susancc: if your builder routinely only takes half the draws before your permanent loan closes on your "big expensive" house, then you have a HUGE savings from him. Count your blessings and stop questioning him. Calculate that savings and thank him for such a gift.

I'm with anthem: your house is not on a cost-plus contractual basis.

It looks to me like you have a fixed cost with allowances, as well. I am the office manager for a custom home builder.

I am a little unclear on how you think you can cut costs in items other than finishes?

You can make decions between grades of flooring, cabinets or counter tops, but will have no input on cost of labor or installation. A custom builder usually works with a group of trades and may not get competing bids for each job. They work with trades that they know and trust.

I agree that unless your contract is cost plus ( where you do not sign a contract for a certain price) you should not see the invoices.

A cost plus contract puts you at the mercy of escallating prices. Even if you picked it out now, it may cost more when it comes time to actually purchase it. In the last 3 years, materials are jumping in crazy amounts.

Are you going to compensate the builder if the interest rate goes up on his carrying costs( if you do not have draws for the complete job as it progresses)?

I understand wanting to be on top of things and saving money, but he is the expert and no amount of your time and effort will get you to his level in this one build.

I have built two of my own homes, I see every bill on every home that our company builds and I still do not always catch where the crew charges the wrong materials to the wrong job. How are you going to know that you only needed 24 floor trusses and the builder purchaseed 36?

Choose your battles! You just might be starting off on the wrong foot.

Not to mention, are you going to know the difference between a floor joist or a roof truss( I am always saying the wrong words) a shear wall or if you need CDX or particle board?

A "turnkey" project is one where the builder provides everything so that at completion the owner only has to turn the key. In common home building usage it usually just means the builder provides the lot and site improvements as well as the completed house for a fixed price.

If any part of the compensation to the builder involves reimbursement of the "actual cost" of the work to the builder then any standard contract would require that all such costs be itemized in the payment requisitions. The actual invoices should be required to be available to the homeowner for review upon request but are sometimes required to be submitted with the requisition.

It is important to have a clear understanding with the builder what is meant by 'actual cost". For instance. if a sub offers the builder a discount (especially at the end of the job), the savings must be passed on to you. Any mark-up is part of the "Fee" rather than the "Cost of the Work". Management of a "Cost of the Work plus a Fee" contract is not an easy task even for those trained to do so.

What contract form is being used? If it is something cobbled together by the builder you need to show it to a building professional in addition to a lawyer. You should consider starting with a standard contract form to avoid mistakes that even lawyers miss.

I want to know things like how much labor costs for different types of flooring because that may change my choices, I want to know how much my fireplaces cost, my trim, my interior doors, my coffered ceilings etc. for the same reasons. I think that is reasonable. I do not plan to nail him for every piece of lumber or screw. He mentioned cost plus several times and told me if I didn't use all of my lighting allowance, it's more money for me, he also said that because I made so many of my choices upfront that I would get money back in the end (i.e. not use all the construction loan), that does not seem fixed to me.
There is no contract yet, we agreed that my husband and I would discuss things over the weekend, plus we are getting numbers for different banks now, so we will do the contract thing in about a week. We traded some land with the builder and it has to go before the planning commision so we cannot do anything until July 20th. That gives me some time to get things together.

I have a fixed price contract with allowances. If I don't use the whole budget for an allowance, I can do whatever I want with the additional money (e.g. pocket the money or transfer it over to something else).

It sounds like you are making assumptions about what type of contract you might have with this builder based on clues. You need to have another meeting and just tell the builder exactly what your expectations are and see if you can come to an understanding/compromise that you will both be happy with.

He might have something where he returns allowances but not actual cost of construction dollars. It isn't common, but not unheard of.

Just the fact that you have 'allowances' means you aren't cost plus. Cost plus doesn't have allowances. If it costs $77,000 for the natural stone product, you will pay $77,000 + builders plus percentage. If you are getting money back in the end, that also means it isn't cost plus. Cost plus is whatever the cost is + builders markup and thats the money that goes out. Not whatever the cost is now, whatever the ACTUAL cost is at the end of construction.

Like I said, I think you are failing to understand the type of contract you are about to sign. Like I mentioned bore, I doubt you are on a true cost plus contract. This has nothing to do with how 'custom' or high or low end things are - just the type of contract you have and what supporting documentation is needed to disburse funds.

That's not true, anthem. We did cost plus but had numbers plugged in for light/plumbing fixtures, cabinetry and appliance allowances. The appliances were right on since I picked out those beforehand. The other three were "numbers" in the line bid for us to see an 'about average spent' and for the bank/construction loan. Whether or not I went below/above the allowance was my decision but it wasn't left blank/zero at the start since the final number would not have included these items.

Our entire build, GC would remind me it would cost what it cost based on my selections - I could buy fixtures at Lowe's or order Hubbardton Forge (which I did). The allowances for those were just an average guideline.

Around and around we go!

But at least anthem et al are clarifying the different arrangements. Even if the distinctions might be falling on deaf ears.

Let's be clear, those numbers aren't 'allowances'. They are budgeted numbers plugged in for you to get an idea of what the overall cost is going to be. No one (builder or homeowner) likes surprises related to cost of building late in the game.

Allison0704 let me put it this way - it wouldn't matter if you left those zero or put $1,000,000 in those line items as that wouldn't change what you actually pay. In other words, its probably useless clauses that have no meaning in the contract regardless of accuracy.

You said it yourself - those so called allowances were just an 'average guideline'. So, how are you enforcing an 'average guideline' in your contract ? An allowance by definition is a certain area of work where generally the total isn't known at the time of contract. Any amount that goes over the allowance will need to be taken care of and frequently amounts that are underneath are returned. In a cost plus, what relevance is their to an 'allowance' ? - None, zero, nada. You spend what you spend, and it will cost that much + the plus arrangement you agreed to.

I'm not saying that allowances aren't possible to be constructed in a cost plus contract, but in a classic definition of Cost + fee for a construction project - it doesn't usually exist.

