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GC cost-plus sanity check

10 years ago

Building house in central Texas. Received preliminary building estimate for a cost-plus contract. Construction cost for the house, excluding overhead and builder fees, is approximately $1.6M. I own the lot.

The builder is asking for the following:

1. General Conditions (overhead) - fixed amount per month that works out to about 6.5% of the construction cost.

2. Builder's Fee (profit) of 14% of (construction cost + overhead).

3. Builder's risk insurance, liability insurance, workers comp - $14,000.

Do these seem reasonable? I like the builder and he has a good reputation. I am willing to pay a premium to use him. At the same time, I would like to get a sense of whether these numbers are market, a little above market, or considerably above market.

Comments (46)

  • 10 years ago

    Seems pretty high to me and I live in central Texas.Usually cost-plus is you getting the home for what the GC pays, plus a fee for his services. The fee should cover his insurance, overhead, and profit. If he is breaking it down that way, 14% seems high (then again I don't know what builder you are using).

  • 10 years ago

    We are doing a cost plus in Colorado, which is generally more expensive than Texas. Builder fee - pre construction 10% Construction 15%. We will get our own Builders risk insurance, which is cheaper than that.

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  • 10 years ago

    There is no way for us to know if that is a reasonable fee because we do not know the specific conditions.

    If I am reading this correctly and the total will be cost plus 20.5% that is a bit higher than most builders charge. But then maybe they are providing services that most other builders do not.

    You can never know exactly unless you get more than one bid from contractors providing the same service and quality.

  • 10 years ago

    Thanks for the comments so far. Sounds like the consensus is that the bid is high with respect to how much money the GC is keeping for himself, which as correctly noted is a little less than 21%.

    Do I understand correctly, that in most cases a residential GC charges a single flat percentage that includes all overhead and fees?

    Harringk - so that 15% includes all overhead and profit? No other fees or overhead were separately charged outside of that 15%?

    What sort of range is typical for a premium builder? 14-16%, including all overhead and fees?

  • 10 years ago

    That wouldn't be high during the boom years for a luxury home where the customer could hand over all of the issues to the GC and not worry about a single thing. If you're getting that service from the GC, then it might only be a tad high for that type of service in the current economy. because the luxury market never really goes away even in a down economy.

  • 10 years ago

    The percentage the GC charges should cover all of his costs and profit. I build 300k houses and 900k houses. Nothing changes. The process from start to finish is the same, the materials are the same or very close, the paperwork and permits are the same. There isn't really any more work or services that would go into building a more expensive home, it may just take a little longer. Usually the more expensive the house, the less percentage you get. Sounds wrong, but if you think about it, 20% on a 1 million dollar house adds a lot. You can run into the issue of the house costing more than it is worth, or not having much equity in it when you finish.

  • 10 years ago

    Yes 14-16% is more typical
    ...but what is typical is irrelevant.

    The typical builder is not a premium builder.

    The only relevant consideration is how much you can find someone to go to your site and build it the way you want.

    I am in College Station and a premium builder may be charging less but that does not mean that you can find a similar deal at your location.

    I have seen builders do it both ways -a single fee and a fee plus overhead. What matters is the total.

    I disagree that bigger always produce a lower total builder fee. This is very dependent on the complexity of the project and the level of service provided.

    A house that is typical but just scaled to extremely large proportions is very different from an architectural grade house.

  • 10 years ago


    Thanks. While traditional in style, the house is going to be fairly complex. Full finished basement, open cell foam+XPS building envelope, Mitsubishi VRF HVAC, 3800 sq ft. above grade and 1400 below grade, built on a challenging lot that will require a lot of excavation and grading into limestone, high end finishes, millwork, and trim, tiled groin and barrel ceilings, coffered ceilings, metal roof, pool, etc. Also have to deal with City of Austin McMansion building restrictions and permitting.

    The builder's team is very well educated and up to date on the latest building science.

