Building a Home

Speaker 1: [0:00] Hello, hello, and welcome to another edition of the Awesome in Seattle podcast. This is your host, Christian Nossum, of the Awesome Nossum Group at Wilson Realty, and today we're gonna be answering a question we get at least once every week or two. Everyone always asks, "Instead of buying a house, should I just buy some land and build?" Literally, we get that question all the time. So finally we realized, yeah-

Speaker 2: [0:23] Yeah, I think you weren't exaggerating about the once a week either.

Speaker 1: [0:26] No, exactly. It's, it's probably often more often. So, um, in fact, I just got it on Thursday, and, uh- … that was like, what, three days ago. So, um, so today we are going to be answering that question. Uh, sometimes the reasons behind this question is, you know, they think that it's gonna be more cost-effective. Sometimes their motivation is because they want to build the house of their dreams, or their very specific style, or whatever it is. So we'll kind of go over these, uh, different motivations. Uh, before I do, let me, let me intro the team. So first off, we have the data guru, Mr. Jason Saldarriaga.

Speaker 3: [1:04] Me, me, me. All me.

Speaker 1: [1:07] Uh, which is kind of funny that, uh, we're talking about building when Jason has active construction going on in his home right now. Yay. So if you hear things in the background, that's him, don't worry. Next up, we got the dog whisperer, Mr. Les Cutting.

Speaker 2: [1:20] Woof, woof, woof. Who let the dogs out?

Speaker 1: [1:25] And then last but not least, the fellow Seattle native, Ms. Reid Watson.

Speaker 4: [1:30] Hello. Recovering from a tonsillectomy, so this is my new, my new podcasting voice.

Speaker 1: [1:36] This is, uh… Yes, you do sound different.

Speaker 4: [1:38] Yeah.

Speaker 1: [1:38] Anyone who has listened to the podcast previously, you know Reid's voice, and this is slightly different. Yeah. So it's very interesting. Um- Thank you … thank you for joining us with your new voice, Reid.

Speaker 4: [1:48] Of course.

Speaker 1: [1:50] All right. So like I said, we get this question all the time, should I buy a lot and build? Spoiler alert, most cases it's not really recommended because of the cost, which is surprising because although it can be slightly less expensive, overall the amount out of your pocket is the big, big difference. So, um, I do see the appeal in it. I, you know, early on in my career thought that it would probably make a lot more sense financially to build as well. Um, but that's what we're gonna do today, we're gonna explain that breakdown. We're gonna go over the breakdown of the, the out-of-pocket costs and, uh, overall costs of buying versus building, um, and allow you to decide which option seems the most effective for you. Uh, and one reason that buying a lot and building can be a headache, or even a non-starter, especially in Seattle, is because available land in this area is super hard to come by.

Speaker 3: [2:46] Yeah, exactly. Um, anyone who has been to Seattle, who looks on a map, who has gone on Google Earth over Seattle, it's a pretty dense city. There is not a ton of- Vacant land. We do have a lot of parks, so it might be misleading at first, but when you actually look in to the city itself, not a lot of free space. A lot of this has to do with just the nature of the land forms around us. If you've listened to our podcast more than- … uh, twice, you've probably heard me say isthmus.

Speaker 1: [3:18] Yes.

Speaker 3: [3:18] We are a… Uh, Seattle's located on an isthmus, which is a land separated by water or having water on two sides. A peninsula has water on three sides, and I guess an island has it on four sides. We're an isthmus, and that really limits our growth. In addition, Seattle and neighboring towns/cities/other local jurisdictions have been really aggressive in limiting growth. And so they're not necessarily as open to never-ending suburbia or sprawl- Mm-hmm … I should say. And so a lot of the land that is available, a lot of the vacant land that is available, is undesru- desirable. It might have a big slope to it, so it might be expensive or difficult to build on. It might be in an ECA or an environmentally critical area, perhaps a floodplain or something of that sort. And so it's even more difficult You know, you have all these layers of difficulty at you. If you're looking for vacant land, okay, first of all, there isn't a ton available. Then it's gonna be difficult to weed through and find a good lot without spending a ton of money on prepping the land. Just keep in mind prepping a lot can cost a lot of money. Mm-hmm. Hundreds of thousands of dollars. Um, we're not talking, you know, $10,000 here to- No … fix a slope. So. Yeah.

