I agree that it's important to trust your builder, and not feel like he's ripping you off, or hiring the cheapest, lowest-quality subcontractors, because that way he can pad out his profits. Our builder is very transparent in his practices. He keeps records of everything spent, lists what goes over & what goes under. If it's an allowance, and it goes over, it's our problem. If he underbid the windows, which aren't an allowance, it's his problem. But, regardless, we can see the breakdown at any time.

We did a few things when finding our builder. We planned on building from a distance, so we knew it was crucial to have someone we could trust. As it's worked out, we're actually on the spot now, but we still find it imperative to trust our builder.

We asked other homeowners in our community (we're in a custom home community) what builders they used. We went to the county office online and pulled up permits, so we could see who was building for who. We went to the licensing department to see whether there were any blots on the builders' records. We weeded out a few bad apples that way. The local newspaper, the Orlando Sentinel, did a report where they went to new construction homes by the bigger builders and reported what kind of flaws they found. Some of the houses had major structural flaws - this also helped us weed out the bad guys. We looked at the Better Business Bureau.

By the time we were finished, our list was only down to 3 companies. One of the contractors was very condescending when he spoke to me; I got the feeling that he was talking down to me because I'm a woman. We just didn't click, so we didn't even ask him for a bid. Of the other two builders, the one we liked best was the one who specialized in ICF construction, the construction style we were most interested in using. He also happened to come in for less $ than the other builder. Our builder's bid was transparent; he broke down every little thing, so we could see exactly how he got the numbers. The other guy broke down some things, but I wasn't sure why he was charging so much more than our builder.

Finally, we asked our builder for several different references, all for the type of construction that we were interested in: ICF. We didn't want someone who could do a good job with a stick frame home but who hadn't done an ICF home before.

In the end, we found someone who is, literally, the perfect builder. I exaggerate not. He is conscientious; he does excellent work; we trust him thoroughly. Any time there is a problem, if it's his problem, or a problem with one of the sub-contractors, he just handles it, saving us a lot of stress and worry. I don't think you should settle for someone who is lining his pockets with your money, above and beyond his 10% profit. There really are honest builders out there.

Cheers!
Heather W

Here is a link that might be useful: Our ICF Home Construction Journal

Before you sign anything on the dotted line, be sure and have a estimating service tell you what you house will cost,based on what info you give them. Most builders will charge what the market will bear. So you have to be one step ahead of them.Only then will you know if you are getting a reasonable price. Afterall as it is said, it's your money.

Oh gosh, we were in your shoes almost a year ago. We researched a lot and felt we were very informed. What was missing was the reality of the marketplace. The local marketplace. And the reality of which builders are available to you, who build at your price point, at the time you're ready to build and how healthy the custom home market is at that time. You have it right and you have some good ideas. What's missing is can you get the builder you want who also happens to work the way you want to?

We are in an always-healthy custom home building market here, so we can't dictate our terms. Many custom builders, who are really good builders, do not build in our price range, so that ruled some out. Most of them have a standard contractual way they like to work; even if another way sounds okay to them, they have to invest time and money (lawyer's fees and administrative costs) to develop a new contractual agreement. It's easier to go on to the next client.

In fact, in our market, if a builder were eager to bend over backwards to accommodate us, I'd be suspect of his work or the financial strength of his business.

So, you have all the "shoulds", the ideals, the ideas. You're missing the many realities of the marketplace. You'll find them out when you start seriously interviewing builders. It will help if you just ask them what type of contractual basis they usually work on. Then take notes and learn all you can about the building reality there. Ask very detailed questions about their way of working--what's included, what's not, what if this material cost increases, what if we hit bedrock, etc. After you understand their usual way of doing business, you can ask if they're open to trying whatever way you want.

