Why Budget Poker Is a Bad Bet

Transparency about what you can afford is the only way to get the most house for your money

Your new custom home is likely one of your biggest-ever investments, so you obviously need a builder you can trust. Ways to confirm trustworthiness include reading online reviews, calling references and noting the builder’s professional certifications.

As important as this research is, the final choice often comes down to a gut feeling. But trusting your gut isn’t always accurate, and some people feel anxious regardless of how they choose. They fear being taken advantage of, so they hide their true construction budget from the builder.

This is understandable—go online and you will find lots of advice about how to guard against unscrupulous contractors. Much of that advice treats the budget discussion as a poker game, with the contractor opposite you at the table. In fact, we’ve seen articles that advise homeowners never to tell a contractor their budget.

In the case of a new home, this is spectacularly bad advice and a recipe for disappointment.

We’re all for mental Texas Holdem for a one-time purchase where bargaining is expected. Buying a car comes to mind. But an agreement to build a new home isn’t a “purchase.” Instead, it’s the beginning of a partnership that will last for months.

As with any partnership—business or personal—this one will succeed only if the two parties work side-by-side toward a common goal, which in this case is building the best possible house for the available budget. You’re not going to reach that goal unless you both know what’s in that budget.

Other hallmarks of a healthy relationship include a willingness to state uncomfortable truths if doing so will protect the other partner. That’s why a builder with integrity will level with you about how much house your budget will support.

This is a vital reality check. Some people have preconceived notions of new-home costs based on square-footage prices they have seen, but such assumptions are often wishful thinking. Some builders say that up to thirty percent of the plans they see never get built because the homeowners underestimated the cost of their vision and didn’t want to make adjustments.

A better approach is for you and your professional builder to sit down with your design (whether a set of plans or a rough concept), your product wish list and your budget with the goal of reconciling them.

This is what we call value engineering: a collaboration between the homeowner and builder to find ways to satisfy homeowner priorities using the available funds. Tactics range from reducing floor area in ways that don’t take away from the most important spaces, to product changes like specifying carpet instead of hardwood in some rooms with the intent of upgrading later.

If you’re applying for a construction loan, the professional builder can even work with an appraiser to make sure the changes you are considering won’t reduce the home’s value. For instance, the appraisal will likely be the same whether the home has an expensive standing-seam roof or composition shingles, even though the shingles will cost a lot less.

The builder can’t do this creative work without an accurate budget. In other words, an honest discussion about money is a prerequisite to getting the home you love. But it all comes back to choosing a pro that you trust to be your partner.