I think you shot your own counter in the foot by your own self admission of the lack of enforceability of your so called guidelines.

Our builder put in an "allowance" on lighting because I had not picked that out yet. It was there to give us an estimate on the cost of the lighting to use for the overall house for us to take to the bank. If it was not there that would not be included in the amount for the loan. I could set the allowance (really just a budgeted guess)or he could, based on what we thought. That and bathroom fixtures (towel rods, tissue holders etc) were the only things I haven't picked out. I can go over and there will be no penalties of any kind, it is my decision. None of my neighbors had picked anything out when they signed their contract except their lot and house plan, therefore they hadn't a clue how much anything would cost, the builder gave them allowances to get a general idea of the cost of the house to take to the bank to get the loan, they spend what they want, if they go above, the cost of the house goes over the bid but there is no penalties, it is their decision totally. So it is still cost plus, they just had no idea what the cost for those things would be before the build (they did on construction things just not the other).If I do not spend all the allowance, the house costs less, again my decision.

I don't think you get it.

You have a fixed price house. The final price will go up or down dependant on your" allowances and wether you are above or beyond on them.

A cost plus house may still have a budget but you would be signing a contract that says you must pay the actual cost plus the addtional percentage that goes to the builder.

You may have nailed down most of the decisions before you go to contract but that does not make it cost plus.

Fixed price will need change orders for any changes that are not allowance items.

Cost plus would not require any change orders( in a normal contract)

Susan you should really listen to the posters here that are giving you very good advice on cost +, vs. Fixed price.

To answer your question, yes, you can stipulate any terms and conditions that you want in your contract whether the builder agrees to them is a different story, just as you would problably not accept his proforma agreement verbatum. Good Contracts are compremise between the parties that sign them and they should be a win win for both.

Your logic is flawed, yes in reality, a fixed price contract is a cost + contract, in that the builder adds overhead and profit, but there is no disclosure...the price is the price(turn key) with allowances and overages.

A true cost + contract has full disclosure and a defined % markup on everything. The total price can be in flux until final inspection. Materials and labor can increase greatly during the time it take to build the house.

Right now it sound as though you and your builder are still standing on different sides of the fence when it comes to the type of contract you will be using.

anthem, you're getting in a tissy over me using the word "allowance" instead of "budgeted numbers." My GC used the word "allowance," I didn't pull it out of darkness. I even said "Our entire build, GC would remind me it would cost what it cost based on my selections."

I have no idea what you mean by "So, how are you enforcing an 'average guideline' in your contract?"

"I'm not saying that allowances aren't possible to be constructed in a cost plus contract, but in a classic definition of Cost + fee for a construction project - it doesn't usually exist" sounds like are contradicting yourself....And I sure don't get "I think you shot your own counter in the foot by your own self admission of the lack of enforceability of your so called guidelines."

Our home came in on budget and was finished 2mths early due to a wonderful GC, subs and two involved homeowners. Maybe you need to read my post on the Builders, pricing, contract thread.

After reading all the posts here on this very "popular" topic, let me break the bottom line down as easily and honestly as this.

First, let me say that I have a vast working knowledge of negotiations and contracts. I have the managerial brio and can for the most part decipher "between the lines" very well.

Having said that, and through my own personal experience, you can choose to build your house with your GC either a cost/plus arrangement, a fee-based arrangement, or a fixed price arrangement. Which ever way you and he/she choose to proceed can be a win-win for everyone involved IF YOU DO YOUR RESEARCH!!!! Let me say that again....do your research.

There are several major items that go into building the house itself....having two very good friends that are builders, I have learned quite a lot through them.

There is nothing wrong with choosing any of those ways to proceed with a contract as long as you have an idea of what it will cost you on the major phases of your house.

Try not to get bent out of shape on the post from somebody about nickle and dimeing your GC to death....I think that person is probably thinking you are wanting to "act" as a GC and from what I am gathering, you are not.

Am I correct in saying that you would just like to feel "educated" on costs on the major phases of building your house so you can decide if you want to go with the choices you have currently picked out?

I find it very impressive thus far that you have researched it so much prior to starting. Most people will purchase a piece of property, try to find a builder, and search the internet, library, hire architects, draftsman, etc...to get a floorplan....not necessarily in that order. Then they just "trust" the builder and hope for the best. I have known builders who are so honest that you wonder how they make any money AND I have met builders who will build "quality mansions" and they are a very expensive, quality piece of ______you know what.

The only way for you to have an idea of what it will cost to build the house is to research it for yourself. You can take your blueprints to a lumber place and they will send your plans off to a structural engineer (they do have them on staff...trust me) and you can get a lumber package back that will give you a very good guess on what it will "approximately" cost. You notice that I quote approximately....because prices can vary from time to time due to the price of crude oil escalating, hurricanes, etc. For the most part, you will get a pretty good idea of your lumber package. Then, find a heating and cooling contractor to give you an approximation on a unit/s. He should always perform a manuel J calculation to make sure you get the correct unit. You will want to stipulate this in your agreement if its not in there already...make sure it is.

Next, talk to a plumber...find out how they charge on new construction homes. Do they charge by the square foot and what is that number? ASK THE QUESTION....

Talk to a concrete contractor and find out what it cost per square foot (some charge by the yard) for concrete. You will also want an estimate on the complete footer...you can certainly get this...it's not hard. Have your plans with you and just spend some time with the person.

Find out what cost per 1,000 your brick is. Take your plans to the brick company and let them give you an estimate....once again, this is a hypothesis but should be in the ball park.

The same scenario is done for roofing, electrical, framing, insulation, trimwork, etc. Those are "guts" of your house....you would have very little to do to control those costs. Where you control costs is on what you pick out...cabinets, flooring, paint colors and number of paints, hardware, etc...you get the idea.

If you have a working knowledge of what the "guts" cost approximately per say then you can understand how your GC derived on the figure he/she presented. You will know if the bid came back a bit higher then you thought, or if it was within the range you are willing to pay.