Here, custom builders make 18 to 21 percent. They generally charge the higher percent for less expensive homes. And maybe for other reasons, too. Actually, that's the quoted rate; they make more if they can pay suppliers within a discounted time frame, etc. If you have all the time in the world to spend on getting the house done, and can build at any time in the future, then you have a better chance of finding that exact builder you want. Otherwise, be prepared to compromise on something.

Keep in mind that you're trying to negotiate in a less than perfect world with the goal of getting a house that is close to what you want built. If you have to have the process go according to some preconceived idea of how everything must work, I'm afraid you might not achieve your objective. You cannot control this process anymore than you can control anything in business, or life in general. You can be informed, and try to make good choices from the options that are actually available to you. Then handle your responsibilities well and expect the unexpected. You sound level-headed enough to handle whatever happens.

Good luck!

It is closer to what BJ_Atlanta says.

The reality is that it really is none of your business regardless of if this is the largest thing that you spend your money on or not. You can ask and get budget numbers all you want and itemize to compare apples to apples to get down what the builder will charge for building a house. Once you sign that fixed price contract - that is what you're committed to paying. It doesn't matter if he's going to make $10, or $100,000 or $1,000,000.

The real reason that many are reluctant to show invoices after the fact, is that whatever percentage of whatever figure in house building tends to be large to the average consumer. And the concept or idea of fairness of profit isn't really relevant to the concept of the marketplace contract of a willing buyer and willing seller.

You might agree to a particular percentage but when you work out those numbers that might offend you and it shouldnt.

I think you're missing the point of the postings that make statements that it's "none of your business" what the builder's profit is. Of course, it is your business upfront. Obviously, if you are doing a cost-plus contract then you know what the builder's profit is going to be...10%, 15%, 20%, whatever. If you are doing a fixed cost then it becomes a little murkier, but that is what negotiating a contract is all about. You receive and compare your bids. Your bid from a builder (even with a fixed price contract)should include line item estimates...even the line item of his anticipated profit. The statement (which I have made myself before on this forum) that "I don't know what my builder's profit is, nor do I care what his profit is" comes after the project has begun. Once I've signed the contract for a fixed price...his profit margins are now completely irrelevant. You suggested sharing in the excess...uhm, no. I gave up that right when I signed a fixed contract. But, my GC also gave up the right to come back and whine to me about price increases as well.

bjin atlanta "If you have to have the process go according to some preconceived idea of how everything must work, I'm afraid you might not achieve your objective. You cannot control this process anymore than you can control anything in business, or life in general. You can be informed, and try to make good choices from the options that are actually available to you. Then handle your responsibilities well and expect the unexpected."

Well said!

All this concern over how much a builder "lines his pocket" on a fixed-price contract is a laugh.

I don't seem to recall any of these deeply-concerned consumers rushing to my aid when I sold homes at $150,00-$300,000 below my cost in the last great bust. Nor would I expect it!

What I make and lose is beween me and the taxman.

Thanks for your responses and the thoughtful input. Even more for the words of encouragement.

To clarify, we are in a market where there are enough different options and builders seeking business that we can shop around and choose the best fit for us. We own our land and have flexibility in our time frame so those things are not obstacles. The working relationship that Allison talked about and that I said we would be comfortable with was actually offered to us by a builder that so far looks great-we still need to check references etc. Of all the options we have been presented with that one just makes the most sense to us so far. I was not so much looking for guidance as I was curious to know the perceptions of others on these issues.

Honestly I do 'get it' when it comes to the whole 'none of my business how much a builder makes' thing. My point was this: If a consumer was presented with a fixed contract price broken down into a line item budget, with the amount for builder profit and the 'contingency' amount clearly shown they might ask: What happens to the contingency if it isn't all used up in the build? If the builder says: "I get to keep it because I did such a good job projecting your budget and there were no big price increases or unforseen costs on your home" I think most people would not feel: Wow! Good for you! The contingency fund *covers* the builder so that they can protect their profit margin and that feels fair, them getting to keep it if it is not used feels wrong *to me*. I could live with splitting it as that seems fair - win/win. I understand that in the real world what I think of as fair does not translate into the marketplace. In reality once a fixed price is agreed upon the consumer needs to let go of how much profit the builder may make if the contingency fund is not used up. That is the price you pay for the security of a fixed price - got it.