    Once I get through engineering, I will have one or two more contractors give me bids to cross-check. As I indicated above, i am certainly willing to pay a premium for good work, but at the same time I don't want to feel taken advantage of if the fees are exorbitant for the market. But here in Austin the construction market is very strong. Contractors all appear to be busy, shortage of skilled labor, long delays to schedule trades.

  • 10 years ago

    14,000 seems outrageous! The builder should have his own insurance to cover his butt. Also, all of his hired contractors should have workers' comp should only be responsible for the builders risk and nothing else....

    Sounds like you are building a beautiful home!


  • 10 years ago

    Oh yeah, I forgot about the extra $14,000 for insurance.

    Anyway, I do not think that it is an unreasonable fee as long as the people are professional and well trained and are devoting the time/attention to get it finished at a very high quality. Usually a house of high quality will have an architect involved also which includes a whole other level of complication.

    I think once you talk to a few others you will know better where you stand on cost.

  • 10 years ago

    I'm wondering what you're getting for $421+ sf??? And especially for a home so modestly sized.

    Construction, services, permit and non-architect design fees in my high-cost area total less than $200 sf for a high-end home. Of course, it's easy to jump up if you're stuffing in Architectural Digest quality appliances, silk-covered walls and copper everything.

  • 10 years ago

    We're in SoCal and are paying a custom home builder cost plus 18% for a home whose cost is similar to yours. The 18% includes his insurance. In addition, we purchased a course of construction policy on our own.

  • 10 years ago

    I've read numerous articles this year that TX is in a HUGE housing boom because of such high oil prices. They can't build enough houses for the demand. With supply and demand what it is there, it wouldn't surprise me if the GC's aren't taking advantage of that.
    ditto what Worthy said!

  • 10 years ago

    For an architectural quality house $385 per sq.ft. would be on the lower end.

    You get a 2013 Rolls-Royce Phantom instead of a Cadillac CTS.

  • 10 years ago

    For an architectural quality house $385 per sq.ft. would be on the lower end.

    That's an astounding figure for a small city with a median family income of $53,000.

    As a long time custom builder, I can only refer to costs in the 4th largest city in North America. And here that figure would be absurd as an average actual construction cost which is what the OP is referring to--as opposed to a fixed price with extras from a builder. And especially when it comes to such a relatively small home.

    Of course, add in a "name" architect and the price soars. On a recent project, for design alone I was quoted from $19K by an established technologist to $110K+ by a "name".

    And when a deep-pocketed homeowner lets loose there's no end to the spending and I've seen the costs rise to at least $700-800 sf.

  • 10 years ago

    I do not think city size or national average income has anything to do with it. A small house can cost more than a big houses because certain amenities are divided by less area. (pool for example)

    I do not understand what point you are making. Certainly it is possible to spend less but you can't take your money with you when you go.

  • 10 years ago

    I am not sure what is meant by "architectural quality." I do have an architect (not associated with the builder) designing the house specifically for my needs. He has been practicing in Austin for over 20 years.

    The house is a fairly traditional design and shape and will not require any unusual building techniques. For example, no steel or custom made windows will be needed although we will be using LVL sticks.

    The fixtures and finishes will be of high quality. For instance, $35K of Thermador appliances for kitchen and bar area in basement; $25k in plumbing fixtures. Floors will be wide-plank site-finished Walnut. Cabinet budget is $100k for 225 linear feet of custom cabinets. Granite counters for kitchens and baths. High quality travertine/marble tile work for baths and showers.

    The total cost, including builder fees, works out to about $385/ft2. I had been hoping for around $300.

  • 10 years ago

    What I mean by architectural quality is a house by a well respected architect (not necessarily famous) and worthy of being published or receiving an architecture award. Typically you would see things that are unique and not just upscale factory. A tiled groin ceiling should look like it was in a first class European Villa and not straight out of Home Depot.

    Is the architect providing construction supervision?

  • 10 years ago

    No. The architect is not supervising construction.

    I am paying the builder a consulting fee to work with myself and the architect through the design phase, which has been going well and has been very useful, but I am not obligated to use the builder for the actual build. At the end I expect to have a detailed set of drawings, specifications and engineering that I can have several contractors bid on.