What you can afford and what you are willing to pay in most cases is always going to be different.... Negotiating 101. You might qualify from the bank for a $2G loan and you might be able to afford it....however; a good negotiator will be able to settle on a lower number then that.

How do you be that good negotiator???? You educate yourself on the process so you will have something to negotiate. Keep in mind this very important point....it takes time to educate yourself and a lot of people don't have that which is why they have to "trust" their GC to charge them their "willing to pay" number".

Again, a lot of people do want to do the leg work or don't have the time to understand the cost process and they would rather leave that up to their builder....which is fine if you "trust" your builder. If you have any doubt at all as to what he/she has presented then ask them to clarify the cost and they should. If you have researched to the process then you will know if their number is within your "willing to pay" range.

Just for the record, a good negotiation will have concessions. There are things both you and he/she might be willing to bend on...find out what those are.

If you have already made the builders job a lot easier, then you should be rewarded for that. You finding out what the guts of your house cost is not making his/her job easier because I can guarantee you they already know what it will approximately cost. BUT, by you already picking out the things that you can control and not slowing the process up any, is worth something. How many hours do you think the GS would spend on trying to research tile, lighting prices, fixtures, cabinets, etc....how many did you spend doing that. Once again, most people wait until the GC tells them to do it and the process has to sometimes either slow down or even halt until you complete this.

If you remember nothing from this post....remember this: TIME IS MONEY AND KNOWLEDGE IS POWER!

In my personal opinion and from experience....your GC probably does not count on you knowing what the "gut"costs are for building your house. It doesn't mean he/she is necessarily unethical, it could mean that they do prefer a fixed price contract and if you agree on that then you receiving invoices might not be necessary. Find out what the invoice is BEFORE you sign and that way you will know if his fixed price is within your "willing to pay" range.

OK, OK, OK....I'll say it for all you who are thinking it.....also you'll know if your getting taken for a long, hard, miserable and costly ride. Yes, they're out there...some GS's are not always honest and hoping to encounter a future homeowner who is ignorant and trusting so they can go and smoke that much needed cigarette.

Which homeowner will you be?????

Also, from business 101, a good business practice is to have at least 3 bids on projects or phases. Since you cannot use another builder, you will not have to interview anyone else. But, do try to get at least 2 to 3 prices on the items you want clarification on so that you will have a range for variance on that item.

I hope I have helped you with my response and I wish you all the luck in the world. Your house building project can be very fun if you and your GC communicate well and you clarify what you want up front and so do they.

It never hurts to ask questions...how else do you learn. If they have nothing to hide then they will provide you with the information you are asking for. You deserve a break down of how he/she derived on that number and if you agree with the breakdown, then sign the agreement.

Great post, hardwrknmom.

It does all come down to doing your homework. The next house our GC built was for friends whose house took months longer to build because she could not make decisions ahead of time...or even when he said "hey, it's past time!" Getting a good builder (or subs, if you're GC-ing yourself) can be a crap shoot.

We own and manage commercial real estate - shopping centers and have owned office buildings until last year. Having developed them from the ground up, DH and I have construction knowledge but we still hired a GC to build our home. Knowing the ins and outs of construction beforehand makes a difference, imo, and doing as much homework (as Susan has) is a powerful key to a successful build.

"After reading all the posts here on this very "popular" topic, let me break the bottom line down as easily and honestly as this. "

I agree with 90% of your post. The more you know the better prepared you will be.

The problem is that you have large areas of expense that are not taken into account.

Labor on framing and finishing(labor can be as much 50% on a high end build)
Trim
Nails, fastners, caulk joist hangers etc.
The cost of equipment, lifts,forklifts etc.
The time and expertise of the GC
Inspections, septic or wells.
Grading, excavtion, gravel for under sidewalks

Most custom builders do not take the time to pick out finishes, carpets etc. That is the job of the home owner.

His job is all the other nuts and bolts from venting for your dryer to the schedualing of the subs.

The only way real way to have complete control on costs is to have every aspect of your home spec out on paper before going to bid. That way you can compare apples to apples. Otherwise you will not know what level of material you are getting for the money.

Boy this is a hot topic this week.

Here is my advice....

For those that want total control and are worried that a builder might charge too much, be your own GC. That is the only way to control everything.

Me, I'm willing to give up some control and pay extra money so I can just pick colors, lighting, brick and cabinets etc. That is stressful enough. I really can't even begin to imagine finding and organizing every single sub and having to deal with each one personally.

I love the fact that 99% of the time I just have to drive up there and enjoy the progress.

I guess I should add, for those that don't already know, my builder is amazing and I wouldn't want to go thru this process without her.

Allison, You can construct just about anything you want in a contract which was what I was saying. However, in the classic sense of a cost plus contract, the allowances don't play. They are for your benefit but not contractually binding. If they aren't contractually binding, then they essentially aren't part of the contract. So, like I said, you could leave it all at zero or $1,000,000. The end result doesn't matter as the actual costs are what contractually ties you and builder together.

For the OP, lets make things a bit more clear. When you have 'allowances' in a fixed bid contract, those will go up and down. However the meat of the contract (the build) that the builder is bidding upon without knowledge of what actual finishes are - is fixed. That doesn't change as that is what he is committing to. Doesn't matter if copper goes up, wood goes down, and concrete triples - its all in the contract and fixed at time of execution. In a cost plus contract, if the cost of tea in China goes up by 1% and that causes the price of petroleum to quadruple and in turn PVC shoots up 5x in price along with all the other natural resources that you use to build a house. The cost of the actual house (minus what you spec'ed in terms of kitchen, appliances, etc) went from 500,000 to 950,000. Well, you're now responsible for the 950,000K house, the additional allowance items you specify, and the builders fee percentage on top of the 950,000 construction cost. Thats cost plus and it doesn't matter if he told you it would cost $50, $500,000 or 5M to build. It is what it is for the entire project + the agreed upon builders percentage.

Charliedawg:

I don't think Susan is trying to be her own GC. She merely wants to make sure she is educated. Educated people like to learn....there is no insinuation there that you are not.

