home as project house

Said friend Florence (name has been changed) is a business professional and still recent graduate who is building a home in a newly developed estate by Stocklands, south of the river.  The particulars are; the home is a land and house package by Ideal Homes, block is 320m2 and house is 136m2 (total area of 182m2 with covered open spaces; garage and alfresco).  The home is a standard design for a 280m2 block and therefore, Florence has more garden than would be usual.  The total package has cost approximately $370,000 (inclusive of home, land and design variations).

I have asked Florence to share some insights into the process and reflect on her experiences on the murky topic of; building with a project home company.

[Image Google Maps of Perth Suburbia]

The sell

Florence did not anticipate to be actually building her own home this soon.  A google search for ‘house and land package’ & ‘Perth’ had Florence emailing the top three results, one being Ideal Homes, for information.  Her only thoughts on choosing the right building company were to avoid the First Home Buyers Centre because of the low quality work, which they had done on a few friends’ homes.  The choice of Ideal Homes was made easy as they were the first company to respond with a phone call.  The second company called back later and was declined and the third company never responded, which is unusually bad business especially in this climate.

The speed at which gathering information becomes your home design is rapid and like a Venus flytrap has an effective power to gather everyone from the undecided to the gung-ho.  The first conversation established area (a new estate 5 minutes drive from her workplace in Canningvale which met her price range) and then a meeting was organized.  At this first meeting, the neighborhood information covered the promising amenities of the area (schools, shopping centre and parks) and a block is chosen off the site plan of the estate to put on hold.  The next question of having a front or rear garage (accessed from the main street or a ROW), left one design possible when Florence chose a front garage.  The sales person then asked about variations to the plan to obtain a quote for the build and soon the meeting to find out about the estate has now established ‘your’ home, in rapid-fire speed.  Florence described how they [the building companies] skip the think about it, to it’s all happening.  This left me wondering, how can architects compete against the psychology of the immediacy of ‘your’ own home, achieved in meeting one? 

Design Variations

1950’s Suburb in Edward Scissorhands, 1990

http://flirtwiththepixie.files.wordpress.com/2010/06/33160_512x288_generated__zovyylehhuiy-69fcuk-q.jpg

Changes that Florence decided to make to the design were somewhat inexpensive and practical such as a door between the hallway and living areas to create zones for efficient heating and cooling.  Other items I noted for her consideration were that the window of the front lounge is east facing (maybe a deciduous planting in her garden) and the glass sliding doors from dining to the alfresco are west facing, so no skimping on the window treatments. 

A surprising aspect for both Florence and I, was that as the home was built in a new estate, Stocklands, as the developers, have their own set of conditions to maintain a high standard (or consistency) for the area.  This is why they include landscaping and fencing in the package.  The outcome of this, which creates a high level of homogeneity, only helps maintain the value of the estate.  The estate is therefore representative of the brand; STOCKLANDS.  The design implications for this estate (and assuming other estates also) are the requirements that every home has to have a two colour [tone] front elevation and an entrance ‘feature’ which is either a decorative gable or ‘gatehouse’ portico.  There are also rules about which side of the lot the garage [and driveway] are placed.  Whilst we may bemoan that architects only seem to do quirky infills/ extensions or palatial homes, I do wonder if these conditions help exclude architects from these areas, favoring sameness over innovation.  We could argue council’s operate on a similar basis but the right to appeal is clearer and their aims and criteria made explicit.  Surely the value of estates tied to an ‘unsurprising niceness’ is a chicken and egg scenario.

Another unknown requirement was that Stocklands also review all proposed developments for the estate and like an approval body make their own conditions, which as variations, owners have to meet at their own cost.    For Florence’s home the developer variation was $1,870 to increase the depth of the portico on the front elevation and to include eaves on the front elevation.  This amount as a variation is therefore an upfront payment to the building company, Ideal Homes.  Florence complained about this upfront payment and argued on why a standard design did not meet all Stocklands’ conditions in the first place.  This paid off as this amount will now be paid at the end of her final account [when practical completion is reached].  The developer requesting eaves over the front lounge window to achieve the required ‘look’, is not necessary a bad outcome for the home though.

