Budgeting for Site and Lot Improvements, Part 1

When I estimate construction costs, I separate my estimate in to several categories of costs. This keeps me organized and focused. In my article on our BBI Website, “How much do you charge per Square Foot?” I explained that the total cost of building a new home includes five major categories. They are as follows:

1. Land acquisition
2. Architectural Plan Development
3. Soft Costs (All Permits, Required Engineering, Hookup Fees, Appraisals, Loan application and closing costs etc, legal.)
4. Site and Lot improvements ( includes everything that’s not Vertical )
5. Vertical Construction – “The house” includes foundation through completion.

In category #4, “Site and Lot Improvements”, I focus on a list of cost items that need to be addressed and in my estimate, I make sure to put a budget number for everything on my list, including things that I know I won’t be doing. To me, a zero in a column is just as important as a dollar amount. This tells me that I have asked the question and researched the answer. I hate blank columns in an estimate. Sometimes my estimator leaves out a number because he doesn’t know it yet. But you’d be surprised how many conversations I get into on weekends when he isn’t around. Site estimates can be many pages long and I often will do what most people do and just go to the end and look for the total. I learned the hard way not to do that. One time, the well was left out of the estimate but it was required in the bid. My estimator was on vacation and he emailed me that the estimate was pretty much done. So I trusted the number without looking through all the pages. When he got back, he informed me that he didn’t plug in a number for the well because he didn’t know what it would be. By then, it was too late for me to update the estimate because I had already given the full contract amount to the owner. It brings to mind a famous line “If you think education is expensive, try ignorance.” These things have a way of educating us very quickly. Now, when we are waiting for some bids to come in, we always put in a number that is a reasonable guess based on historic numbers but we color them red, meaning that they are just a guess and not a hard number.

Unfortunately, Site and Lot improvement estimates often have to exclude as much as they include, especially with the average single-family residence. This is because nobody really knows for sure what is under the ground unless someone is willing to spend some money to pre-determine it. To this day, most homeowners are willing to hold their breath and hope for the best with such surprises because we inform them that the money required for fact-finding may exceed the cost to deal with it. This is when contingencies and allowances become a prudent method for budgeting unknown site costs. While everyone knows that these budget numbers can vary, there’s confidence in understanding why they are there.
In all our estimates, we separate the “knowns” and “unknowns” and try to be very clear in our communication. We itemize inclusions, exclusions, allowances and options similar to the following sampler statements. Each of these statements says something but doesn’t necessarily explain the ramification of cost. They are as follows:

Sample #1 – Note/reminder: Since the possibility exists for using existing materials around the house for building up the grade to the owner’s satisfaction, the suitability of these materials obtained from the site cannot be verified or guaranteed by this GC.

Reason for this statement: To explain to the owner that we will do our best to use the materials that came with the lot but want it to be clear that the soils may not be suitable for backfilling against a foundation or for use under a slab. We also explain that they may not get the lawn that they hoped for with the kind of dirt we have on-site to work with. Everyone knows how expensive screened loam is to buy but not everyone is aware that their lot is nothing but sand and rocks or clay underneath the first two inches of pine needles and moss and that if they want a soft, grassy lawn they may have to spend $10,000 or more to get one.

Sample #2 – Options Available, but not in contract are: Additional Tree Clearing & stump removal – by hour & machine, extra Grading beyond limits – by the hour & machine. All our contracts define the “limits of construction” as within 20’ of the foundation. This is because we have to start somewhere. During construction, the owner may want some additional clearing because he just does. We know that, but in order to control costs and have a clearly defined estimate, we have to clearly define the “limits of construction”.

Sample #3 – Possible surprises due to unconfirmed information:
Ledge Removal – anything larger than 1 cu. yd.

Excessive water – discretionary, but necessary if excavated hole becomes so excessively wet that work cannot continue Hidden Obstacles – buried cars, tractors, old foundations, conc. tanks etc.

Sample #4 – A Special Note on Ledge: When ledge is encountered in the excavated hole or the utility trenches, the project will be paused by the GC and discussion will commence with the owner and the site contractor as to how best to proceed. Factors for discussion will include the amount of ledge and its method of removal, pounding vs. blasting, disposal of rock, import of grading material to replace what would have been available, but also any impact or changes to the original concrete plan and interior floor plans. The redesign will include an hourly charge for alterations to the plans and specs. That’s the bad news about ledge. The good news is that you may get some awesome rocks that you can sell to masons or use for your own stone walls.

