How is builder #1 being compensated for pre-contract design services?

We are paying him a fixed price for the work. He proposed the fixed price method and services included for design services. We agreed to his proposal.

I should also add that within the agreement is a T&M should we exceed the fixed price. On numerous occasions I've asked if we are still w/in the current fixed price, and he's said we are fine.

And, I'm a consultant and work only by T&M rate or for fixed price projects so I am very sensitive to these types of engagements, and try to be generous with these arrangements bc I know what it's like to get jacked around for 'free' advice :)

What has been the role of the architect? Is he/she really an architect or a designer? How much experience independent from a contractor? The design information seems inadequate for pricing so perhaps you didn't get the design services you contracted for.

He is an architect, and I know the builder and the architect have at least 10 years experience a piece. But we really had the layout for the most part already done as we have modeled it after a house we've seen. So, they really only needed to modify a few things re: our layout.

I mean, I don't know if I should throw this out there, but I'm so frustrated, I can't help it - approx a 900K budget and only Granite level 2 for kitchen and $1.50 sq/ft for tile...really? really? :)

It sounds like he is trying to meet your price point, so the "high end finishes" are often the first thing to go.

You likely would have been just as upset if he came in way over your budget but included everything you asked for.

"This is not the first time we've finished a house with allowances and/or custom work, so we are fairly knowledgeable and have recent/relevant comparisons."

How recently?

Costs have only gone up.

You have done your due diligence about what you want. The proposal from the new builder will tell you if the first builder is cutting finishes to get in a certain price range, or whether you can actually get the finishes you want within your price range.

I think if the new builder is willing to work with you, you can't worry about the price of the last homes your builder built (ours just finished an 8M one at the beach). If he is willing to work with you, and you are happy with his compensation, then I wouldn't worry about what he is "used" to building. You may be surprised - ours has been extremely knowledgable about what high end things cost which has been helpful in deciding whether to go with certain options or others. I do expect that the allowances will be higher with the new builder, but it sounds like yours are completely insufficient.

Some things do balance out. We have a 5.00 per square foot tile allowance. We are using cheap subway for the bath surrounds and nice but inexpensive looking ceramic for the boys showers, and this has allowed stone mosaic on the floors. Which brings up another point - these high end builders have great sources which may help with you budget.

Getting a second opinion is a good idea. This will tell you whether you can build the house you want with the finishes you want or whether you need to cut back.

Oh and I hear Franke makes a great fireclay sink for less than the Shaw one.

brickeyee - DH thinks that's what he's kind of doing, which is why he's trying to give him the benefit of the doubt. And we do really want it to work out with him if that's all that's happened. But, I've said multiple times to not do that - to price in all the items we wanted so we could then pull out items if we either thought it was too much and/or just didn't want to spend that much. I think part of my frustration is all the work I've done to try to get to a more accurate price and it's seemed to have served no purpose if he didn't include those in the proposal, you know? And, I've never given him a budget # per se...just a 'lets price it out as we want it and go from there'. I am not as trusting as DH...I have this gut feeling he's doing a 'here's where are already and you don't have any upgrades, so I guess we need to increase the budget again' (through the design process, he/architect added 1000 sq ft and when I expressed concerns, he swore it wouldn't directly impact budget...but I'm calling BS on that now for sure...lol!)

And, it's been about a year since we finished another house - we did a second home recently.

I feel your pain. Regardless of the price that we got from builders when we set out on the bidding process, they all gave us their specs in the proposal... even though we had given them each a 5 page spec sheet laying out everything but the fixtures and wall colors (but we said how many different wall colors and eggshell finish). Not a single one came back with a proposal using our specs. 0 out of about 10. Hence us GC'ing ourselves. If they can't get what you've asked correct on paper, during the bidding process when they're trying to make a good impression, how are they going to be once you've signed a contract and are handing them checks?

This is the courting phase when everyone is on their best behavior, I wouldn't go on another date with this one.

Please keep venting, it's therapeutic.