Finance

Many items that Florence wished she had known sooner were in relation to finance. This was most likely caused or at the least exacerbated by an incompetent Mortgage Broker who was recommended by Ideal Homes.  Florence did wish that she had used the Mortgage Broker at her workplace to avoid some of the stress that she has encountered in the process.  Firstly the mortgage broker did not understand the concept of HECS, had apparently never encountered it before and therefore it was a nasty shock when it was explained to borrow the amount required she would have to pay off her HECS Debt ($10,000) immediately.  As a fairly unreasonable ask, this was resolved with the advice of work colleagues.

Some further discussion of HECS Debt (the usual punching bag of students) is that Florence worked out by disclosing her $10,000 HECS debt (apparently this is the one type of loan that the banks don’t have access to) she could only borrow $30,000 less than anticipated.  By taking out a personal loan of $10,000 to pay her HECS debt upfront, with this personal loan to the same amount, she could borrow $15,000 less.  This sounds unreasonable, but the difference between HECS and a personal loan is that the more you earn, the more HECS you pay, unlike a loan with set repayments (excluding interest rate variations).

One of the reasons that Florence choose to build is the issue of Mortgage Insurance, a one off payment that must be paid to the banks if you do not have a 20% deposit.  If you are looking to buy an established home or just land, you can borrow up to 95% with mortgage insurance.  If you borrow for a build then you can borrow up to 97% with the mortgage insurance payment rolled up in your finance (this is possible as the banks assume your house will immediately go up in value when it’s built, and this value of the asset will be greater than the finance).  Through our discussion, I learnt that mortgage insurance is non-refundable and non-transferable, which means you can’t re-finance until you have 20% equity.  The recent government initiative of getting rid of exit fees on home loans actually only helps people with equity, as stated by Florence.

Another factor in the finance for project homes is making as many changes up front to include in your loan.  This is difficult when they only offer a floor plan, however if it is a standard design what is to stop you asking for the further information such as an electrical plan (many friends we know who have built, made alterations to switches, power points etc).  Further changes after finance are called pre-start and they operate on an upfront payment basis, which is more raiding of the piggy bank.

The Build

The most positive aspects in this process have been that the build has proceeded without any major hiccups, and the work appears to be of a reasonable standard (lucky this is not boom time).  Florence had a small win, when a more expensive laundry cupboard was installed at no extra cost; the builder had mistakenly followed a variation that had been cancelled. The quote for the package surprisingly came to the same amount that Florence had initially stated she could borrow, so cynically Florence mentioned that she did not know how much extra profit was added for Ideal Homes to get to the same figure.

The only lack of communication she has encountered was that Ideal Homes did not make clear that as the owner; she has to liaise directly with Stocklands to organize the fences and landscaping.  To do this Florence does have to rely on the builder meeting the anticipated practical completion date to try and co-ordinate getting these items done as soon as possible.

Reflections

[Home] http://www.thesmokingtire.com/wp-content/uploads/2012/04/house.jpg

I asked Florence about the decision to go with a project home company although as discussed this was helped along by the extremely well engaged sales people.  It would seem that not only is it people’s misconceptions of not having a high enough budget for an architect but this is supported by how the banks lend money and how the estates are developed?  Maybe with everything uncertain about building, people just want some level of certainty, which they can get from a project home company? 

This home is for Florence, a means to get into the market and is anticipated to become an investment property until she can build her ideal home (which will be designed by an architect of course).  Florence was aware that an architect may mean paying more per square metre but ideally with a greater functionality to the home.  However knowing that this isn’t her dream home she was glad to be able to afford this 3 bedroom, 2 bathroom home for the time being.  The idea of home as an investment does not help architects contribute more to this market and I also wonder how this conundrum helps the populace to retrofit rental homes for greater environmental efficiency; is an owner going to pay for solar panels when the person who saves is the rentee?  This aside, Florence just wasn’t sure she could afford an architect to create an ‘awesome’ home with her budget.  With the market so expensive in Perth it is hard to blame any single person or low-income peoples trying to just get into the market.  I am left wondering is there a line in the sand between affording an architect for a type of project and going with a project home company?  Would my conclusions be the same if I had interviewed a couple on a very healthy combined income who had used a project home company?