You obviously love your GC and trust her completely...consider yourself lucky, blessed, or whatever. Others have to "learn the process" before they have that level of confidence.

You would be floored at how many builders I interviewed. It certainly made a huge difference. And yes, I do know the breakdown to pretty much every piece of lumber etc....how did I know you might wonder???? By the invoice the contractor reviews with me. Yes, I too asked for it.

The person who posted about the mechanics lien is 100% correct!!!!

Just because someone might be worried about the likely possibility of a builder charging too much does not mean they need to be their own GC....not understanding your logic there "dawg".

Let me help you out and clarify....it means they want to be educated so as to insure they have a good experience with their GC and try as best they can to enjoy the process of building their dreamhome and not "aimlessly throwing away money" if they don't have to.

hardwrkmom - I would agree mostly with your post except for the last line. I think its great that people want to learn and its certainly beneficial that people know as much as they can.

However, just because one is educated doesn't mean they are not "aimlessly throwing away money" and the reverse is also true. Just because one is not educated about all the items of construction doesn't mean they are 'aimlessly throwing away money' either. It certainly might make it easier to get 'taken' by an unscrupulous builder by not being educated - but it''s definitely not certain that that will happen. Your post sounds as if you aren't educated - then you will be aimlessly throwing money away, which just isn't the case.

Imagill, you are correct about those items. I did not add those do to the lengthy post I was composing. What I found to be most helpful and almost 100% correct was to know someone who had already built.

The person had a wonderful spreadsheet of every check that was cut out of the construction loan account and what it was for and what the amount was. Even the builders % was itemized when the check was cut for his portion of the cost of the house at that phase.

I highly suggest, if you have access to someone who has a record of this, to get with that individual if you want to understand every cost associated with every aspect of what it took to build the house. If you don't care to understand the process from a cost perspective then I wouldn't bother with it. To each his/her own....doesn't mean you want to be a GC so you can learn what it costs,youjust don't want to end up a "victim" instead of a satisfied homeowner.

Also,
The sheet had the port of johns recorded and every shrub, tree for landscaping recorded. They also had a line item for labor for framing, labor for complete footer, labor for brick masons (seperate item from cost of materials for brick)...

You get the idea, now. I am aware that this information is rare to have before you begin and even more rare to be so complete. I interject the fact that the timeframe may change from when that record of expenses was constructed to now, so I definitely suggest adding a "pad" or increase to what may be more realistic for building today.

I would add an increase to the figures based off of the difference in size of the two houses and choices and then added another 15% on top of that increase to help with any unforseen costs or contingency.

When I followed that business practice, every builder that I actually liked enough to discuss the cost with agreed with me on my numbers and was amazed at the accuracy of them.

A couple were even amazed that I knew what it actually costs to build a home. I also know what they can charge because some homeowners will ignorantly pay it or because they don't care what the cost is....they just want in.

The range of cost and selling price is quite different...all of you in this industry know that as do I.

A builder can charge what a homeowner is willing to pay...that's the simple truth.

If a homeowner doesn't research then I certainly don't feel like it's the builders ethical responsibility to share all the costs with them and certainly not their builders price...YES, they do have a builders price and can even get around that on the actual invoice IF the homeowner has asked for it and does not know what to compare the quote to.

After all, the same saying can apply: "The squeaky wheel gets the oil."

Oh wow, this is turning into quite an interesting thread. I think that it is very important to arm yourself with as much education as possible before beginning a build, but there is no way that you will know enough to completely protect your interests. You will need others involved in the process to help you out along the way. In your case, an attorney, a banker, and your builder. If you have doubts about the trustworthiness of your builder, you are in for a long road. And, considering the fact that you are completely stuck with him as a builder, you are even more in a pickle. There have been many postings that you should take to heart...they are not meant to belittle you, your experience, or your expectations. I, however, do not think you are coming across as if you want to learn...you sound as if you think that you already know everything and that those of us here who actually have the knowledge and experience are rude and stupid. If that is the way that you come across to your builder, then it is understandable that he is pushing back on your requests...

I'm sorry anthem, I did not mean to imply that if you were not educated on the building process then you would be "throwing money away aimlessly".

I only used that analogy to convey a process to follow IF the builders scruples were in question. If a builder presented a bid that had a figure that was more that a homeowner preferred to pay, then they should ask and learn or they might be paying to much if the builder can not justify how a certain item derived on that figure.

If trust is not an issue then by all means I would not imply that trying to learn the process (be educated) is necessary.

Allison's scenario is a perfect example of that. She would probably use her same builder again if she chose because she knew what the process would take and her GC agreed with her on the cost and vice versa. She educated herself prior to the build to find the right builder.

That is all I meant, sorry for the confusion.

charliedawg said:

"For those that want total control and are worried that a builder might charge too much, be your own GC. That is the only way to control everything."

Exactly!

If the prospective owner has such vast knowledge of trades, prices and contracts that builders stand in awe of them and their spreadsheets, they should just bypass the builder and do it themselves.

And to repeat what others have said: fixed price, my costs are none of the buyer's business; project management and cost-plus (if I worked that way) I'm an open book. Could it be any simpler?

What about time? If you don't have the time to "do it all yourself" then you need a GC. A lot of loans are for the 9 month period some are 12 months.

Your posts sounds like a nerve was hit because someone had costs that THEY paid for their complete house and they happen to be right.

Just because that information might prove to be useful in understanding what your house will cost so as to have somewhat of an idea as to what your new mortgage payment is.....certainly does not mean you need to bypass the GC and do it yourself.

Let me ask? Are you a GC and did I share some classified information that might get prospective homeowners to "think" and question their builder if trust was an issue? I don't think I did.

If I did, then too bad. If my GC quoted me $65,000 for a 2 car detached garage that was described as a simple structure, you better bet, I'd question him and I would also question the other costs as well. Whatever mistakes he might be factoring into his equation to get that number would be on his dime and not mine. I couldn't care less what kind of reputation he had....a figure like that is nothing more than shady and it sounds like he was probably hoping they'd agree to it or why would it be so very off.