If I implied that fixed price contracts were bad and cost plus were good that was not my intention. Both have their strengths and weaknesses for both parties. If you are working with an honest person and see eye to eye on how things should break down - great - you will be fine. However, if someone is dishonest and wants to they will find a way to cheat you no matter the contract style. I was just thinking that if builders would present everything 'apples to apples' consumers could compare and question more easily. Then perhaps some of the 'bad guys' would have a *harder* time gouging people. I know it is a 'laugh' to some that I care so much about this and they may shake their heads and say: "good luck with that". But for my husband and I it is serious, we do not want to build a lesser home for our family so that someone else can have a higher profit. I have worked around this business and heard things like: "I LOVE cost-plus, so much easier to get more money out of 'em that way" and a seminar at a builder's convention: "Increasing your profits through change-orders". Some would say "that's just the way it is deal with it" but I can't live with that.

While I have talked to several builders at open houses and such we have met with 2 so far. We were very up front about our goals and our personal philosophy on all of this-one builder wants to work with us, one has not called back so we must not be his type of clients. To me that is great, certainly rather know it up front.

Thanks for the 'good luck' wishes, we will take all we can get!

"Why do some say 'it is none of your business what the builder's profit is'? I think it is very much my business regardless of the contract structure

Is it your business what profit your accountant makes? Your hairdresser?

Your business is choosing the builder you want taking into consideration your needs with regards to quality and price.

His profit is not. How would you define his profit? Are you going to ask to see his overhead costs? Insurance, medical, workers comp? Are you going to decide that he should have overhead lift to install trusses or 6 more employees to manhandle the trusses.

You can not control every detail. How do you know that a small crew or a large crew will be more efficient?

I agree with j-magill. In a fixed contract, profit is really non of the buyers business. I don't know the exact profit for the pizza, car, fridge, furniture, flooring that I buy so why should I expect to know my builders.

In a fixed contract the builder is taking the risk. They don't always get the exact figure that they think they might get in the end. Sometimes more, sometimes less. Like you, I did my research. I am very comfortable with the price I was quoted for my new home and because of my research I don't feel like I'm getting screwed.

It sounds like a cost plus contract would best for you. Then you would know the exact profit. But the people I know personally that have done that have regretted it.

Besides the obvoious expenses are you even considering the amount of time and gas that a good GC puts into building a home. What about insurance and tylenol for headaches ;)

We thought about being our own GC because the thought of paying a GC tens of thousands of dollars made us sick. Now that we are well into the process of building I realize that our builder is worth every single dime she is getting, even if I don't know how much it is.

When we pay market price for things we are often paying for a price that is higher than need be because of 'what the market will bear'. Hypothetical- our neighbor paid 15k for their fence and deck and the guy down the street paid 17k for his so now our bid of 14k looks great, what was the actual cost and profit on the job? Who cares? Doesn't matter, nobody's business right? My point is simply that to me it does matter and the prices we all pay do drive the market so when things become over priced because nobody really knows the cost or markup or unethical people succeed it hurts all of us. I am not looking to know someone's costs or profits to the penny, merely to work with some one who wants to build us a good home for a fair price based on the cost of the home and what that person needs to make to run their business and earn a fair profit for their efforts, not charge me extra just because they can. I am not saying that I get to decide what is 'fair'. I was asking how others saw all of this. When someone says 'that is none of your business' it makes me feel like they are trying to hide it because it is unreasonable or I can't be trusted to make the 'right' decision if I have all the facts.
I am glad there are honest, great GC's out there, hopefully we will be one of the few who share a great story of how we love ours and she is worth every penny. I don't even need to know exactly how many pennies that is, I am just looking to be able to trust someone based on a shared philosophy of how this partnership should work. When she said that she would bid our plans to generate a budget (we are specifying everything possible up front) and base her fee on a percentage of that budget and that it would be a fixed fee at that point regardless of the unexpected once we broke ground that seemed very fair to me. That is how I like to do business - up front and to the point. Another builder 'ballparked' us at over $100k higher, couldn't really explain why it was so much more and clearly there was 'wiggle' room-we are not so comfortable with that. We too have considered being our own GC and it may still come down to that, but I am hopeful that we will have the service of an experienced, honest builder to guide us through this process.

