The value of a preliminary budget

What is a preliminary budget?

A preliminary budget is a broad-brush estimate of what your project will cost to build. This is something you will want to request from builders once you have a solid set of conceptual drawings from your architect: An existing plan showing your house as it is today, and a proposed plan showing what your house will look like when it’s finished (any additional drawings or information will help make your preliminary budget more accurate). Unlike a detailed final proposal that lays out your project costs by category, a preliminary budget will typically take the form of an approximate range, for example, “Your project will likely cost somewhere in the range of $850,000–$975,000.”

Why do I need a preliminary budget?

Requesting a preliminary budget isn’t about determining the proposed cost of your project down to the dollar — that will come later. Instead, a preliminary budget serves as a financial gut check: Can you afford to build what your architect has drawn?

If the preliminary budget comes in significantly higher than your construction budget, you’ll know that you need to head back to the drawing board without having dumped thousands of dollars into a set of plans you can’t use. If the preliminary budget is roughly in line with (or even slightly below) your construction budget, you can proceed with confidence on the rest of the design process provided the scope doesn’t too drastically as you move ahead.

How do I request a preliminary budget?

This will depend on whether you’re working with a design/build firm, or taking the design-bid-build approach:

• Design/build: In this scenario, your architect and homebuilder work under the same roof. This should shorten the design vs budget loop since your homebuilder can advise in realtime as your architect develops the design.
• Design-bid-build: In this scenario, your architect and builder are separate entities. This gives you the unique opportunity of being able to query multiple (typically 2–3) homebuilders for a preliminary budget. Depending on your relationship with your architect and their process, you can either have the architect request a preliminary budget, or you can request PDFs of your design drawings and send them out yourself. This step is also a great way to get to know prospective builders, strike up a conversation, and even get a sense of what it might be like to work with them. In certain cases, you may even choose to retain a homebuilder at this stage, sign a letter of intent, and bring them onto your team to help advise as your architect continues with the design.

What should I do after receiving my preliminary budget(s)?

Take a candid look at how the preliminary budget compares to your construction budget:

• If the prelim budget is significantly higher than your construction budget, work with the builder(s) who developed the preliminary budget and your architect to determine:
  • Where are the construction costs distributed?
  • What aspects of the project are driving the cost higher?
  • What areas can be adjusted to help bring the cost down?
  • Can you change enough of the design without compromising its core elements and still continue?
  • Do you need to wait until a later date in order to realistically afford the space you’ve envisioned?
• If the prelim budget is slightly higher or in line with your construction budget, work with your architect to continue developing your plans, mindful that you may need to make some minor changes to the scope to rein in costs and ensure that the finished product still lands within range.
• If the prelim budget is lower than your construction budget, rejoice, and carry on.