Are you able to use the first builder's drawings and specs to get bids from other builders?

athensmom - that's exactly what we are thinking with builder #2 - see what he proposes and comes back with to compare (as best as we can) to see if we are just crazy or if the builder #1 is just taking advantage of us bc we've worked with him for so long and he thinks we are just going to go with him regardless of what price he provides :) I will say I did a lot of checking on builder #2, and he does have one home advertised in our range...and it's pretty 'loaded' for upgrades, even if we added another $150K in upgrades, we would still be less than builder #1, but we'll see!

renovator8 - we are assuming we can as there's nothing that says we can't. And, when I finished my last revision with the architect he specifically said "i realize you may want a couple modifications, but this should be good to get some bids'...both 'some' and 'bids' are plural..so we are running with that theory! :)

bdpeck - it does feel better! thanks for the sanity check :)

I hope you are correct about the architect's drawings. He might have been referring to material prices.

If you paid the builder for the architect's services, the builder might have a different opinion. An architect's drawings always belong to him (and are automatically copyrighted) unless he transfers ownership to someone in writing or provides his services to someone as an employee.

renovator8 - I don't disagree with you at all and I did check for language that restricts our use. There's nothing that restricts or allows it - the entire topic isn't even covered. And, yes, our agreement is technically with the builder. So, I don't disagree that he may have a different opinion, but if he does, he didn't say so in the agreement. When Builder #2 reviewed it with me, he said he had several modifications he'd recommend anyway, so I expect if we end up down that path, we wouldn't use the exact plans anyway. (And, really, the architect copied so much of the house plans we provided/started with, he has a limited argument anyway :)

It's not usually a matter of whose ideas were used, it's more a matter of physically giving the original builder/architect's completed drawings to another builder/architect for their use to prepare a set of drawings to build the house. These disputes are usually resolved with money, your money. Maybe the original team doesn't care but I wouldn't wave it like a red flag in front of them.

If anyone is interested, an architect's drawings are "instruments of professional service" and not only belong to him/her but are automatically copyrighted when the architect's name appears on them (there no longer needs to be a copyright notice on the drawings).

If the architect/builder goes to the trouble of scanning and emailing the drawings to the Library of Congress for formal copyright registration ($35), then the nominal limit for how much he/she can sue you for is removed which can draw lawyers like flies.

Your defense would be to show that the architect/builder had used your drawings without your permission or you had published your drawings or registered a copy of them beforehand.

However, it is unlikely that a small homebuilder would be current on copyright or professional design practice law but an architect experienced in larger projects probably would.

So just tread carefully; you can't change things that have already happened.

What bothers me, (and that is because I've been there before, many times), is it doesn't sound like builder #1 hasn't bothered to listen to you and/or is doing what he wants rather than what you want. That is a huge warning sign as to the level of stress you may encounter while building a home with this person.

You have been very clear about what you want, and if there was a pricing issue with high end finishes, it should have been presented to you in the bid, detailed out so you would know what the base costs are with the higher end finishes added onto it. This gives you an overall cost that you can work with, after which further decisions can be made to cut back on certain things if you wanted. Some of your allowances sound ridiculous since you had not specified low end finishes, and were clear about that from the get go.

I would want allowances spelled out specifically, not rolled into a few things such as "landscaping", etc. included in with other costs. Otherwise you have no way of knowing what's what. As far as landscaping goes, you most likely are better off not including that in the house build and seeking out a reputable nursery to work with on your own. You'll get much nicer landscaping. You may also choose to keep your contract flexible when you do decide on a builder as to whether you want the freedom to purchase any or all of your own fixtures, tile, sinks, etc. Shop around. I saved several hundred dollars by purchasing my Kohler Harborview sink from Home Depot.com versus through a specialty store. It is drop shipped from Kohler, and free shipping. We saved a few hundred dollars purchasing our bathroom faucets, etc. through the link from the Moen site. Again, free shipping. I take some of the savings from that and donate it to a local no-kill animal shelter.