the problem is that it isn't a commodity based product. If it was, then everybody would be choosing the same quality and return on investment from a set standard. It isn't unless you're buying a prefab home.

Also, what is your definition of fair. the problem I see is that you /are/ trying to standardize what you think is fair in the marketplace. The reality is that you are entitled to know what it will cost and make your decisions from there. People always have a skewed sense of what 'fair' is when dollar amounts are involved, so its generally better to categorize it as "none of your business".

And honestly, what exactly is fair vs overpriced since you're trying to quantify it ? Why is a builder not entitled to make 25 or 35% ? Do you not think GE, Ferguson Enterprises, Home Depot or others aren't making that much ? Why should they be limited to what you think is fair at 10% or 15% ? Why are developed entitled to buy 200 acres at 10m and sell them all cut up for 100m, and/or develop the houses for more ?

I don't know why its 'fair' for Philip Morris to make 10x their cost on something and a builder is only allowed to make 10%. Apply your concepts and equally and then you'll realize how hypocritical it all is.

At one time, the leading opposition critic in Ontario solemnly agreed with my risible suggestion that the best system would be to have the government own all housing and allocate it to citizens according to need.

That sure would eliminate all that "unfair" profit being gouged out of consumers.

Incidentally, the figures sometimes thrown out by builders to questioners are just to get rid of pests. (Nobody here, of course!) I've had people meet with me, pen and pad in hand, only so they could start questioning me about what each trade might cost. Want to build your own home? Fine. Just don't think any experienced builder is going to provide a free lesson in local pricing.

I use a "Cost of the Work" agreement with a "Negotiated Guaranteed Maximum Price" and a "50/50 shared savings". It gives the Owner the benefit of knowing where his money is going with a cost limit but it also motivates all parties to reduce costs. It also speeds up the process and gets the GC on board in the design phase which is beneficial to everyone. I like to think the savings pays for most of my fee and most of my clients agree.

I use AIA contracts because they deal with all of the issues that are important to the Owner, not just the GC. If the GC wants additional wording or modifications they can easily be made to the standard form but I like to start with a form that considers the owner's needs since that's who I represent. Some small home builders object to the additional project management aspect of the AIA Cost of the Work agreement but many have continued using it for other projects.

Mighty Anvil-Thank you, that is what I was looking for-different ways that homebuyers and builders can work together for a win/win situation. I will try to research more about how that works. We have a stock design we really like but don't have plans drawn as yet and really want to choose our builder first so that they will be involved with the design phase.

I really don't want to control my GC or their business, I want to trust that person to run their business as they see fit and build my home while having a mutually agreeable contract and give that person the room they need to do their job. I just wondered how others felt the best way to accomplish this was, and I used the word *fair* to describe that-apparently a bad choice of terminology as it was perceived as "fair is what works for me". I do not equate this process with accountants, hairdressers or ordering pizza,if it were that easy I wouldn't be seeking opinions from others that have gone before me.
I aired my frustration with the process because with a custom home it is difficult to shop around and apparently annoying to some that consumers even try. I am not looking for a free lesson in local pricing, I have spent many hours doing my own research to be an informed consumer. What I don't know is how much on top of that I should pay to actually get the thing built. If I were to say, "I have a pretty good idea of the cost of labor and materials for this home we are planning to build, can you tell me how much above that I can expect to pay for your services?" Would that make me less of a pest? Or would I be 'elevated' to the level of PITA! :)

Thanks all.