If a homeowner gets dinged for a change, why wouldn't a builder get dinged for a mistake made on his part such as ordering the wrong windows for lack of example. My mistakes would be on my dime,ie..changing my mind into the project on things and his mistakes are on him and not "built into" my price.

Almost all the posts have touched on the factor of trust and how important it is to have it in the relationship of builder and homeowner. If that one crucial element is not achieved then the project will be unsuccessful and nobody wants that.

Let me make it simple yet once again....if trust is not a factor and you 100% believe in your builder to give you the type house you are looking for at a price you are willing to pay, then I am not saying you need to go to all the trouble of understanding the building process.

I would do it (and did)if I did not know a trust-worthy builder.

Keep in mind "worthy" if you have ever had experience with contracts (assuming you have)and signed them blindly then you took a huge risk.

Having knowledge does not mean you should be your own GC....that sounds like such an elementary response, sorry. A bit of knowledge, keeps you from paying an obscene amount for a 2 car gargage you wanted.

Good night all

Hrdwrknmom, Thanks, for your great post it clarified a few things for me.

"Your posts sounds like a nerve was hit because someone had costs that THEY paid for their complete house and they happen to be right."

If this means the customer figured out my costs, congrats! Still, when I sift through the several hundred receipts at the end, I'm not sure what the "real" cost is after you factor in overhead.

If the thrust of your argument is that buyers should be as well-informed as possible, of course!

If you say that the only way to deal with a builder--on no matter what contractual basis--is to figure out the cost of each and every component of the build, I say that's ridiculous. (No need to once again go over fixed price, cost plus, or project management.) As for the overall price per sq. ft., those figures are available from a number of published sources.

"Are you a GC and did I share some classified 'information that might get prospective homeowners to 'think' and question their builder if trust was an issue?"

I am a builder and if you're my prospective customer I will tell you exactly what you're entitled to with relation to the contractual arrangement we have. If you're only a prospective customer and start quizzing me about specific labour and materials costs, I'm not interested in giving you a free education. (Come here for that!) Good night. I'm due on-site in seven hours so I can start another day of gypping and shortchanging my clients. :-)

It would appear that many homeowners or prospective homeowners are struggling under the dilusion that just because they declare themselves to be a GC that they should be getting contractor prices on all goods and materials used to construct their home. While that may be your opinion, in the real world, and certainly in the world of finance nothing could be further from the truth.

Even though you are acting in the stead of a GC you still remain the homeowner and as such you are required to pay all city, county, state & federal sales taxes on the goods and materials used to construct your home.

In most states any contractor who supplies materials to the site must either pay retail plus the sales tax at the time of purchase and deliver the item to the site for that price or they must have a sales tax number, which permits them to purchase the item wholesale then deliver it to the homeowner as a retail sale and collect the applicable sales taxes which they then forward to the appropriate agency.

Most delivery invoices from the suppliers do not show the price the contractor pays for the item, it only shows the description of the item, the quantity and the date and locaton where the items were delivered. The deliver invoices should be given to the homeowner so that they may verify that the type and quality of the material is in keeping with the type and quality specified in the contract and to establish the date of purchase for warranty purposes, but the bottom line, it is really none of the homeowners da@@ business what I pay for the item at the wholesale. The only financial information the homeowners needs to know is what the retail price I am charging him/her for the item, and whether that price is in range with what we originally agreed upon in the contract. Like it or not, as a homeowner you are buying the material at retail just as if you went to home depot or lowes and picked it up yourself. Does home depot or lowes show you their wholesale price? I think not.

In any homeowner thinks this is unfair I would be glad to offer you an alternative. After I compute the time and materials I will give you a price for labor and a list of materials and let you see if you can get all the materials delivered to the site on time for less money, but understand this, any construction delays for want of material and I and my crew will gladly sit on the tailgate and sip coffee on the clock while you figure out where it is, of course if this causes a serious increase in labor time,I will have no recourse but to bill you for the additional time.

What might be confusing to some is that an "Allowance" is really a small "Cost of the Work" item within a "Stipulated Sum" or a "Cost of the Work with a GMP" contract. It should only be for materials and the quantities and estimated costs should be as accurate as possible. If the Allowances are unrealistic and include installation the GC or his subs can easily take you to the cleaners. There should always be an option for the Owner to provide the item and get the full allowance amount removed from the contract.

If the original poster is trying to get information about costs in order to make wise design decisions then that information should come from the GC in the design phase rather than during construction.

Owner-Contractor Agreements options are:

A. Stipulated Sum

B. Cost of the Work Plus a Fee
a) without a Guaranteed Maximum Price (GMP)
b) with a bid GMP
c) with a negotiated GMP
d) one of the above GMP agreements with a shared savings

An Allowance is only used for contracts that have a cost limit (Stipulated Sum or a GMP) although home builders often use the term loosely. For a contract without a cost limit these items should be listed in the Project Budget along with everything else and marked as unresolved.

Sometimes it is better to include unresolved design items as Alternates rather than Allowances in the design documents. If installation is included in the Allowance amount, unit prices for installation should always be set.

If the contract contains Allowances, then the GC's cost information should be included in a proposal from the GC at the time the materials are selected and the final agreed upon amount should be shown in a Change Order that changes the Stipulated Sum or GMP.

But then I really don't know for sure what kind of contract is being proposed.

One other thing. You are about to enter into a complex agreement for a great deal of money with someone who does this for a living and you do not have anyone advising you (except your friends at the GardenWeb). Having a lawyer review the agreement is good but there are few lawyers who understand the whole process so don't assume yours does without some pretty convincing assurances.

Even the bank will sometimes take the side of the GC in order to get a clear title. I recommend finding an experienced construction/design professional to review the project at intervals and advise you. If this bothers the GC you should find another GC.

