Q&A - Pre-construction costs
Q: What is considered a reasonable pre-construction cost for building a granny flat? The builders I’ve consulted typically request about 10% of the total project cost upfront, which in my case equates to around $30,000.
At this stage, the builder is responsible for securing necessary approvals and completing preliminary preparations.
Is charging 10% standard practice during this phase? Additionally, since this fee is non-refundable if the necessary approvals are not granted, I’m concerned about the potential risk of losing $30,000 if my site fails to meet the required criteria.
A: Pre-construction costs for a granny flat typically cover the builder's work in obtaining necessary approvals, preparing designs, and undertaking preliminary site investigations. While a charge of around 10% of the total project cost is common in the industry, it's important to scrutinise what exactly is included in this amount and to clarify the terms around refunds if approvals are denied.
Is 10% Standard?
Industry Norms: Charging 5% to 10% of the total project cost for pre-construction is standard. This fee often reflects the work involved in designing, planning, lodging applications, and ensuring compliance with local regulations. However, the exact percentage can vary depending on the complexity of the project, the builder's processes, and your location.
Scope of Work: Ensure the pre-construction fee includes all necessary approvals, site assessments, and any specific requirements for granny flats in your area (e.g., flood zones, setbacks, or zoning compliance). Some builders may bundle additional costs (e.g., soil testing) into this fee, so clarify this upfront.
The Refund Issue
Non-refundable Fees: Many builders structure their contracts so that pre-construction costs are non-refundable, as they cover real work performed, such as architectural drawings or council liaison. If the site cannot be approved, this fee compensates them for their efforts. However, this can be a significant risk if approvals are uncertain.
Protecting Your Investment:
Due Diligence: Before engaging a builder, consider hiring an independent consultant or town planner to assess the site’s suitability for a granny flat. This can help identify red flags early and mitigate the risk of rejection during approvals.
Builder Reputation: Work with reputable builders who have strong experience in your area. They are more likely to accurately assess approval chances before signing a contract.
Alternatives to Mitigate Risk
Staged Agreements: Some builders offer staged agreements, where initial assessments and approvals are conducted for a smaller fee before committing to full pre-construction costs. This might reduce the upfront risk.
Conditional Refunds: Negotiate a clause in the agreement that refunds a portion of the pre-construction fee if approvals are denied, especially for reasons beyond your control. While this is less common, some builders may accommodate this for competitive advantage.
Consult Before Signing: Engage an independent expert to review the builder’s contract and ensure it aligns with your interests.
While 10% pre-construction costs are within industry norms, the non-refundable nature is a legitimate concern. To safeguard your $30k investment, seek clarity on:
What’s included in the fee.
The likelihood of approval (with independent advice if needed).
The terms and flexibility of the builder’s contract.
This proactive approach will help you reduce the financial risks while confidently moving forward with your granny flat project.