"I have a pretty good idea of the cost of labor and materials for this home we are planning to build, can you tell me how much above that I can expect to pay for your services?" Would that make me less of a pest? Or would I be 'elevated' to the level of PITA! :) "

I think you are asking the wrong question. That answer varies with each job and each builder. One builder may need 10% and one may need 30%.

Workmenship may vary. Quality of materials may vary. Your time constraints could adjust the cost.

Material costs alone are not a good indication of final price. Labor and level of detail can be very different.

One question...

My builder has given me a contract that I'm a bit nervous about. Since my attorney (who is a construction law expert) is on vacation and can't look at it until next week, tell me what you think.

The contract is very generic but basically says "I agree to build this house from these plans for $xxxxxxx with these allowances..", but there is a clause that reads something like "Overages in the allowances are the responsibility of the owners; excess funds in the allowances are at the discretion of the owners."
All well and good...except.....

The breakdowns of the allowances are very vague - "plumbing materials" - but nothing that tells me that the plumbing material allowance includes the "Jacuzzi 12 jetted corner tub, model # 12345, in white" that I specified. The builder keeps assuting me that he set the allowance high enough to include all the specifics, but there is nothing attached to the contract to break down the allowances. How do I know that he didn't lowball the allowances and use cheaper materials to come up with a favorable bid and then will say "Oh...if you want THAT, you'll have to pay extra for it beczuse it's not in your allowances."

Don't get me wrong...I LIKE this GC and I think he's honest and fair, but he's a builder, not an accountant and he's used to working more casually than I am as a businesswoman. He's a one man show who has a good reputation and I've seen and STUDIED the work in the spec houses he's built. He seems very concerned (in a good way) about getting the most bang for my buck and has made some excellent suggestions on how to save some money, but I'm concerned a bit about him trying to cheapen the materials too much just to lower the contract price.

I'm guessing that my attorney will agree and ask for a detailed materials list to be included and signed off on by the builder at the quoted price as my safeguard.

What say ye, O Wise Ones?

Exactly. Even something as simple as brick laying, the cost of brickmasons for just laying brick can be anywhere from $0.35/brick to $1/brick. Are you getting 'ripped off' when you use the $1/brick brickmason ? Well, apparently most who use them don't think so as he's booked well out as they do excellent work and are considered the best in town. However, if you're just bidding things out - most people are going to select the lowest cost and not understand what goes into some of the 'trades'. So on a 50,000 brick house, your talking in excess of 25,000 just on the labor of bricklaying. Now, many will argue that you should get the same level of job from all brickmasons - and in truth you should. But you don't know the level of detail and quality of real good brickwork until you've seen how 'average' others are. This also applies to good painters, trim guys, drywall, etc.

What you usually find (in average homebuilding markets and downturns) is that the really good trades are booked by their really good clients, and you end up choosing among all the other trades that are looking for work. When the market is good, everybody is building and its even more difficult. You sometimes can get on some trades schedule, but there are frequently entire companies that are off limits to you as they won't even listen to you as they are too busy. Some of those are just bad business people, but some are the really good trades that just don't need to spend time on other stuff. Read what you want into it.

So I would expand on your flexibility of labor and materials as its a rarity to find top notch quality at bottom of the barrel price.

"What say ye, O Wise Ones"

I think you answered your own question. If in doubt, nail it down.

arebella

The wording of the Allowance clause is goofy but what it should mean that the difference between the allowance amount and actual cost will either be subtracted from or added to the original Stipulated Sum by Change Order. That is a short version of what a professionally written contract would say.

The importance of a better specification is to be sure you get the tub you want and to allow the GC to include the full and accurate cost of installation in the base contract Sum. It is always wise to avoid installation costs in an Allowance amount because the actual cost can too easily be jacked up by the sub that has already been hired to do the work which puts you in a poor negotiating position.