Trust your sick stomach. It is telling you something. Doesn't matter what someone else has said about honesty or how nice someone is. Your gut is smarter than your head is, because it doesn't rationalize things away because "they are so nice", or "so and so said such good things", or "I'm just being paranoid".

Sandy

I wouldnt be so quick to jump to extreme conclusions. Knowing how the process works, my guess is with some others...he priced what would fit in your budget. If this is so, he may not have gone about it the correct way in making the calls on what to degrade, however this is something you talk to him about. Another option is to have him remove specific items you wish to have and supply them yourself. Have him include install costs or anything extra needed. Some builders mark up product anyway, so you should be able to save money at it.
See what builder 2 says and go from there. You currently do not have a reference point for anything.

It's a red flag to hear you say that you want high end finishes for a budget price. That's not going to happen. And it's unrealistic on your part to set such restrictions. Your builder obviously heard the budget price and has given you what you indicate your budget can afford.

If he had come back with a 1.2M quote but with everything you asked for, what would you have done then? Would you have complained about the sticker shock and done a post about where you could cut 300K out of the bid? Sure you would have! It's much easier on you to start adding the upgrades and see what the totals are than trying to cut them out after you've grown attasched to them and they're over budget.

Andi K, something similar happened to us when we were initially bidding out our house. We ended up finding a different (better) lot and went with a different builder and built the exact same house we were planning to build at a significantly lower cost. Every market, every builder, every situation is different. But, it sounds like you have done a lot of due diligence; so, get the 2d bid and a 3d if you need to in order to feel like you have really been thorough in finding the right builder. In our personal experience, we found that a lot of high end builders were charging fees and mark-ups that weren't in line with today's economy. The builder we found was a solid builder who had a less glossy approach to thing but adapted his style to whatever the homeowner wanted. He was very transparent in the process and showed us all of his subcontractor bids and showed us the mark up he took on each one. We really enjoyed the trust and honesty he had in his approach. And we have high end finishes and did it on a budget--not a budget basement price--but a budget. We picked out everything ahead of time in great detail, got a bid, and came in exactly where our builder said he would unless we consciously changed something, and even with that, we knew the exact financial consequences of that decision. Ask the builders for specific bids and have them detail it all out. It's one thing if you can't provide the detail, but it's another when you have it all there. Good luck!

Sandy - you are correct. My concern is that I've been talking to him for a year and I am very concerned that what we've stated as "things we are definitely doing" is not in the proposal. So, has he heard anything I've said? I don't know. He did say 'lets sit down and talk about it', so we are definitely going to do that.

lzerarc - I know what you mean...DH & I both are trying to give him the benefit of the doubt. It is just aggravating when I've said for 3 months, 'these are the hardwood floors we are doing no matter what' and 'this is how I want them finished' and that not be covered in the proposal.

GreenDesigns - you seem upset that I'm frustrated. I'm sorry if I've offended you. You should probably know that I never gave my builder a price/budget. I said 'here's what we want to build and here's how we want to finish it, how much?" And, I actually would have preferred he come back with the 1.2M if that's what it takes and we can go from there. But, he didn't do that - no where near that. And, don't you think that a proposal for a 'high-end' home should have more "meat" in it than just a dozen lines for the "scope description". "Driveway" is....described as 'driveway'. Really? How about a little more info...something basic like paved, gravel, concrete, pavers....anything at this point. But just telling me he's putting in a 'driveway' is a little vague, IMO.

And, I am an adult. So, if I decide I need to cut something I will and I won't throw a fit. But I want to know what my ideal house costs before deciding to cut anything. That's what I've been communicating for about a year, so it's concerning that that is not what happened after all this time and all the conversations we've had.

Just FYI - we are building right now and even though we had few allowances and even though they were based on actual bids (we have a cabinet allowance but that is based on the cabinetmaker going through our plans and giving an estimate based on all inset pricing, paint grade no glaze, so pretty specific), we do have a general driveway allowance (25k) and landscape allowance (75k). As stated above, you will probably get a better idea and a better landscape plan by taking it out of the contract (therefore no markup) and dealing with a landscape designer directly.

