate this further and report back in a later post. In the meantime, Antonio the designer said I needed an energy advisor, so I hired one. My criteria for this decision: COST. I don’t care about this one AT ALL. Structural Engineer Once I was working my way through the design process, I was informed that I would need a structural engineer to sign off on the plans. Is this part of the design fee? Nope. OK – how do we hire an engineer? I had two engineers give me quotes. One was through one of the contractors I was talking to and the other was through my designer. I wanted to defer to my designer on this one, but in an effort to keep everyone honest, I wanted to see 2 quotes. I am sure glad I did! I ended up getting 2 quotes from the same firm by accident because both the designer and contractor use engineers at the same firm. They didn’t talk to each other and sent me this: The contractor’s engineer brought me a quote for $5300. The designer’s engineer brought me a quote for $2000. That’s a $3300 difference!! How does this happen? Surely one of them doesn’t understand the project scope. I left this decision to the designer to make – its his area of expertise and his domain. After some clarification, on the scope of the project (mostly the addition of a laneway house instead of a garage) the engineer quote was finalized at $2400. There will be additional engineering costs once the building is under construction. But for now, I am happy with the numbers. I want to end each post from now on with a running total of the money I am spending so you can have a clearer picture of the costs of building a home in Vancouver: Service Provider Bank Appraisal $350.00 Designer/Architect $13500.00 Certified Energy Advisor $1575.00 Structural Engineer $2400.00 ISA Certified Arborist Report $155 Total $17980.00 Still no house.