Speaker 1: [4:43] I actually had a client two, three weeks ago now, um, we were looking at, or they were looking at potentially buying a vacant piece of land in Leschi. It had… It was on, in an ECA, an Environmentally Critical Area, and in order to just shore up the land, not even build anything yet, just shore it up so that they could build, it was gonna cost

Speaker 2: [5:04] $300,000.

Speaker 1: [5:07] Good Lord. So that's just to prep it to build. That's expensive. That adds a lot to the potential long-term cost, total cost of, of the construction. So, um, finding an empty lot that's ready for building is pretty much almost impossible at this point in the Seattle area. Um, or at least in Seattle itself, the city. Another possible issue is purchasing vacant land. It will most li- likely come with a much higher down payment compared with buying like a normal house. With a normal house, like we've said in our class a million times, the most common down payment in the Seattle area is 5%. For vacant land, you're gonna be at least 20%, if not 30% as your down payment, and it's not like that vacant land is super cheap either. They're still going for 3, 4, 5, $600,000 depending on the size and the location and the slope of the land. So in Seattle it's not like it's really all that cheap to buy vacant lots anyways. The next question that people usually ask is, "Okay, well, what if I buy just a horrible house, a house in horrible condition, and tear it down?" Um, let's kinda go over that.

Speaker 4: [6:17] Yeah. That's an interesting option. It's something that I'm quite familiar with. My parents- tore down the house that I grew up in, it was a little brick cottage, and built the house that they live in now. And it was quite the journey. Yeah, so because land with a house on it is already quite expensive in Seattle, if you buy with the intent to tear it down and rebuild, you add a lot of cost before construction even begins because you have to buy the house first off, and then you have to pay for it to be torn down, all, all before you even start building on anything. Also, building a new home often requires securing what's called a construction loan, which comes with higher interest rates than a normal home loan. Construction loans are really short term, usually for just, like, a year or less because there's more risk involved, and the interest rates are much higher. There's also a little bit more involved. Lenders want a building timeline, detailed plans, a breakdown of the budget. Some even send representatives to the job site. And the down payment for a construction loan is normally a minimum of 20%. It could be even higher. And this is also just a little bit more stressful, right? Because, you know, you have to submit your building timeline and all, and your budget and all of these different things, and anybody who's ever done any construction anywhere knows it's impossible to stick to the building timeline. And your budget is going to get blown out of the water. So there's just, it's also just a lot more mental stress. And I, I personally, from my own experience, would like to add that if you're building your, let's say, really your dream home, right? It's not something you're gonna live in and then sell, you're probably gonna wanna put a lot of care into it and attention, and this turns into a full-time job.

Speaker 3: [8:07] Mm-hmm.

Speaker 4: [8:08] When, you know, you have a contractor out there all the time, you have a project manager. You might have an architect. But- It's your house. You wanna make sure everything's going smoothly, everything looks and feels the way you want it to, and then there are also just a million and a half decisions to make about every single little finish, and if you have a partner, you have to make those decisions with them. So I really can't stress just how much time this takes out of your day. If you're somebody who works a full-time job you're really passionate about, this is gonna be a major s- stressor, and it could be a stress on your marriage as well. Um-

Speaker 3: [8:43] Are you giving me indirect feedback right now? That we had some crazy storms recently, and, uh- Yes some leaks occurred in my house around some windows. Instead of just replacing a window, it just kind of catapult- you know, catapulted, I guess, or- Boomed … snowballed. Snowballed, yes, into, um, let's just, just reside the entire front of the house- … replace the window, rebuild the entire front porch, and, I… It, it's a lot, and- It is being here is essential. Yeah. Yes. I feel you.

Speaker 1: [9:15] And so- And I can add onto that as well. We just, just two weeks ago redid our primary bathroom. Got out of the 1950s, uh, and finally came into the modern day, and we finally have hot water again in our sinks, so that's great. But I will say that all of those little design details- Mm-hmm literally the first or second day they were… Well, the first day they actually started building after they did the demo, it was every 45 minutes to an hour, there were more questions about- Yep … what color Schluter do you want? How do you want the niche in the shower to sit, this way or that way, and do you want them on top of each other or next to each other? It was literally a whole day that I lost of work answering these questions, 'cause by the time I got back into it, into work, it would be immediately pulled away to answer these questions. So we ended up just hiring, which we already had, we had hired a designer. I learned a valuable lesson. Let the designer make all of these- or answer all of these questions, because otherwise I'd be doing that all day long. And that was for a small bathroom. Like, I can't even imagine how much would go into, uh, building an entire house.