    The cost budget I received from the builder seemed reasonable when looked at line by line and he conservatively budgeted for a high-end finish out consistent with the interior detailing the architect is working on. Just did not expect it to add up to quite so much. I thought $300/sqft would be adequate.

    In addition to possibly negotiating over the builder's fee, I am also thinking about a cost-plus-incentive fee or cost-plus-cap arrangement to try and better control the cost situation. I am already feeling that a pure cost-plus puts too much pressure on costs in the wrong direction.

  • 10 years ago

    That is true that cost plus does not provide incentive to save money. On the other hand cutting corners is not necessarily always a good thing.

    I would think though, that most builders would be perfectly happy to help you save money (cost plus or not)

    385 - 6% (cheaper builder) is still 362 dollars per foot.

    You are paying the builder (with no obligation to use them) to bid this job. They have no incentive to inflate costs.

    So your main problem is not the builder but what has been drawn and specified. If you gave the architect a budget of 300 per foot than that is what you should get.

    Have you communicated to this team that the costs need to be reduced to 300 per foot?

  • 10 years ago

    Is that a typo '225 linear feet of cabinets'??? Are they made local or brand name?

  • 10 years ago

    The usual cost control method for Cost Plus a Fee projects is to set the hourly rate of the contractor's own forces perhaps with a limit on certain tasks or on site overhead costs and for the GC to bid each major subcontract competitively and involve the owner in the awards.

    It is also possible for the GC to agree to Guaranteed Maximum Price which would increase by the amount a selected bidder was above the lowest bid.

    On a Cost Plus GMP contract there is sometimes a Shared Savings where the owner and the GC split the amount that the cost is lower than the GMP.

    Major construction contracts have used this contract type with a fast track schedule (construction starts before the drawings are complete) with these cost controls since the oil crisis of '73 when construction costs jumped overnight.

    Unfortunately residential builders are often still using the old Fixed Price with Allowances model apparently because it benefits them since it certainly doesn't benefit the owner.

  • 10 years ago

    Being over budget by 22% I am kind of doubting that there is that much slop in the bids. (meaning you can get the same things for 22% less cost)

    It is possible that the architect and general contractor assumed a higher quality than the client actually requires.

    In a cost plus % the owner gets all the savings. So if they start making choices that lower the cost the owner gets those savings plus the contractors percentage.

    You could not tile the groin ceiling or have the cheapest tile installers you can find throw up some of the cheapest tile you can find.

    225 linear feet of cabinet is a lot for that size house. Just eliminate 22% of them and you save 25 thousand dollars.

    It sounds like it may not be that unusual of house and you do not need to spend more on a premium builder. But still you are talking maybe 14-16 percent

    Even non-special order windows and doors can be very expensive and could probably be replaced with cheaper units.

    For that matter 5200sq.ft. is a huge house so just cut it down 22% and it will still be a huge 4056 sq.ft. house and you will be able to afford the really nice stuff.

    I would have to wonder what the owner has been communicating to the team? My guess would be quality and amenities first and cost as secondary.

    This post was edited by ChrisStewart on Thu, Nov 14, 13 at 10:27

  • 10 years ago

    The main purpose of my post was to ascertain what is a typical builder fee for a premium builder on a cost-plus contract.

    While the actual cost of the house came in higher than I expected (architect also expected something more in the $300/ft2 range), I fortunately do not need to make cuts to the design.

    However, I don't want to pay excessively above market to have the house built and I would like to structure the contract to try and avoid cost creep. Thanks everyone for your comments.

  • 10 years ago

    What is above market? House cost range from less than $100 per foot to more than $1000. All builders are not equal. Some of them have almost no training and experience.

    It does not sound like your architect knows building costs very well and should have been more conservative. I also have to wonder if they are covering their mistake by blaming the builder and trades.

    That is excellent that you do not need to make any cuts -that will save much trouble.

    But really the owner is usually the main driver of cost creep. Over the course of the project you are going to have about a thousand opportunities to spend more or less. I have seen a lot of people who consistently choose more.