Good luck.

lazypup: Good post. If I remember correctly, the OP was initially not thinking of being her own GC, but later said she might. Here in the "big city" I would be eaten alive if I tried to compete for good subs, compete for good service on the delivery of materials, compete for quick service from the building inspectors, etc.--compete on everything with well established builders who have routine business relationships with all those people.

I marvel at those here who are their own GC. I wonder: do they really save themselves all that much money or get a better quality house? Are they in a locale where there's a building slump, or just not much business, and suppliers/subs are happy to see them coming? I don't know.

As to the OP who's just trying to check up on her builder by educating herself, and who doesn't even have a contract in hand yet to know its actual terms: if you're going to use this builder, and become a next-door neighbor, I hope you'll educate yourself, get legal help, and also remain courteous, business-like, and respectful of the expertise (and incredible GIFT you have in the form of taking only half the draws before permanent loan closing) of your builder. You've already insulted him and his wife, so it's time to sit back, throttle back, get ALL the information you don't have about the contractual terms, and mend some fences. Let your incredible knowledge sit there waiting for the appropriate time to use it.

The feedback here suggests that you're already coming across, in this forum of mostly partially-educated, amateur builders, as someone who thinks they know more than they do. If we can see that, your builder has already seen that. Therefore he is one up on you; he can take advantage of you anytime he wants to. So can any other builder, supplier, or sub. Building is a rough and tumble trade; builders are wily businessmen and can "read" people well--its part of their sales role. If you're bound to this builder (or the dubious option of being your own GC), he knows and you know that you're one-down in the balance of power. You can't change that by asking for invoices if that's inappropriate to your contract, or by showing off your vast, newly-acquired base of knowledge of the building trade.

Your real power in the transaction is as the supplier of money. And your leverage lies at the point you enter into the contract--or don't. The best source of knowledge for optimizing the real power you actually have will come from a lawyer who is experienced in construction law contracts. If you don't like the builder, and/or can't negotiate favorable terms based on your attorney's advice, then your only real power lies in walking over to his competitor. If you don't have that option, can't use another builder, then your only leverage lies in refusing to build your house there (taking your money and going home). If that's the case, your builder is well aware of that.

So, you have to use the only real leverage you have, then decide whether to play or not. If you decide to play, then you would do well to make the relationship as cordial, yet business-like, as you can. Most people give you better work when the business relationship is pleasant (not to mention life with him as your neighbor). Doesn't mean you become a wuss; you enforce your contractual terms, firmly, fairly, and nicely.

If the nature of the power relationship is totally freaking you out now, think of how the build will be. Can you adjust to this reality???

I'm glad my post were helpful to some, I tried to help where I could and share my experience(s).

To all you builders on this forum.....if you go back and read what I actually posted, you will find that I never once insinuated that a homeowner should or is entitled to your "almighty" discount.

The homeowner IS however entitled to a house at a fair price. Fair for you and fair for them. They won't know what "fair" is unless they research and take some advice from some people with experience....such as the ones on this forum.

Back to the "discount"....how in the world would it be fair to the builder to try to negotiate for his discount on materials and whatever else.....come on now, none of us are trying to do that.

And even if someone WAS their own GC, why would they even be entitled to a "hefty" discount? If I was the manufacturer, I would reward my customers(builders) by their buying power and frequency. Economics 101...supply and demand.

I sincerely hope that those of you who are builders on this site understand that just because a spreadsheet with a breakdown of what a homeowner paid for their custom built home that WAS (cost-plus)does not mean they figured out what your discount was. It means they kept an accurate record of what they spent during the process. It also means that the builder did an exceptional job of providing the invoices to the homeowner.

So to put your mind at ease....the record (spreadsheet) kept were prices that the builder gave the homeowner. The prices were on the invoice. Were the prices retail or builders discount you ask? The individual never even once asked the builder for his special discount. The homeowner did not know about or even cared that the builder might be able to have a better price then what he gave them.

If you are a builder and build a lot of homes each year and you have your favorite lumberyard(s), contractors, and whatever else...then by all means they should reward you with a better price then if I wanted to build my own home and wanted to use them as well. After all, you would filter more business to them then I could.

A builder can give invoices to a homeowner that show retail prices on them...no problem whatsoever. But if an invoice is never given to them with a price then the homeowner doesn't know if the builder is charging them 2 or 3 times what they should be paying....or if they are partially paying for someone elses house to be built!

Please do not insult me or anyother prospective custom homeownerand tell me that does not happen....I know first hand from clients that it does. But I'm sure you never would do that very shameful business practice of
"gypping or short-changing" your client.

My goodness, there is no need to be so sensitive over the fact that a homeowner wants to be informed. If asking a builder for invoices if the homeowner is thinking the builder is working off a cost/plus arrangement is insulting him......then by all means that builder might need some thicker skin.

Whats the big deal if there is nothing to hide....

Gotta run to a meeting.....

I find this topic intriguing.

I admit that I have no idea how to build a house, nor do I wish to learn. That is why I hired a builder.

When I first started this process I thought building a house would be easy. I asked myself "Why would I need a builder? I'm just as smart as they are" ha, WRONG. There is so much more involved in building a home than I ever imagined. I don't believe any builder would ever know the profit upfront.

When the brick cleaner scratched the heck out of 3 of our windows, the builder payed for the replacements because the brick cleaner didn't even make enough money to cover it. (less profit)

When the vaulted ceiling of the covered deck didn't look as good as we imagined, my builder paid to have it enclosed. (less profit)

Our builder gave us credit for all contractor discounts for purchases made at lowes and hhgregg. (no profit there)

I guess my point is, a lot of people assume that there is just loads of profit on everything and get really upset when they see this. I guess it could be frustrating. But then they want to ignore the items that the builder may take a loss on or are taking a big risk on, such as concrete and lumbar prices.

bj inatlanta, I never, not once even slightly hinted about being my own GC. There has been ALOT of opinions expressed on this topic some good, good hostile, and some riduculous. The whole point of this post was to ask if you have a cost plus (why you want to debate me on this and then tell me I am wrong, when I told everyone this is what I have, is pointless) contract has anyone stipulated that the homeowner can see the invoices? I am not debating retail or builders price (although if I am paying you 20% and for everyone else's labor already why you want another 10-15% seems kind of sneaky to me). I did not insult my builder (his wife got pissy, he told her these questions needed to be answered, then she immediately calmed down), my exact words were "Just like when people find out when you are pregnant they tell you every horror story in the book, when people find out you are building they tell you every horrible story about houses gone wrong, I am asking some questions so I will not worry anymore". The second I said that everyone relaxed and we told a few jokes then got back to business. I am not arguing over every penny, I want invoices for several reasons, one is for tax purposes, we can write off part of the house for business reasons, and the other is that I think for cost plus it is reasonable to see them, I am not going to debate him over everything. I am not pretending to know everything about building, I said that is why I am asking questions.