Speaker 4: [10:27] Yeah. It's really no joke, and it's also just stressful because you know that- If it, if you get it wrong or if somebody else gets it wrong, it's gonna cost twice as much to redo it- Yep the way you want it to.

Speaker 1: [10:38] Yeah.

Speaker 4: [10:38] Well- So there's that.

Speaker 1: [10:39] Yep. And the cost involved in buying a house just to tear it down is normally enough to deter most people from pursuing

Speaker 4: [10:46] that option. Oh, absolutely. Yeah. ' Speaker: Cause it just, it's so much money just for a house that you're gonna tear down. So, but, hey, if you still think this is the wise way to go for you, the next thing you'd wanna do is consider the cost of actually building.

Speaker 2: [10:58] Mm-hmm. Yeah, Christian, let's talk about it, all right? I'm gonna lay it down for you guys in a second. All right. So fun fact, the national average building, of building a home is $100 to $160 per square foot, but we're way above that because- Way,

Speaker 1: [11:18] way above

Speaker 2: [11:19] that … way above that. So living in Seattle, the actual cost is between 300 and 400 per square foot here.

Speaker 1: [11:26] Yep.

Speaker 2: [11:27] So if you're set on building, spot builders are an awesome option. Um, so a spot builder is basically is some- a builder who will go in an established neighborhood and pick a lot and basically build on that lot, so they're not tearing down the whole neighborhood and developing the whole neighborhood. They'll just pick one lot and they'll build it. Mm-hmm. So if you're gonna do a spot builder, we would recommend that you pick a company who has a floor plan and design that's gonna fit your needs and wants, and select a company that's gonna guarantee a price.

Speaker 1: [11:56] Yeah, so there are definitely some spot builders that will guarantee their pricing, and I would recommend that if you can find one that does. If you want a recommendation, just reach out. I have some that do this. And the reason that that's such a huge Positive is, I don't know if you've heard, but there's this little thing called inflation happening, and prices are jumping up and down, especially with the supply chain issues. Uh, you know, one week something might be one cost, but now all of a sudden demand has grown and supply has diminished, and now the cost of that same thing has skyrocketed. Uh, and that's happening left and right right now, so-

Speaker 3: [12:38] Yeah, cost and time. Yep. I know my neighbor's replacing a window. It's gonna take six months, they say, to get the window. I'm getting a window replaced, but it's a local manufacturer. It's supposed to take two to three months. Let's see. Let's talk in two to three months.

Speaker 1: [12:53] Yeah, exactly.

Speaker 3: [12:53] It might be six months, but, uh, yeah. Yep. Things, everything is just delayed. Paint, uh, earlier the, this year- Oh, yeah … you could not get paint canisters.

Speaker 1: [13:02] Mm-hmm.

Speaker 3: [13:02] Like, the actual m- metal buckets. Yep. The tins. Um, yeah, funny.

Speaker 2: [13:08] Yep.

Speaker 3: [13:08] Odd times.

Speaker 2: [13:09] And this is all really important bec- more than ever because of the pandemic. Obviously, and as Christian touched on, lumber and material prices are fluctuating and typically increase annually. When you work with a spot builder that guarantees a price, basically if anything changes, the cost is gonna fall on them, no matter what the actual cost of materials is and the labor end up being. Um, with a guaranteed price, the builder carries the risk of changing material costs, not you, so it's always a great option. Yeah. So you can look, look into that if you guys are interested.

Speaker 1: [13:39] Yep, and again, if you want a referral, just let us know. I have some that, that can do that. Not every, most builders I would say don't do that, uh, because it is a little more risky for them. But the, I'll say from a building perspective, it's a lot less stressful not having to worry about that, if you can get someone that is doing a guaranteed price, so. Uh, if you are determined to build from scratch, it is important to consider the time and stress of this project, like Reid touched on. It just takes a long time. Uh, getting permits right now is taking forever, like, literally forever. It's

Speaker 4: [14:11] okay. Like, years.

Speaker 1: [14:12] Yeah, uh, in some, in some instances, yes. Like, a year, but- Years. Yeah. Yep. Finalizing building plans, uh, going back and forth with your, uh, architect, with your designer, and then, you know, if you still have a job- … just trying to do that. Sure. Yeah, if you still somehow are employed after spending all your time on building, then, then you still gotta figure out what materials are available. So there's a lot going on, and it, it can take a ton of your time, and it is very stressful. Uh, and like you mentioned, Les, this is especially pertinent now because of the pandemic and the supply chain issues. At a minimum, you're often looking at a year- Often it ends up taking much longer. Uh, I've heard that permits for new construction, we're looking at building a DADU here in Seattle, and just to get the permit they're saying at least six months. So we're gonna have everything ready to go, but we can't do anything until we get the permit signed off. So yeah, be prepared for at least a year, uh, and be prepared for that to turn into a year and a half or possibly two years to complete the entire process, because you could have delays with other materials down the road. And even once you have a floor plan, there's still a lot of little design decisions that we've talked about that can really make this process stressful.