An Allowance is a small "Cost of the Work" contract within a Stipulated Sum" contract. Try to put as much of this work in the base contract Sum as possible.

By the way, if you know enough to specify the tub in detail, why is it an Allowance item in the first place? Your GC should buy the tub with the installation and include the price in the Stipulated Sum so you can know the true cost.

Is your GC on vacation too?

""What say ye, O Wise Ones"
I think you answered your own question. If in doubt, nail it down."

LOL....yep. Thanks for listening to me think out loud. I always worry about being too anal about things that might seem silly to the pros who have done this before, but it is my money. :)

"Is it your business what profit your accountant makes? Your hairdresser?"

Ya know, I guess if you thought your accountant or hairdresser was overcharging you....you would go elsewhere, right?

So if you think your builder is overcharging you, then go elsewhere.. .

"Overages in the allowances are the responsibility of the owners; excess funds in the allowances are at the discretion of the owners."

This means that if you go over on the allowances, it is your own doing/choosing and you will bear the financial responsibility for your decision. So, if you're building on a fixed price basis, any overages on one line item must come out of another line item if you're going to stay within the contractual price. (There is usually a clause elsewhere to explain what happens if you choose to go over on all the allowances and how that "fixed price" build will be affected by such choices.)

The other clause in that sentence means that if you choose something that's less than the allowance, it is your choice as to what to do with the excess funds. Which other line item do you want to spend the money on?

Your attorney will better advise you with the entire contract to review. I am not an attorney, nor do I play one on TV. Just basing this on my experience in reviewing legal contracts.

luckymom

I think you need to focus on the quality of the home you want and what a fair price would be for that quality. You can't just look at square footage costs for other homes in your area - because the quality of the space makes a big difference in cost.

The builder needs to make money to stay in business. If you get pricing that you don't like then you can shop around. However, I believe that you get what you pay for. A very good builder who is in demand will have a higher price than an average builder who is hurting for business. However, at the end you may find it would have cost you less by going with the very good builder (at the higher initial price) because taking a risk with the lower bidder can have a very high price tag.

I also caution you on expectations for some costs that are very hard to predict prior to starting a project. Very few builders have Superman eyes and can see through the ground to know what is beneath the surface. Once you start digging the foundation, you could hit a rock shelf and need a ram hoe (at a cost of $200 per hour). That will add cost - and you will have to pay it (see the Rock Clause in the contract). The builder cannot predict that you will find water on the first attempt when you drill a well. You will pay for that too (see Well Digging clause in the contract). There are a number of these potential glitches that are very hard to predict ahead of time, will most likely be an allowance items with "Get Out of Jail" clauses to protect the builder, and you will pay any added costs.

If you are worried about cost growth - then don't do a custom home. It shall cost more than the builder says or what you estimate (my vote for a new commandment). Factor in at least 10 to 20% more cost than what an honest builder says it will cost. Some of it will be your own doing (upgrades/changes), some of it will be unplanned oopses (like rock) , and some will be the famous allowance items that the builder establishes (for cabinets, tops, fixtures) that may not allow you to purchase materials that will meet your expectations and then become upgrades - which you pay for.

If you need to hit an exact amount, you might be better off buying from a very good residential builder where you know at contract signing what the final cost of the home and upgrades will be.

If you are lucky enough to find a very good builder who can create your dream and give you the quality you want even within a 10 to 20% upper on cost  then you are indeed very fortunate. If you can finish the project lower than 10% over, then you have done extremely well. The price you will pay for these builders will be higher  for a reason. They are very hard to find.

luckymom23

Here is a summary of construction contract types based, in general, on AIA document terminology. It is unfortunate that home builders are usually not well versed in contract types other than Fixed Price and Cost Plus since they are the two types that offer the fewest beneficial features. I threw this summary together so I'm sure there are some errors in it.

STIPULATED SUM (FIXED PRICE)

Description:
The Owner is billed the appropriate percent of completion times the original Stipulated Sum plus any modifications made by Change Orders.