Also, although your tile estimate sounds low, your hardwoods are expensive. We are doing 5" wide oak, site finished, 6' minimum length and it is 5.25 a square foot installed through my builders floor guy. Around here, the type of finishes you are describing would push it into the 7 figure range. You can't extrapolate spec house prices with custom home prices either - custom homes are more expensive. Maybe there is a headache factor in there - I know my builder has already met me out at our house twice this week to discuss issues, he is going with me Thursday (for the 3rd time) to talk to the cabinetmaker, and we are meeting again at the house after that to talk about another issue :)

i agree with Sandy...if you hand him a list and say, "include these into your bid.", then the least he should have done was include it into his bid. He's not listening to you, so either he's not a good listener, or he's not a detail-oriented person. That's not good for homebuilding, is it?

"But, I've said multiple times to not do that - to price in all the items we wanted so we could then pull out items if we either thought it was too much and/or just didn't want to spend that much. I think part of my frustration is all the work I've done to try to get to a more accurate price and it's seemed to have served no purpose if he didn't include those in the proposal, you know?"

So he should waste his time to match yours?

brickeyee - Not sure what you mean? For example, he has to put in a $ for hardwood. I gave him that number, why not use that instead of trying to figure out a number. It seems to me he did 2x the amount of work to do his proposal.

brickeyee - I should also mention that he asked me to send him all the items I've picked out so far and what they cost. So, I just feel like I'm in the twilight zone a bit.

You'll (maybe) know the answer after you talk to the builder again, but here is a theory. He put allowances in the contract that meet the budget with the intention that you can see what it takes to meet the budget. The allowance you gave him for the hardwood you want is (x) dollars above his allowance and he figures that you can then see what over-runs will cost, or where you can choose to put your dollars. Maybe the $75,000 for driveway and landscaping is meant to say, here is $75,000 in the budget, see how far that can go with what you want.

BUT, you shouldn't have to be theorizing on the budget to build a home! Some people are not good communicators and HIS mind, it's crystal clear. Good luck with your process!

You picked out materials at $9 per square foot for OAK flooring?

What do you think a regular Oak floor costs to install?

Is your custom home 1,200 square feet?

If you think that a $900K budget-box-built, 5,000 sq ft home can become a high end mansion for an extra $300K, you need a reality check. Finishes, including the materials and labor to install, have no upper limit to cost, when it comes to high end buildings. In a basic low end economy house, the shell and interior finishes may be 50%/50% for the total cost. But start adding really high end things, you can triple or quadruple the cost to build the same size home.

Contractors do not pay the prices you pay. If you think you are getting better quality by purchasing your own materials, you are making a serious financial tradeoff. I could install 99 cent oak floors in your house and then finish them to look better than the $9 "antique oak" factory finished stuff. And my job would be more high-end than any pre finished wood floor.

Your builder is just trying to help. He knows what kind of money you have to work with. He doesn't want to nauseate you with a multi-million dollar bid!

Andi- I would be frustrated, too! If you told him your sink choice for the kitchen...why would he come back with such a low figure, for 11 sinks?

I don't know if he's hoping you'll spend way over the proposed budget, or just doesn't know what things cost...but I'm interested to see how your meeting with builder #2 works out :)

I told my builder what my allowances were for certain things and that is what he put in the contract...

Wow, when did 900K=budget build? That is just amazing!

Andi K, I feel you pain. I can see why you would be frustrated.

"For example, he has to put in a $ for hardwood. I gave him that number, why not use that instead of trying to figure out a number. It seems to me he did 2x the amount of work to do his proposal."

He has to go and verify each of the numbers you gave him, and make sure the price has not changed and is not going to change (or is at least not likely to change) from when you sign to when he purchases the materials.

If the item is going to be removed he has effectively wasted his time on pricing.

Your builder has given you a proposal that in professional terms would be considered "non-responsive. If you have informed him of this fact and he doesn't correct it promptly he should expect to lose the job.