Perhaps the reason your question was misunderstood is that any "Cost of the Work Plus a Fee" contract requires that all costs be itemized in detail and presented to the owner. Perhaps the GC's wife thinks including copies of the actual invoices & receipts is too much trouble or shows a lack of trust on your part or perhaps it interferes with some kick-back arrangement with suppliers and subs. Perhaps it's all of the above. I don't know.

What I can say is that from my own experience administrating construction contracts for over 35 years is that it is highly unprofessional for a GC to not offer to provide copies of the actual documentation without being asked. For a GC to show reluctance to provide it would be grounds for looking for another GC IMHO.

Another reason some here might have misunderstood your question is that there is no reason to have any "Allowances" in a contract that has no cost limit (Stipulated Sum or GMP) and you did not indicate that there was a cost limit. Costs in an unlimited cost project are summarized by a Budget and the line items are firmed up as they are bought from suppliers or subs. There would be no reason to separate items in this kind of contract and call them "Allowances". Perhaps the GC just likes to call these line items "Allowances" for reasons of his own but you will find that some on this forum are quite experienced with construction contracts and know the difference and would reasonably assume your contractor did as well.

Personally, I would not consider using a GC who lived next door to me, or even on the same street or with whom I had any other relationship. The odds of having a reasonable relationship with him and his wife at the end of the project are very low especially considering that the GC's wife is involved and has already demonstrated an unprofessional attitude about something as important and impersonal as a proper payment procedure.

Good luck with your project; I think you'll need it.

SusanCC,

What is the exact percentage above the cost of the entire build is your builder charging you ?

If you are doing true cost plus, the invoices will almost always be forthcoming. That is what is used to establish the amount the builder will be asking to be paid.

In a fixed bid contract, the invoices don't matter as you've contracted for a turnkey house at a fixed price. Doesn't matter if the builder has a family farm and kiln and cut his own trees for lumber that cost him nothing or if he bought it from 84 lumber. The end result is that you committed to paying him X amount for the house. How he got there doesnt matter or has any relevance.

For whatever reason, people apparently get worked over a fixed bid contract. They feel that in a fixed bid contract, if the contractor is making 20% (or whatever amount), they feel they are being taken to the cleaners. But yet, they aren't willing to go the other way (cost Plus), because they can't handle the open endedness of that type of contract and fear the builder will go overboard to make it as expensive as possible.

So, you basically have two conflicting methods at work with each other. One involves knowing everything but paying for it, and the other involves a turnkey fixed closed book method. Pick your poison and go with it.

susancc: OK, here's the source of confusion. In your OP you did not state that it was a "cost-plus" contract. You didn't state what kind of contract it is/will be. You said something misleading, quoting the builder (who should know what kind of contract he usually uses) who said it was a "turnkey" house. That usually means "fixed price."

Then, as the posters tried to clarify what type of contract you will have from the info. you provided, in your second post you made what was supposed to be a clarifying statement, distinguishing between "fixed price" and 100% custom. Which was another misleading statement, as you know that custom homes can be built under a variety of contractual arrangements. You continued there suggesting that because you are getting to choose everything, that proves that it is not a "fixed price" contract. Now, if you didn't know it at that point, you know it now: again, you can choose everything under a variety of contractual arrangements, including fixed price and cost-plus. It was that lack of clarity on your part that lead to this lengthy, educational discussion. In which you have no doubt learned a lot.

So, at this point your question is not as you originally asked it. Your question is now: "The whole point of this post was to ask if you have a cost plus...contract has anyone stipulated that the homeowner can see the invoices?"

Did you get your answer? Yes, you can see the invoices, so now you can totally relax and get on with the build. Right?

If your answer is 'no', then you're worried about something other than that. When you see the contract, and talk with your attorney about what it all means and whether it adequately protects your interests, then you can relax. Just don't drive yourself and your builder crazy by obsessing over everything. You're probably gonna pay what you're gonna pay, and builders have LOTS of ways to make sure you do, whether you examine every invoice or not. If you can live with his cost estimate, after you add on at least 15% for overages, then you'll have your house at as fair a price as you're gonna get from anybody.

Here's my prediction: you're going to carry your current level of suspicion (justified as it may well be) and obsessiveness throughout the build. At the end you are not going to feel you were treated fairly (justified as you may well be). How you feel now is how you will feel in the end. And to not let that contaminate living happily in the house you will need to find a way to bury that lingering resentment. Are you good at that?

add to that - the lingering resentment that you need to get over will be with your next door neighbor. . .

i was not able to read all the replies but wanted to second worthy when he said that seeing invoices alone is not all that will protect you. you neeed to have established trust.
my arrangement is cost and an hourly rate. there are many many unverifiable or difficult to verify expenses like hours worked and you have no ideas of deals that could be put together. I look at invoices and I also keep track what other owner builders are doing so I know how i line up big picture. If we weren't doing well I might look harder. But for now I don't fine tooth comb everything, our builder would be driven insane from that. Others may not agree but I have found it in my best interest NOT to micro manage my builders. We do our best not to be naive but in my opinion people work harder for you if you do your job as homeowner well too. For example I noticed that my invoices had some materials not on my job. Horrors, right? i thought maybe they were for the job down the street & since our builder lives by the lumber yard 30 min away he picked them up. We're not talking a lot of money. I never said anything but I eyed it. Then the other GC helped with our roof trusses and I paid him but not very much. I just have to trust it was part of their arrangement because big pic I am very far ahead.