Characteristics:
1.There is a Stipulated Sum (fixed price) for the work
2.The fixed price is raised or lowered by Change Orders
3.The Contractor has cost risk
4.The Owner has cost protection
5.The GC is motivated to lower project cost but that does not lower the Owners cost

Comments:
This contract requires full design documentation and subcontractor bidding in order to establish a fair Fixed Price. In a changing cost market or with time constraints or with an incomplete design, this type of contract is not very attractive to either party.

COST OF THE WORK PLUS A FEE (without a GMP)

Description:
The Owner is billed the actual cost of all labor, materials and subcontracts plus a GCs Fee added to compensate the GC for overhead and profit. The fee can be a fixed amount or a percentage of the Cost of the Work.

It is possible to allow the Owner to participate in the award of sub contractor bids. (rare in home building)

Characteristics:
1.There is a Guaranteed Maximum Price (GMP)
2.The GMP is raised or lowered by Change Orders
3.The Contractor has no cost risk
4.The Owner has no cost protection
5.The GC has no financial motivation to lower project cost

Comments:
This contract is used for projects where drawings are not complete at the start of construction or conditions are unknown and time is of a higher priority than cost.

COST OF THE WORK PLUS A FEE WITH A GUARANTEED MAXIMUM PRICE

Description:
The Owner is billed the actual cost of all labor, materials and subcontracts plus a Contractors Fee added to compensate the GC for overhead and profit. The fee can be a fixed amount or a percentage of the Cost of the Work.

It is possible to allow the Owner to participate in the award of sub contractor bids with the bid amount greater than the lowest bid being added to the GMP. (rare in home building)

Billing stops at the GMP

Characteristics:
1.There is a Guaranteed Maximum Price (GMP)
2.The GMP is raised or lowered by Change Orders
3.The Contractor has cost risk
4.The Owner has cost protection
5.The GC is motivated to lower project cost to the GMP but not below it.

Comments:
The advantage of a GMP contract over a Fixed Price contract is that the Owner can participate in subcontractor selection (rare in home building) and the total project cost might be lower than the GMP although there is no financial incentive for the GC to do this.

COST OF THE WORK PLUS A FEE WITH A GUARANTEED MAXIMUM PRICE & SHARED SAVINGS

Description:
The Owner is billed the actual cost of all labor, materials and subcontracts plus a Contractors Fee added to compensate the GC for overhead and profit. The fee can be a fixed amount or a percentage of the Cost of the Work.

It is possible to allow the Owner to participate in the award of sub contractor bids with the bid amount greater than the lowest bid being added to the GMP. (rare in home building)

Billing stops the GMP

The amount that the Cost of the Work plus a fee is below the GMP is called the Savings which is split between the Owner and the GC (usually 50/50 or 60/40) at the end of the project.

Characteristics:
1.There is a Guaranteed Maximum Price (GMP)
2.The GMP is raised or lowered by Change Orders
3.The Contractor has cost risk
4.The Owner has cost protection
5.The GC is motivated to lower project cost below the GMP which lowers the Owners cost

Comments:
The Shared Savings feature is preferred by experienced Owners and Contractors for its potential to lower Owner costs and raise GC profits while affording cost protection to the Owner.

WOW!!!!! Great information. Thank you.

Mightyanvil,
Thank you for the contract breakdowns, I really appreciate that. That is definately part of what I was looking for, ways to create a win/win for us and our eventual builder. We have someone we are interested in using but have not talked specific contracts yet.

There seems to be some perception that 1. I am not interested in quality and 2. that I don't realize the potential costs of quality and the unforseen. I appreciate that you are trying to warn me -thanks. I do understand these things and am trying to be prepared for them. What I was trying to get at is that somewhere out there there is a good contractor who will look at a project and take into account our site, our materials choices, our plan, etc. and come up with a bid or projected budget and a price to build our home based on all those things plus whatever he/she needs to make it work, do the job and continue to run a business successfully. Fine with that. There is also someone out there who will do all the same things and will take opportunities to increase the profit he/she takes from the job without offering any additional quality or service to the owners. My whole point is that from my point of view the second scenario is not okay with me and I was wondering what others had done and how they felt about their experiences. I would like to guard against scenario #2 if I possibly can.