I think you need to find a way to document the design better so you can put the project out to bid with all the interested contractors but unfortunately it appears that the architect works for the builder.

I would talk to the architect, as tactfully as possible, explaining your dilemma. If he is competent and offers a way to contract with him independent of builder #1 you should take it.

What was in your mind for your budget range? You say your builder knew the range, so was his price within that range? If so, then he gave you what you asked for: a build within your budget. If the bid is significantly lower than you expected, then he din't listen to your materials request or budget range and parting ways may be indicated if you can manage to do that without any legal entanglements.

The first scenario is the most likely because it's a very rare builder that would put together a bid well under what a client expects to pay for the project. The most common experience for potential home builders is sticker shock at how much everything costs. Your builder is trying to tell you that you can have your budget, or you can have your requested upgrade materials, but you can't have both.

You need to reassess what a custom luxury build will cost and decide whether or not it's worth it to you to up your budget or to lower your quality. Don't forget that your build will most likely assess for lower than it costs to build, so you will have to bring significant cash to this build just to complete it, much less to complete it at the level you envision. Luxury homes have the most difficulty in finding comps to satisfy the bank's loan requirements, so out of pocket expenses are even greater with them than they are on a more modest build.

Good luck with your project! It would be helpful to others if you could let us know how your project progresses.

Live wire - true about the comp situation. We are bringing at least 30 percent cash (maybe closer to 35 percent) and we own the land and have for years. The lack of comps drove the appraisal down which drove the loan value down which meant we have to put a lot down . . . The upside is that we will have plenty of equity :)

Thanks everyone for all the feedback! It really helps to be able to share with others in similar situations and gain from everyone's experiences.

Well, we met with builder #2 this morning. He came back with similar pricing - and right now it isn't even comparable. I can't even detail it out it's so much....meaning quality/value for $. He offered a very similar/comparable package to his >$3M homes. Key differences we don't get - 4 sided masonry (which we don't have in our plan anyway), the membership to the country club he currently builds in (obviously, bc we aren't living there...it's 6 figures to join), and a roof style so amazing I can't even explain :) He pointed out that the lots where he builds start at high 6 figures, so that's a huge part of his pricing. But, we own our lot so clearly, that's not a factor for him. The key infrastructure items for us would be the same as the homes he currently builds (insulation, windows, framing, the stuff you can't see but is important) and the interior finishes are all the same as these homes as well (no tile anywhere...only does stone/marble...you get the idea).

We meet with builder #1 tomorrow to discuss the details of his proposal....so I'll keep everyone posted on how that goes!

Thanks again!

"Your builder has given you a proposal that in professional terms would be considered "non-responsive. "

No, it is called negotiating for what you can afford.

The OP probably would have been just as upset if the builder came back with a proposal well outside her cost window.

He probably stopped verifying any of her cost items when it went outside her total value, and then cut out to meet her cost number.

It is a real give and take when you 'want' something but it is going to be over your budget.

You can say what you want, and spend someone elses time (and therefore money) preparing a proposal you cannot afford.
It is not real money yet, just someone else's time and money.
It is really easy.

I deal with this with customers for contracting and with the government every day.

They want a new satellite that can do X, Y, and Z.
We spend THEIR money making a proposal up that costs more than they have budgeted.
At least we get paid to tell them they cannot afford everything, as opposed to making up proposals on MY dime for renovation work only to have the customer determine they cannot afford what they want.

A proposal from a builder who has been working with you for a year and ignores your specific requests would be a bizarre way to start a negotiation. If the original builder wants to negotiate let him do it with another homeowner who hasn't decided what he/she wants.

Why not just present a Cut Book to your potential builders that lists every single item you want in the house. Then ask for bids based upon the Cut Book. If you don't do this, you will never get comparable bids. Of course creating a comprehensive cut book takes a good deal of time, but in our case it was worth it. We had the architect draw it up and we presented that for bidding purposes to each builder.

In your example of flooring, you would simply request the particular flooring product in your cut book, and the builder will tell you what it will cost to use that product. Your $9 number means nothing without verifying all products and labor necessary to install the wood you want. Specify the products and let the builder determine his cost to provide it.