Speaker 3: [15:26] Yeah, it, it, not to scare everyone out there, but it's just, it is a lot to take on. I bought a house about two years ago, and neighbors behind me were building then and they're still building now. Um, and it was supposed to be done like a year and a half ago. Uh, so you know, just expect things to cost a little more or a lot more, and take a little longer or a lot longer than you plan. So it's really important to figure out all the costs, from time to financial costs before you start digging, you know? Um, after a little research a lot of people Just determine that it's a lot more cost effective, less stressful, and will be faster to, like Reed said earlier, to just either buy new construction from a builder, which you do find in Seattle Metro. You don't see so much of that in Seattle proper, but in places like Mill Creek and whatnot, you'll see new neighborhoods.

Speaker 1: [16:30] Mm-hmm.

Speaker 3: [16:31] Um, and that's not uncommon at all. It's also, you know, some people who really want do it themselves might end up just buying a house and remodeling it, and, uh, I'm putting remodel kind of in air qu- quotes here because what this usually means, at least in Seattle, is keeping the floor, the footprint, um, the foundation generally, and then building a new house on top of that. Seattle itself, we haven't really mentioned this or kind of indirectly I guess, we've inferred it. Seattle makes it pretty hard. They don't want you to tear out a whole house, build a new foundation. Th- th- they would prefer you to increase density with what you have. So they wanna encourage, uh, DADUs, like those detached garages or mother-in-law suites. They wanna encourage maybe an extra floor being built or, uh, finishing out the basement. They would rather you not just build a new house. Part of that is because of the environmental toll it takes, the carbon emi- emissions and all that jazz, but also it's about keeping the, the character of the neighborhood while increasing density. That's kind of their, their goal. So just something to keep in mind.

Speaker 1: [17:45] Yeah, and r- Jason kind of touched on this. Instead of completely tearing down a house and starting from scratch with a new foundation, one way to speed up the permitting process if you did wanna build almost new, is to not remove the foundation and keep the same foundation footprint, and then build from there. That can actually speed up the permitting process by months and months and months. I, I've heard, I haven't experienced this directly, but I've heard from past clients that have done this, and from also some friends that had to do this because they had a fire at their house that burned down the house, keeping the foundation the same and going up sped up that permitting process by at least six months in some instances. So that might be the best route to go in order to speed up, you know, the whole timeframe.

Speaker 3: [18:34] And keep in mind, if you're, let's say, adding ins- uh, removing the attic and adding a second floor.

Speaker 1: [18:40] Mm-hmm.

Speaker 3: [18:40] You can't just necessarily do that. You have to potentially reinforce the foundation or- Yep … rebuild a lot of the structure on the first floor. So but you can still keep the foundation, but you might have to

Speaker 1: [18:53] Reinforce it

Speaker 3: [18:53] Reinforce it- Yep … in some way, shape, or form.

Speaker 1: [18:56] And that's generally the case. It's not often that you can just use the foundation that's on your house currently and add another floor without reinforcing that foundation, um, 'cause the house just wasn't built to do that initially most likely. But I think the bottom line here is that there are quite a few paths that you can take to owning your dream home, and building may or may not be the best option. I hope this was super helpful to anyone who was thinking about this option. I hope you now understand the, kind of the different down payment, out-of-pocket expenses, as well as the cost to build. That $300 to $400 a square foot is kinda on the, the lower end. It used to be, before the pandemic, it used to be around 250 to $300 a square foot, but that's definitely increased since then. So if you're building only 1,000 square foot house and it's $300 a square foot, you're looking at a $300,000 cost to build. Uh, plus you need the land. So, uh, that is about it for us. Thank you for joining us on this episode of the Awesome in Seattle podcast. Really appreciate it. And whether or not you are considering building or buying, the expertise and experience of the Awesome Nossum group is available to help you out, so do not hesitate to reach out. If you need a spot builder, don't hesitate to reach out. We can give you some referrals. And thanks, uh, thanks again for listening. We'll see you next week