Equity - Reserve for Unexpected

Hello everyone,

this is my first post in this forum
My husband and I are planning to build a single-family house. The plot of land is in sight but not yet purchased, the house is in the preliminary planning stage.

We are counting on a developer with house construction costs (preliminary planning) of about €265,000 including garage, painting/wallpapering, and laminate floors. It is a 100% financing, ancillary costs for the land (notary etc.) were calculated from equity. After the first financing discussions, we now have liquid funds of about €15,000 available. Unexpected costs would have to be paid from this or, if these ideally do not occur, e.g. a new kitchen or garden landscaping. We basically have furniture as such.

We are wondering whether these liquid funds are sufficient as a "reserve". The developer is known to our financial advisor in that follow-up financing is rarely required. However, we are afraid to rely on this.

What is your opinion on this matter?

It is not possible to say at all whether that is sufficient. One can reduce some risks, for example through a soil survey and a lot of research.

In my opinion, when building with a contractor, it is almost impossible to divide costs by trade.

We are building with an architect (with an extraordinarily good regional reputation). I then ran around within the circle of acquaintances and relatives with the cost plan (his estimate) and asked whether the costs for, for example, 1 sqm of ceiling fleece were correct. This way I had the costs checked by professionals I trust.

We are keeping €30,000 in cash in reserve. Whether that will be enough we will only know once the house is finished.

Thank you very much for your reply! This uncertainty before the start of construction is really annoying when you consider whether to take such a big risk for the next decades or rather not... Is now the right time or is it still too early? Shall we wait a little longer and the land prices might possibly rise even further than they already are..!?

Are you perhaps from NRW, the surroundings of Düsseldorf/Ruhr area? Then I would appreciate a tip regarding your architect, we are considering whether to also get a comparative offer from an architect...

Hello,

We are calculating with a developer with house construction costs (rough planning) of approx. €265,000 including garage, painting/wallpapering works and laminate floors.

This amount is impossible to assess, as the necessary information is missing in your post. But please, what do you understand by "rough planning"?

It is a 100% financing, ancillary land costs (notary etc.) were calculated from equity capital. After the first financing talks, we still have liquid funds of approx. €15,000 available. From this, unexpected costs or, if these do not occur at best, e.g. a new kitchen or garden design would have to be paid. We basically have furniture as such.

I give our interested parties my list of typical incidental construction costs at the latest by the second meeting and always point out that this list is meant without painting works and floor coverings as well as the installation of the outdoor facilities. Another not insignificant factor can be additional foundation costs – this is often quite a hefty amount.

We are asking ourselves whether these liquid funds are sufficient as a "reserve." The developer is known to our financial advisor in that rare refinancing is required. But we are afraid to rely on that.

What is your opinion on this matter?

As you write, the painting works and floor coverings are already included in the offer. Without knowing now which provider it is and assuming it is a reputable provider, I would say that your reserve is sufficient. In the worst case to possibly cover additional foundation costs or, if everything goes as planned, to tackle the outdoor facilities. A kitchen can also be purchased later.

You also write that your financial advisor knows your favorite developer well. If you trust him – and I assume so – then also trust that his statement about possible refinancing corresponds to his experience. I know from our contracts that there are basically only three possibilities to drive a construction budget up: 1. in the case of a semi-detached house, significant adjustments have to be made (e.g. after gable measurement or obligation to underpin with an already existing semi-detached house), 2. the land shows additional foundation costs, or 3. the builders upgrade in almost all trades.

Rhenish regards

Hello again,

we are considering getting a comparison offer from an architect as well...

From my point of view, that is not a good idea.

You have obtained an offer from a full-service provider, so it is clearer and above all better comparable for you to get another offer from another full-service provider. Architects provide cost estimates; they can be accurate – as described by my predecessor – but in most cases they are not. You cannot even blame an architect for this, as he cannot give a fixed-price offer at that stage. His estimates only become concrete once the tender documents are available.

PS: - Addendum:

I do not want you to be confused – if you have perhaps skimmed my other posts. I am very much in favor of comparison offers. But you write about 100% financing and you are primarily not sure whether the offer from your current provider is complete. You can have that and all his contract documents checked externally. In my experience, one goes to the architect whose budget also allows for a cost overrun of up to 15% and still has a sufficient reserve in hand.

Rhenish regards

In addition, the proper cost estimation by an architect is a service phase that he will certainly charge for.