C.

IMHO an outline spec of interior & exterior finishes, appliances, etc. (essentially manufacturer cut sheets reduced to a sentence or two and organized by trade category) is the best way to communicate the owner's wishes to multiple bidders and to be able to keep track of the inevitable proposed substitutions.

An architect would normally put that together as the project design develops starting with your first meeting. I still think you didn't get much in the way of design services from the architect or builder.

I'm with Renovator8. You told this builder what you wanted and he quoted you something else. What if he changed to a different house plan on the quote? Would that be okay too? So why is it okay to quote a different floor? Or a different lighting budget?

alternate pricing would have also been a more correct approach. Typically we will have a series of alternates the owner would like to see pricing on what it would add to the product. This would be a good way to illustrate base costs and then what your requested items would add. With both numbers in front you of, you can then determine which of the upgrades are most important.

"A proposal from a builder who has been working with you for a year and ignores your specific requests would be a bizarre way to start a negotiation."

I would bet he thinks he is wasting time verifying prices once he got past the price point.

It is easy to spend someone else's time (and money) chasing after unaffordable fantasies.

Okay, am I missing something here? If a person is paying you to give them an estimate that includes what they want, even if it is over budget, is it not a very basic rule of customer service that you provide them with the figures, even if you personally think what they want is out of bounds? That is not your decision to make, it is not your project, it is theirs. You pay people to use up their time on you, is this not clear? Your priorities may not be theirs, and you may indeed believe it is a waste of your time, but if they paid you for the time, then it is not wasted, duh! People across all professions that provide services to the public for a price know this and know that it goes with the territory. Do what you were asked and put the onus on the homeowner to gasp when you show them and adjust their priorities accordingly. They will cut things out according to what they want the worst, or who knows, if they want it badly enough, they may pull some financial strings to make it happen.

Ok - we can all relax. I have at least! :)

We met with builder #1 on the proposal and discussed all the items, etc. DH grilled him....but in a professional/respectful way.

A few things he had down re: allowances for items I selected were listed at his cost, not what we identified/expected as the pricing/allowance. So, the items we selected were covered and there's no issue. (ex. - my hw floors, same vendor/floor but the vendor sells to the builder at a reduced price) So, all the drama over my hw floors was for nothing :)

A few other items, he had alternative suggestions for because his contractors prefer certain brands, etc. However, he did say he was willing to put our selected brands in and not impact the total $ as it was negligible amount, and he hates paperwork and didn't want to figure the difference. :)

Then there were some items we had not specified so he did a middle of the road pricing and told me to let him know what we wanted and he'd include it.

And (how stupid do I feel) he also had with him a list of all the items a client selects. In there were my items to date and he said we will continue to fill in over the next month with additional items I select. Anything not selected will come from an allowance he'll update the contract with. We did not get through everything and have a follow up meeting scheduled for next week.

Of course, it would have been nice to know this when we received the proposal. I would have spared everyone my "venting" thread, and I wouldn't have had this sick feeling in the pit of my stomach for a week. Which, I shared with him during our conversation. But, I do feel much better about the situation.

So, all in all, DH & I decided builder #1 is horrendous with paperwork. And, I can deal with that issue various ways. We are going to wait to see what the final # comes in from him before making a final decision. The good thing that came out of it was a sanity check re: the 2 proposals and what builder #2 offered re: pricing. We aren't that far off (from what we can tell...it really is nearly imposssible without selecting every little thing).

Oh, interesting note...we found out inadvertantly that builder #2 was the builder for a another friend of ours. Sent them an email asking about their experience...and all she replied with was "nothing I'd respond to via email, but happy to talk with you". I thought that was interesting!

Given the misunderstanding on our end with builder #1, his references and the response from my friend on builder #2, we are leaning towards builder #1....

Oh, I probably don't need to mention this, but I did get the "I told you so" from DH. Probably won't live this one down for a long time...LOL!!!