    And if it was not cost plus and you set a budget of 300 per foot (which is probably possible) you would still get charged when you exceed those allowances.

    I suppose you can do a cost + fixed fee + extras + some split like 70/30 on any savings. This way the builder is guaranteed a minimum fee plus 30% of any savings.

    That only saves you money if your builder is inflating the cost (post bid) in order to rip you off .

    It would be much more to your advantage to find a builder who you trust to be ethical. Then you would get 100% of any savings.

    If the general contractor is smart they would have set a budget that was easy to achieve. When I did those budgets I did that by trying to get a general since of what the client expected. What is their real budget? (because sometimes they won't say) What kind of quality are they looking for? etc..

    No intelligent builder likes to go over budget. That causes headaches and makes the end of the job unpleasant. I have seen cases where clients spend more than they can borrow thus leaving the builder short. It is always better to come in under budget. This produces happy clients who then provide good references.

  • 10 years ago

    Just thinking over this cost creep thing because I have some time and it is an interesting question.

    Say I get three bids for tile flooring.
    Contractor A $20,000
    did my last project and I know them to do excellent work

    Contractor B $18,000
    I have not worked with before but they work on similar houses

    Contractor C $16,000
    seems competent but works on average houses.

    And say that I want to inflate the cost to line my own pocket. I have two options:
    Select contractor A.
    (In which case you would see that I am selecting the highest bid)

    Pad all bids by 20% and choose contractor B
    (In order to do this I would have to either create forged bids or collude with all the contractors to pad their bids)

    But say that I am able to do that and so I now have a bid with 20% padding.

    If I did this for all trades and then we drew up a cost plus contract based on those inflated bids that also included a bonus for coming in under bid.

    Then I would not only get more money at the top (original padding) I would also get an additional percentage for taking the padding back out.
    If we do the math: $18,000 + 20% = $21,600
    then set my fee: $21,600 x 20% = $4,320
    Total cost to you: $25,920

    and then I am given an incentive of 30% of savings to cut costs:

    so I take the padding back out.
    $21,600 - $3,600 = $18,000
    $3,600 x 30% = $1,080
    My fee is now $4,320 + $1,080 = $5,400
    Your total cost is $23,400

    So if I have been dishonest I still profit greatly but you save $2,520
    But say instead I am honest.
    I chose the middle bid of $18,000
    I add my fee of 20% = $21,600
    You save: $23,400 - $21,600 = an additional $1800

    Now say that I am honest but see an opportunity during construction to save $1000

    If I do not take the opportunity than I make $1000x20%
    If I do then I make $1000x30% I have made an extra $100 you saved $900

    But if I am honest you would have saved $1200

    It seems to me that being paranoid of getting ripped off will actually cost you money unless you happen to be correct and the builder really is dishonest.

    The other consideration is where did that $1000 of savings come from? Did the builder substitute a cheaper material? Or perhaps the original estimate was simply overly conservative (they thought they may need 1000 pieces of 3/4" rebar but really only needed 900)

    There are 100's of thousands of things that go into making a house. It is impractical to exactly count every one of them.

  • 10 years ago

    We got five very detailed bids before selecting a builder, so we had a good sense of which line items were inflated, if any. When it came time to negotiate the contract, we started with the AIA's form contract that provides a cost/plus with a guaranteed maximum. Of course there have been change orders along the way that inflate the guaranteed max, but we feel we have some control over bids that come in higher than expected after the fact. There is also an incentive in our contract for him to save money, but it will probably not be triggered. :) Our builder does a lot of high-end custom homes in Southern California, and we felt that cost plus 18% was a fair deal given the bids we got from other builders.

