New Home Construction: the S.O.V.

Applicable to new home construction, the success of the project is reliant upon the provision of well-communicated - and clear - expectations to key project stakeholders, while simultaneously maintaining overall project transparency throughout the project. As such, it is important to list, organize, to put into sequence - and to understand - each project expenditure. Labor, materials, supplies. Both as a total dollar amount. And as an individual percentage of the project as well.

Receipts and invoices for labor and supplies - specific to work performed by contractors and subcontractors within each phase of construction - should be reviewed on an ongoing basis, in accordance with pre-project timelines and budgets. Supplies and materials used during each draw period of the build should be itemized. Itemization enables comprehensive project supervision by stakeholders to take place as the project progresses. One example that is illustrative of how the proper categorization of receipts, invoices, and labor costs can function as a requirement in order for the success of the project to take place can be observed in looking at how a construction loan can be used to finance a new home build.

With new home construction, when the home build is financed with a construction loan, a detailed itemization for work performed - coupled with building supplies - is provided to the lender, by way of a draw request. Having each invoice properly organized prior to submitting a draw request to the lender is an important step to take. Doing so accurately can ensure that a timely release of funds by the lender, as per the submitted draw request, takes place.

Lenders providing financing for new home construction carefully review each draw request they receive. With a construction loan, specific itemization of expenditures, tasks performed, and labor allocated to the project progression within a set draw period should be communicated to the lender in a clear and concise manner. In this example - financing the new home build with a construction loan - the lender's progress reviews could be used as an example of how project oversight can be adhered to - notwithstanding the lender's own review process(es) - by each project stakeholder. I.e.: by the property owner, contractors, subcontractors, architect, investors, and so on

When a construction loan draw request is submitted to the lender, the lender's internal loan review process begins. Documents are analyzed by the lender. Inspections are ordered by the lender as lender inspections ensure that scheduled work is completed within the draw period done so in line with project projections. This is all verified by the lender, prior to the release of funds, in response to the draw request.

It goes without saying that neither the property owner nor the contractor, would be the lender. Yet home build project overview characteristics found within the lender's construction loan review process(es), can be understood, and then applied to the project's supervision by the property owner, and/or by the contractor. So as to ensure the success of the project.

This brings us to the S.O.V. - the Schedule of Values

As construction commences, and then moves forward, the success of the project will rely upon each stakeholder being able to correlate work performed in a draw period, to money spent, to timelines established. Just as it is important for the lender to verify work completed - and verified - in the draw period, funds are released in accordance with a draw request.

When building a new home, tasks that need to be completed in order for the successful completion of the home-build to occur - tasks completed by contractors and subcontractors during draw periods - can be memorialized in the project's Schedule of Values. Progressing in chronological order, the Schedule of Values assigns a payment value - and a percentage - to each itemization which is included in the Schedule. The Schedule of Values lists the cost of work that is to be completed, while also communicating to stakeholders what that cost represents, as a total project percentage. This takes place, with the S.O.V., in each draw period.

The property owner, contractors, subcontractors, investors, lender, project stakeholders, architect, as well as project managers are each individually able to stay updated on the progress of the home-build through the Schedule of Values. Inasmuch as the Schedule of Values relates to billable work performed - and to tasks completed - during each draw period in the project. As each phase of the home build is completed - i.e.: as one draw period progresses to the next draw period - the project's Schedule of Values is updated. The updating of the S.O.V. in subsequent draw periods is directly relatable to forthcoming draw requests. For each new draw request, line items in the Schedule of Values - as per project progression in each draw period - are revised.

When discussing new home construction, it goes without saying that the in-sequence completion of project tasks - as is outlined in the Schedule of Values - by contractors and by subcontractors is tantamount in terms of importance prior to subsequent project tasks being undertaken (and financed). For example, one cannot start on the framing of the new home, without a foundation. The foundation for the home is a set project cost as is the framing. Each would be itemized in the S.O.V. as a total dollar amount of the project. And as a percentage of the project too.

The laying of the foundation, as well as the framing, are each scheduled, within the scope of the project. Timelines for each would be established, prior to the breaking of ground. The Schedule of Values serves as a sort of "visual directional". A "map". "Directions", so to speak for tasks completed. And for money that is being spent to finance the completion of those individual tasks - in each draw period. When building a new home, the Schedule of Values is a good tool to use so as to ensure that each integrated yet separate piece of the project stays on track, with measured accountability.

Let's look at what a Schedule of Values might look like

With a new home build, say the plans and specs run at a cost of $3,000. So, within the Schedule of Values, that $3,000 cost for the plans and the specs would be a dollar amount allotted as a specific component in the overall project - "plans and specs". Within the S.O.V. that same $3,000 for plans and specs would also be categorized as a percentage of the project.

If project costs are $125,000, in total, and the plans and specs run at a cost of $3,000, then within the S.O.V., the plans and specs would be categorized as 2.4% of the overall project. Itemized as a dollar amount - $3,000 - and as a project percentage - 2.4% - within the S.O.V.

We looked at how plans and specs could be included in the S.O.V. Let's look at a second example, that second example being, rough framing.

If rough framing for the project runs at a total cost of $30,000, then rough framing will be categorized within the S.O.V. as 20% of the overall project's costs. Rough framing, within the S.O.V., will be categorized as a dollar amount - $30,000 - and as a project percentage - 20%.

Why use a Schedule of Values for a new home build?

The S.O.V. is a great management tool. The S.O.V. is very effective with regular payment applications, when payment schedules are chosen, in lieu of larger, less-frequent, lump sum payments. Furthermore, utilizing the S.O.V. provides stakeholders with flexibility, if and when changes need to be made to schedules, or to costs, within the project.

Whereas notifying each stakeholder of any changes, one by one, would be what could occur if the S.O.V. were not used, project changes can be encapsulated within the S.O.V., then shared with each project stakeholder, through the S.O.V. This is a cleaner way to ensure that clear and concise communication takes place among stakeholders, if and when any changes need to be made to the project's plans, materials, or costs.

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