I know if I choose more expensive materials I will also have to increase the labor portion because it will take more skill from the tradesperson required to do the job. We do want a well built home and know that we will have to make choices and potentially sacrifices to get the things that matter most to us.

When I was projecting our budget I took the averages from about 5 different sources of information and then depending on my ability to verify how that would apply to the home we are building I would either use the highest number if I didn't know or the amount that seemed to fit best with our project. There were some items that I was able to verify by actually going out and getting real numbers others by saying 'we are building a home next year it will be (description)if I am looking for 'x' and I budget 'y' is that reasonable? In the 'unknown' areas I spoke to a friend who owns his own concrete flatwork company, he has built several of his own homes. One of his sites was in our neighborhood and similar to ours, so in my basic labor and materials budget I took the amount he paid for excavation and tripled it for safety. I compared that to the prices others have paid in 'hairy situations' and my number was always the highest. We have already dug some on the property as we put in the septic and the excavator at that time did not feel we would have a problem *from what he could see and had experienced on our site* digging the hole for the house. I took the highest foundation cost and added 50%. We have city water, septic is in and we have electrical ready to go. This home will replace a manufactured home so our permits are inexpensive-about 1/3 of what it would be otherwise. When I got my budget together I looked at the overall total and added 10% to the entire thing. I did find that some numbers varied more than others and were harder to pin down. Other times the same number kept popping up so I felt I must be close and the 10% on top of that should cover it.

I actually showed this budget and the plan to the builder we are considering and she gave me the feedback that most of my numbers are 'conservative'- in her terms which meant 'high' and we should be fine. Even if our budget goes over another 10% from that we are ok -including the fee amounts she quoted us for her services.

At the time the plan we had been considering was built as a spec house nearby and we had gone through it several times. When I contacted the builder I explained that we really liked his house and were considering building that home ourselves. We shared with him information about our property and our time frame and we talked about the finishes in the house and the different things he was including. When he gave me the price for the home as built but on our site it was about 16% higher than our highest number and it did not include everything. Based on comments some have made, maybe it was still a 'fair' number but then again maybe not...in our county you can look up valuations on permits and the price he quoted for house only was $100k over that amount and it was $200k over what he told the county his cost was. In talking with my concrete contractor friend who has built his own homes he told me that builders usually underestimate their expenses for the county but that the county gets very close and they include approximately a 10% 'contractor markup' in their valuation.

Enter builder #3, nice guy, only builds turnkey, fixed price. Not sure why he was interested in us as we were very up front that we did not think we would go that way. He was trying to convince us why we should I think. He was very helpful and actually wanted to see our site. He has just finished carving half a hillside out for a huge custom home which we toured so he knows about 'hairy excavation' and he looked at our site and said it was about average for our area and he didn't see a problem. Famous last words I know... anyway he ballparked a price about 10% less than the higher guy and about 9% above our 'cost plus' budget. This makes sense as he does need that 'coverage' in there, but...we had already added that to our numbers so...either we are still way off or...make of it all what you will.

The highest number is out of our budget, the middle number is doable and the low number means new furniture, nice landscape etc. Guess which one I am planning on? Guess which one I am HOPING for?! :)

So perhaps some will say this all bears no relevance to an actual project and maybe it doesn't. I am not trying to control every aspect, just educate myself and be prepard so that hopefully we make a good choice when we do finally sign that contract. I just wanted to know what everyone else was thinking about builders, pricing and contracts and how to best go about building a home for a 'fair' price. We are committed to building a house, it will be interesting to see what it will actually cost.
Thanks all.