  • 10 years ago

    Hi yes our contractor fees include overhead and profit, but we are in a very different market. To answer your original question and I am not a professional in the homebuilding profession, I would certainly talk to 2-3 builders in the area that you like and compare apples to apples. In my experience in a cost plus contract like we have it's extremely important to find a builder who is not only good, but honest and a person you can have a good rapport with. We found a builder who only builds a few homes a year and he is willing to flesh out the entire budget with us and the architect way before we put a shovel in the ground. It has allowed us to think about what is really essential and how do we get it in our budget and we have time to process sticker shock as well:). We would have paid even more for this type of builder. So take some time to find a builder who is reasonable for your market who will be part of your team

  • 10 years ago

    I have a problem with cost plus building. Is a GC going to 'actually' show the true 'cost'??? Seriously! Probably 98% or more, people don't have a 'clue' what something 'should' actually cost building a house. Trades have two pricing structures, one is GC pricing and the other is consumer which is usually 30-50% higher than GC's pricing. Is the GC going to really show s/he real cost? I doubt that very seriously. That's like walking into a store to buy a suit and asking them their 'real' cost of the suit and getting an honest answer. The trades can easily have two invoices and 'only' show the consumer invoice to the owner and give the real one to the GC.

    plies.....get several quotes. Any GC that usually builds in the 300-400k or more range can easily build one over 1m, it doesn't take anymore common sense. As you stated this GC is a 'premium builder', they specialize in premium profit.

  • 10 years ago

    "Is a GC going to 'actually' show the true 'cost'??? Seriously! "

    All costs of a Cost Plus a Fee contract must be verified to the Owner by the General Contractor by submitting the original material receipts, signed and paid subcontractor invoices and signed time sheets with each request for payment.

    Attempting to falsify one of these documents is a very serious breach of contract and potentially criminal fraud even federal mail fraud if the invoiced amounts are large enough and sent through the USPS. And that goes for kickbacks, rebates and discounts to the GC from subs or material suppliers.

    Don't try to compare building a house to a retail purchase. In the suit buying example, your GC would shop at several stores for the same suit, then give you the opportunity to choose the one you like, then he would buy the suit and deliver it to you with an invoice that included a receipt from the store indicating what he actually paid for the suit plus an agreed upon fee. What it cost the store to make or buy the suit and operate the store would be irrelevant.

    This post was edited by Renovator8 on Sat, Nov 16, 13 at 6:45

  • 10 years ago

    The most commonly used AIA Cost Plus a Fee contract for small projects says:
    "Those portions of the Work that the Contractor does not customarily perform with the Contractor's own personnel shall be performed under subcontracts ... The Owner may designate specific persons from whom, or entities from which, the Contractor shall obtain bids. The Contractor shall obtain bids from Subcontractors and from suppliers of materials or equipment fabricated especially for the Work and shall deliver such bids to the Architect [or to the Owner if there is no architect]. The Owner shall then determine, with the advice of the Contractor and the Architect, which bids will be accepted. The Contractor shall not be required to contract with anyone to whom the Contractor has reasonable objection."

    It also says:
    "Subcontracts ... shall not be awarded on the basis of cost plus a fee without the prior consent of the Owner."

    Another thing that should be understood about this kind of contract is that this method of compensation, reimbursement of actual costs plus a fair fee, is highly prized by contractors and therefore highly respected in the construction industry. To be caught defrauding an owner by charging for materials or labor were not received could destroy the reputation of a builder. I suspect that any builder who would think of doing that would already be in financial trouble and that it would be easily detected by a competent owner's manager.

    What needs to be avoided is the contractor using his favorite subs and not comparing their bids to other legitimate bids. That's the owner's responsibility and if he/she is not capable or uncomfortable in that role an architect or other manager should be involved.

    Cost Plus a Fee is not a contract type for contractors or owners inexperienced with the management needed to make it work. It is not a fancy Time and Materials contract. It was developed by professional managers for large construction firms. This is not a contract type for which the management should be left entirely to the builder.

