Building a home without going broke

By Liz Pulliam Weston

There's one sure way to know the cost of building your new dream home. And that's to add up the bills once it's built.

Otherwise, trying to estimate how much a home will cost to build is tricky at best. There are so many variables, and so many temptations to overspend once you start building a home, that coming up with a realistic budget can be tough.

Warren Christensen knows this well. The Los Angeles man and his wife, architect Liz Herron, racked up more than $100,000 in credit-card debt paying for upgrades on a house they built in the mid-1990s. The heavy debt and sinking real estate prices eventually led them into foreclosure and bankruptcy.

"You just want all the things you've seen in Architectural Digest," said Christensen, who has recovered financially from the debacle and is currently building another house. "But you have to scale back in the early stages or you're going to get in serious financial trouble."

So many variables that add up

Where you live makes a big difference in how much you're likely to spend. The cost of building same 2,000-square-foot, two-story house (3 bedrooms, 2 baths) will vary widely depending on whether it's built in Atlanta or Boston, for example.

Among the variables you face:

• The cost of materials. The price of lumber, for example, can swing substantially in price, depending on demand, imports, logging restrictions and the distance the wood needs to be shipped.

• The cost of labor. Obviously, a home can usually be built for less in a low-wage area (rural areas, the South) than where wages are higher (cities, the Northeast). But cyclical employment cycles also can affect your costs. High unemployment in the building trades can mean cheaper workers, while a housing boom can bid up everyone's costs, as remodeling projects and new construction abound. If you've had a natural disaster recently, all able-bodied builders may be fully booked trying to clean up after the hurricane/wildfire/earthquake, and their rates would rise accordingly.

• Government regulations. Did your city council just decide to mandate interior fire sprinklers for new construction? Are environmental regulations strictly or loosely enforced? Is the permitting process relatively cheap or will you pay tens of thousands of dollars? Does your community have a design review committee that will force you or your architect back to the drawing board several times?

• Your own desires/goals/whims. You can spend $30 for a bathroom faucet or $300 or $3,000, if you're the CEO of an about-to-be-bankrupt company. You can have one bathroom or two or six. You can have a home that's a relatively easy-to-build box, or you can toss in all sorts of weird angles and custom windows that drive up the price.

As impossible as it may seem, you still need to have a solid cost estimate before you break ground. If you're financing your home with a construction loan, your lender will insist that you have a budget. Even if you were to pay cash, having a spending plan in place can keep you from bankrupting yourself.

An architect, if you decide to use one, can offer valuable information about how much your home is likely to cost and should be able to give you ideas to save money.

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