Sample #5 – A special note on the drilled well allowance of $8,500.00:
Since nobody really knows or can say with certainty how deep or how much water is down there, we provide a basic pkg price. You should know that just because an allowance is used to complete a budget, it doesn’t mean that an allowance can’t be specifically calculated with rules on how it will be used. We define how all our allowances are to be used and what they are intended for. For example, here’s how we determine a well allowance, how it will be used, and what is guaranteed within it.

Drilled well includes drilling to a minimum depth of 200’ with a minimum water supply of 8 gallons per minute or maximum depth of 500’ with a minimum supply of ½ -¾ gallons per minute. 20’ of steel casing is provided, but if the ledge is not encountered within 20’, then an additional casing is billed in increments of 10’ x $16.00/ft.

Pumping system includes a pump and pressure tank sized properly for depth, production and type of system ( geothermal, multiple users, barn, etc ) . It also includes all piping and wiring up to 100’ from the foundation to the well.

• A “Dry hole” is defined as a hole with no-water or less than ½ GPM at 500’. Options include hydro-fracking at additional cost of $2,700.00 w/ additional 1 GPM guarantee. If one gallon per minute is not obtained, then the cost for the procedure is $800, and discussion will be commenced with the owner, contractor and driller as to how best to proceed.

• Filtration or softening : Based on need and not part of the contract
3. Standard water test for bacteria and mineral content is taken from the kitchen sink and included in the contract. A written report will be supplied to owner by BBI upon completion of the house.
Prudence with Environmental Regulations when applicable: It’s important to note that the location of a well is usually predetermined by the State and it should not be moved. Once the State approves a lot for construction, it is rarely worth it to file for an amended location of a well, mostly because of the time it takes.

I learned this the hard way with a house we built on a State Approved lot in Brownsville, VT. Unfortunately, I was a bit inexperienced at this sort of thing and paid dearly for it. For one thing, I didn’t know that the State of Vermont had recently passed new regulations and they are not real good at letting you know. This lot had been sitting for a long time so it didn’t even occur to me to ask about retroactive subdivision regulations.
When we staked out the house, driveway, septic and well with a local surveyor, it became apparent that the State approved well site landed directly on top of a very large 10’ tall boulder. It was bigger than the average kitchen and it bode well as an awesome lawn ornament. But there was a problem.

There was no way to drill the well through the top of that boulder so I did what most rational thinking builders would do. I shifted the well about 25’ further away from its approved location and also made sure I kept it farther from the approved septic system that it was originally, thinking that this should not create a problem. We drilled the well and hit a really nice vein of about 20 gallons/ per minute. After that, we proceeded with building the house and completed the rest of the sitework.

When the house was completed and ready for the excited owners to move in and take residence, the Bank asked for a letter of certification from the engineer who created the subdivision stating that everything on the lot was built properly and “in compliance” with State Regulations and approved plans.

Sometime between when the subdivision was approved and when we built the house, the State changed their regulations for setback distances between wells and septic systems. Instead of only requiring a 100’ well radius from a septic system like it was shown on the original plan, we were now required to maintain a 200’ radius for any well that is located downhill from the septic system.

If I had drilled the well through the top of the boulder, I would have been ok because the original plan was “Grandfathered” within the old regulations, but since I opted to move the well to a more sensible location, I was informed that I now had to re-apply for an amended permit that must comply with the most current regulations. Since the lot wasn’t large enough to maintain 200’ setback, I did my best by staying 125’ away. But in order to get a Compliance letter from the Engineer that was required for a Bank closing, I was forced to blast away the large beautiful boulder (it had become a family front-yard pet) and re-drill a new well where the original permit showed it. To add insult to injury, the entire well trench also had to be blasted; not an easy task with a house in the way. Then I was required to fill the other well with concrete. The new well, even though only 25’ from the other one, only got about 4 gallons/min. These kinds of “tuition payments” really make you go gray. But you do learn from it. You just hope you don’t become bitter and only tell stories to future prospective clients that will scare them away from wanting to work with you.

As a result of this fiasco, I now expect the lot owner to hire a surveyor to flag everything precisely where they show on a permitted plan. It costs between $300.00 – $600.00 but is more of an investment than a cost. Once the project is completed, we also generate an as-built plan and include a letter of compliance from the Surveyor and Septic designer or Site engineer, whether it is required by the State or not.