  • 10 years ago

    I am a long time GC who has built many cost plus projects structured a variety of ways, cost plus a percentage, cost plus a fixed fee, cost plus a percentage/ fixed fee with a guaranteed max exclusive of change orders, etc.
    As mentioned, in a cost plus project all original invoices are provided to the client, and falsifying these documents is a crime and punishable by law. Could this happen? Sure, but it is unlikely and honestly less so than in most industries because the process, if approached professionally, which I would assume by virtue of the nature of the project it would be, is extremely transparent.
    As for the amount of the fee, I do think it
    is high, but in the fast growing market you have described, for a very good service it is not outrageous. $300/$400 a sq foot for a smallish custom home (under 5000 sq ft) is about right here in eastern North Carolina. I can't accurately comment on Texas.
    My company generally charges between 15% and 20% total depending on the size of the project and it's complexity. The fee you have described is actually 21.5 % because the 14% is being charged on the initial 6.5% overhead fee (compounding is a wonderful thing) plus you are agreeing to pay workers compensation, which I can not quantify based on the information provided, but it would add to the percentage slightly.
    In our contracts there is no additional overhead expense, it is part of the fee, and only job specific insurance, builders risk and general liability is charged to the project. Workers compensation should be requirement of each subcontractor or for the GC's own forces and not an additional charge to the project.
    The amount quoted for insurance would cover only the BR/GL in our market, $1200 a month for an estimated build time of 10 to 12 months.
    Finally, do not get other quotes unless you would sincerely consider using the other contractors. Accurately bidding a single source custom house is a time consuming exercise. If you feel compelled to check your preferred contractors price but have little or no intention of using the other bidders you should be open about this fact and be willing to compensate them. I pay an estimator over $50K a year to sit in my office not including overhead and this would likely represent a week of his time diligently working on it.
    Good luck!

  • 10 years ago

    Well yes, robin0919. I have done several cost plus jobs and shown the actual bids, receipts, cancelled checks, etc..

    Why would I feel compelled to break the law and steal from someone when they have agreed to pay me a fair and agreed upon amount for my service? Is that how you treat people you work for?

    But as far as criminals falsifying records and generally being dishonest goes -no sort of contract will prevent it.

    While it is true that any GC who builds a 400k house can build a 1.6m dollar house it does not necessarily mean that they are just as good. I have seen several builders in the 400k range that really did quite sloppy work.

    This post was edited by ChrisStewart on Sat, Nov 16, 13 at 10:05

  • 10 years ago

    There's an attention to detail, and level of "issue" management in an upper level build that goes beyond what a mid grade builder is used to doing. Not that he can't do it, but he needs to have some training wheel experience under his belt first. He can't jump into it headlong and do anything but lose money on his first go around. And who wants to be his guinea pig for him to learn how to do it?

    Just one example. If a mid grade builder is used to using faux thin stone on the fireplace breast all the way up, but just on the front side, he will not be experienced with the detailing needed for doing real stone cladding for a fireplace. That may mean he doesn't pour the required foundation for the weight of the stone, or get the rough in plumbing done correctly for the gas, or hire the mason with the correct experience level with real stone, or doesn't hire a qualified craftsman to create the millwork surround that has to be scribed exactly to the differing profiles of the natural stone, or for the built ins that flank the stone. "Good enough" with the stone's corners done out of whack at more than 90 degrees, and lots of molding to hide the gaps, isn't good enough at that level of build. And if he's never hired or supervised detail work like that, he may not have the ability to even know he's screwed it up because he's never seen anything different.

    And that's the difference between a 12 percenter and a 22 percenter. You can rest assured that if that mason does the stone incorrectly, he will tear it down and do it correctly, even if he disappears and the GC has to hire another mason out of his % to get it done.

  • 10 years ago

    Construction just started yesterday on a $900,000 addition to a $2 million house in a Boston suburb where it took 3 months to get approval from the Historic Commission and the outside work will be in very cold weather.

    The Cost Plus fee is 7% from the best contractor I have worked with in 40 years. The secret is the small number of his full time employees, a very loyal group of subs, no office staff and the fact that he works on site on all phases of the project.

    So, the typical cost of a contractor is not possible to know; there are simply too many variables and often too few contractors to create a true market.