My other opinion is are you sure you want to undertake this relationship with someone who will live next door to you? Good luck, carol

I have worked with a particular contractor for over 25 years and he is the most honest contractor I know. But I check his invoices against his requisitions because it is my obligation to the owner and because the contractor sometimes makes mistakes.

My point is that trust should not a substitute for careful project monitoring by the owners or their representatives.

OK I give give everyone permission to beat me with a stick, I made my builder give me clarifications. We do have a fixed price contract (why is that so hard to get out of him-or maybe we just didn't ask the right questions?). I would be happy with the price he gave me except there is a huge amount of things not covered in the spec sheet (coffered ceiling, barrel ceiling, insulation between floors and between fam. room and master bedroom, radiant flooring in bathroom, front door hardware,cabinet hardware, etc.) so I am disturbed. I am making a master list of everything and nailing down all the prices and will make sure it is signed and attached to contract (do not have one yet). I am still a bit touchy about the price because he admitted he had a 20% mistake pad built into the detached garage alone (which we have decided to delay building for a few years). How do I do my best not to be screwed with this kind of contract???

Just think about how far ahead of the game you are because of this thread.

Dial in everything important to you.
Get it on paper and part of the contract.
The more detail, the better off you and the builder will be.

If the builder works well with you on getting the contract you want and need you have won half the battle.

Remember that every detail not stipulated in the contract can become a change order.

Change orders can be expensive.

Do you have a house plan on paper?

Jill

Oh I feel your pain. This is our first experience with a fixed price/custom home and we didn't have every single detail nailed down either. As we went along, things would come up and our builder would just say "Oh if you want that, it's an extra "$" and so on. There were so many things that we didn't think of until it was too late to get into any kind of contract.

You will be worlds ahead of me by just getting as many details down as you can.

P.S. No stick beating from me, I was a rookie too. Next time (if there's a next time) I'll have much more experience and know what to ask.

P.P.S. I'm also going to live two doors down from my builder but I still like him! LOL

"How do I do my best not to be screwed with this kind of contract???"

While the forum has a lot of well-informed contributors, who've had personal and sometimes professional experience on which to base an answer to that question, your best advice will come from an attorney experienced in construction contract law. Meanwhile, you can help to allay your worries, gain information and emotional support here on the forum.

Once you get the builder's contract, read it and make notes about your questions. Then give it to your attorney to review and set up a subsequent meeting where you will ask your attorney that question. It is his job, and professional interest, to make sure your interests are fully protected. But make sure he explains TO YOU, so you know, how they can be protected in the particular contract under consideration. You will be more reassured if you will ask all "dumb" questions, and then ask for plain-English explanations of any legal jargon. Oh, and write down the answers for later reference.

Usually the allowances and line items will be provided by the builder, after you and he negotiate them, and the attorney will attach it as an Addendum to the contract.

You need to allow some time to discuss the contract with your attorney and go back and forth a bit with your builder to make any modifications. It's a negotiation of a business agreement between you and the builder. The attorney memorializes, in writing, the terms you and the builder agree to. And the attorney, most importantly, plays a role behind the scenes, advising you of what kinds of things to ask for, and he will give you the legal language to use to reduce it to enforceable terms.

"I would be happy with the price he gave me except there is a huge amount of things not covered in the spec sheet (coffered ceiling, barrel ceiling, insulation between floors and between fam. room and master bedroom, radiant flooring in bathroom, front door hardware,cabinet hardware, etc.) so I am disturbed."

You're doing the right thing by making a list and checking it TEN times. Everything going into your home must be on the list and/or ON the plans. Do not rush. Have DH look over too. Then the builder. Then your mom and dad and three friends. ;)

They didn't want you to see the invoices at fixed because he has a buffer in the house too. He's in this to make money.

Make sure the contract specifies any additional cost (on top of laber/materials) for change orders. We were lucky, we didn't have change orders or extra charges for additions/changes during construction. I've read too many horror stories here about them. Being prepared is the key.

Just curious, do you know if he passes on any builder discounts to you? I know some do and some don't.

Who designed this house and what level of documentation has been provided? I don't understand why the features you mention are not documented. It appears that someone is not doing their job but I'm not sure who it is.

Don't sign a Fixed Price contract without the scope of work and special features clearly defined.

Be sure to add all of your upgrades upfront. They should be in the contract if you are 100% sure you want them.

We knew from the beginning we wanted real hardwood floors for our DR, Foyer, kitchen, breakfast, great room and powder room. It was not specifically mentioned in the contract but rec'd a ballpark figure to add after the contract was signed.

Our final figure for hardwood was over $1000.00 more than the original estimate. I'm ok with this because I always add 20% to any estimate and knew the ballpark figure might change.

Your list of known upgrades is extremely large and you need to know exactly how much you will be charged from the very beginning or you are looking at going tens of thousands of dollars over your contract budget.

We designed the house with the builder (he is a civil enginereer), the type of ceilings are written on the plans just not mentioned in the spec sheet or anywhere else. I have picked everything out already except for AV, lighting and columns for the back porch and the balcony over the front door, (again on the plans but not mentioned anywhere else). He really does seem like he wants to work with us but I don't care if we don't start for 6 months, I need everything nailed down. He is passing builder's prices to me, I found out what they were and told him and he said OK, no problem. He told me that just because he has a contractors number, he still has to pay taxes on everything from appliances to lumber, is this true? He said there will be no taxes except property tax, etc. at the end. I am double checking all prices and amounts of things on my end before giving him my spec sheet.

"He told me that just because he has a contractors number, he still has to pay taxes on everything from appliances to lumber, is this true?"

I work for a builder and that is how we do it. Otherwise you would pay taxes on his markup as well.