After months of design and revisions, we finally reached a point where we felt comfortable with the structural envelop of the house and overall floor plan. The design was submitted to the city for approval by the Planning Department and concurrently to contractors for bids. To our surprise, the contractors' bids were in a very wide range, with the high bid coming in at almost double the low bid.

Given the added uncertainty from the economic downturn, we were especially concerned with our budget. So, to mitigate the risks we reduced the scope of the plan by removing the top floor entirely, as well as economizing elsewhere. Even with the reduced scope, though, the bids were higher than anticipated. It appeared to us that the Bay Area had experienced decades of high demand for construction work and, despite the economic downturn resulting in contractors being more available, prices had remained just as high as they were in the boom days. At the same time, we have seen real estate prices fall, partly due to the tightening of credit and partly due to a notably increased supply of foreclosures or short-sales. While we may believe that prices will rebound due to the long term fundamentals of the area, such as the availability of high-paying jobs, the lack of land able to be developed and a pleasant climate, we also need to consider the short term value of our time as well as the emotional and financial investment we are making in the house.

After evaluating the current economic climate, market conditions, availability of credit and the most likely duration and cost of construction, we decided that the best way to proceed would be to divide the project into phases to minimize the risk at each phase. In the meantime, we are also evaluating the pros and cons of using a fixed bid contract versus a time-and-materials contract, which we will share in another article.

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