  • 10 years ago

    Chris....I've seen numerous houses built in this area that were in the 1-2mil range. If you didn't know who was building it, you would think it was another track builder with shoddy construction built to meet code min. They even used particle board for all kit. cabs.

  • 10 years ago

    Chris......only get ONE quote on the most expensive item a person will spend in their life time?????? Anybody would be a fool for NOT getting several quotes. The time for a GC to work up a quote comes with the territory.

  • 10 years ago

    Yes that is my point robin0919. Every builder in not equal just because they can build a 1.6 mil dollar house.

    No, I would never recommend getting one quote. Doing cost plus does not prevent one from getting multiple bids.

  • 10 years ago

    Yeah, but if you don't have an architect on board to help provide guidance about the difference between Cheap Charlie and his 11% style of building 400K homes, and Craftsman Chris and his 20% style of building 1.5M homes, then the natural tendency of most homeowners is to go with the cheapest bid, even though they aren't gonna get the same quality.

    They don't understand the differences between the two without someone knowledgeable looking at them to be able to provide that discernment.

    A Caddy CTS and a Ferrari F40 are both "luxury" cars, but are in completely different classes as far as costs, maintenance, and performance, and resale value. Don't confuse the two because you don't have any idea of how to take either of them around Watkins Glen for the best time that each can do.

  • PRO
    9 years ago

    Very interesting blog and dated at this point. I have enjoyed reading everything and as a very high end builder in the Chicago area I will side with Mr.Stewert on all of his insight. He is a well seasoned veteran that gave a lot of accurate input.

  • PRO
    9 years ago

    Agree with Gander Builders. It's also disheartening to read some of the comments. There are very honest hard working builders whom want fine craftsmanship with a reasonable margin. I'm a capitalist who believes in the value of hard work and excellence. Having said that, would never put our company at risk by hiding or trying to skimp a few dollars by cutting a corner. I recommend you anyone willing to spend the money on a custom home to look for a builder who has documented transparency & keeps his workload small. That's going to change based on the builders size, however, it's my experience in Oklahoma that a small builder who does 3-4 custom homes a year has a higher level of detail than someone doing 20+. Best of luck in your search.

  • PRO
    9 years ago

    Thank you Matteson, and agree with the workload being a huge factor in the overall success of a relationship with client!

  • 9 years ago
    last modified: 9 years ago

    I hate to disagree with you two, but... If you want a higher margin stick it in the percentage, don't hide it a complex bid. To me the builder, named at the beginning of the thread, seemed to develop ways to hide his actual percentage, so that he can say 14%. I find, in my experience, that quality and integrity don't usually drift too far apart. If you want 20%, then walk up to someone and say unapologetically, "I charge 20%, while my competition charges 14%, for my 20% these are the services you get. I lose some customers to those guys charging 14%, but the customers who go with me don't usually regret that extra 6%."

    Complex fee structures are just a way to keep clients off their guard or hide what the actual charges are going to be. I am of the opinion that every builder should be able to quote their fees in one sentence and justify them in two more. People used car analogies in this thread and so let me use one. Would you buy a car from a dealer that quoted a payment $700 for the car, a 6.5% loan service fee, and vehicle ownership transfer fees of $5,000 spread evenly over the life of the loan?

  • PRO
    9 years ago

    I don't think you are disagreeing. I agree with you. Here is my fee schedule:

    500K or less I'm 15% and share every invoice/bid

    600K I'm 14%

    700K I'm 13%

    800K 12%

    900K and above I'm 11%

    If the home is extremely unique then I bid them outside of these guidelines. Knocking on wood we've yet to have any significant challenges. That might be in part that we don't just take any client on so that's a nice luxury for our company.

    Pretty simple, not complex. We have a budget meeting every other week and it's in my contracts that if we go over in one area we can do two things: Increase the overall budget or make some material choices in other areas to decrease the budget and get back in line. Transparency is the key, high communication.

    I think this thread proves there is more than one way or one mindset to accomplish things! :)

  • PRO
    9 years ago

    Again I agree with last two threads I'm not sure where the disconnect is. All very good points.