Fixed-price contract has Contractor's Fee % as well?
balazs1981
6 years ago
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Joseph Corlett, LLC
6 years agobry911
6 years agolast modified: 6 years agoRelated Discussions
'marketing fee' in building contract ???
Comments (35)Hi, I didn't read everyone's responses or the additional follow up's and you may not really want my two cents, but I am a realtor, we have a building company and I work very closely with several top-notch builders in our area and I just wanted to quickly share how one of the build's we just completed in our subdivision worked out that may help see why we're not all bad and those who think all builders & realtors are just snakes will just have to agree to disagree with me :: Our family owns a 50 lot subdivision that we are developing in phases. We have a construction company that can build up to $500k per our general contractors license limitation. We also have the lots listed thru our real estate firm and I am an agent at that firm. I had some clients very interested in our community who didn't have any clue of what they were doing in terms of building so obviously they wanted us to help them get a great builder to gc their build ... and since the house they wanted to build was about $650k without the $100k land we were more than happy to do so b/c they needed it and we couldn't do it on our license. I as a realtor helped them acquire their dream lot and they actually bought two and decided to put the house in the middle. We helped them interview a few builders who we felt they could work well together and who we knew were top-notch and could be trusted to work with our very first new owners in the community. When we approached the other builder - we told them we would be collecting a 3% of the total cost to build the house itself as a referral to them and we actually helped keep the majority of the books on this particular build b/c it was the first in our community and we wanted to make extra sure it went smoothly. The builders in our area typically profit anywhere from 12% to 20% depending on the complexity of the build and the amount of detail work they'll have to handle with the design, etc. Before we entered into discussions with the other builders we established with the homeowners that we would help them find a builder worth their weight in gold that would build the house for cost + 15% and they were ecstatic b/c like I mentioned the house was over 6,000 sq.ft and had a guest cottage and 3 levels and had blueprints that looked like you were building a skyscraper, etc. It was a complex build and we helped negotiate a cost + 15% which was a little lower than what a typical house of the nature would be which was more like the cost + 18-20% range. When we talked with the other builders up front we laid out that we were referring this and that we had already worked out a cost + 15% and we'd be collecting a 3% referral/marketing fee for bringing them the fee. I think you can see that these owners got a great deal to have the build at cost + 15% and the builder was happy to have the work which made him 12% of the eventual $700k cost to build. There was no snaking and regardless of whether we had been collecting the referral/marketing fee or not, they would have paid cost + 15% or possibly higher for this house. In the end, they have an absolutely phenomenal home that they love ... the build went super smooth, and we all made a little money for bringing it all together. Again, this was built into the builder's fee from the start, the folks new about it and b/c we were involved, they were able to negotiate better overall terms than on their own and they could have cared less who got the final 3% in the end b/c they agreed it was worth it for the quality they got in their final and their dream home they've wanted to build so far. This is what I think is a typical and probably most acceptable manner in which a real estate agent can get paid even on a custom home build. But, if the builder is agreeing to pay the agent the 3% b/c he didn't and/or couldn't collect from the original seller and the then added it on top of what was already established or what would be the norm in your area for a cost + contract to build then I'd look for another builder or tell the realtor they'll have to talk to the original seller to try to get compensated. Sounds like the seller either wasn't offering a commission to the agent at all and they wanted one b/c they didn't have a buyer agency agreement that spelled out that the buyer would pay them directly b/c the seller wasn't paying or it sounds like the agent needs to take the seller to court if they did in fact offer them a commission and then didn't pay. But, either way I don't believe like some folks that realtors have no business being involved in a custom build cost to build as a marketing fee at all b/c I think I described a situation that I've been a part of on multiple occasions that has always worked out well b/c I bring value to my clients in helping them negotiate with their builder and get the lots at good values. I hope this helps and sorry if this has been said before but there were many posts that were as long or longer than mine and I could see most were just opinions from folks who weren't on my side of the fence. We (realtors) aren't all the same and us good ones that are honest and would never do anything to harm our clients are not like used car dealers like I saw in one comment above. Yes, some are and I'll give that to whomever posted that comment, but blanket stereotypes are part of why people in general have such a phobia about real estate and insurance agents and used car salesman - but I could introduce you to several agents/salesman in my area that I know and love dearly as friend/colleagues that would change your mind forever if you'd be open enough to really listen and work with them and let them work for you. Yes, we work on commission, but I'm the type agent who wants to build a trusting and lasting relationship with my clients so that I get multiple transactions over the years that keeps me in a job that pays my mortgage and other bills, etc... rather than one who does whatever they have to in order for you to buy one time and then you realize you got screwed and don't use them again. If I sell you a house or a tract of land, etc... I want to make sure it's something I'd help a family member of mine purchase or something that I wouldn't have a problem putting my money into if I were in your shoes and that in itself has been why my business has been successful and will continue to be. I want to resale the property I sell you and know it's a great listing to have in my inventory and I want to then sell you your next, bigger home that will yes help me in the long run as well. It's not greed when you're genuinely helping folks accomplish their goals and doing so in a manner in which they see brings value. Real estate isn't hard, but it's time consuming and it takes years of grinding out in a job where you wake up every day not knowing where your next paycheck will come from or if it even will come, but we do it anyways and the good ones do it better and more often than the one-hit wanders who only got into it b/c there was a boom ongoing and they thought it was and I quote "Fun to show people houses". Yes, it's fun, but that's about 10% of our job and it is the "FUN" part. My point for this rant at the end is ... please don't be so quick to judge realtors and builders and anyone who works on a commission or performance based pay system b/c there are sometimes things that may not make sense to you but aren't out of the ordinary and therefor may take a little research on your part to learn why and how the situation works before they make sense, but if you ask others who aren't in the know you can and often will get the "all salesman are evil greedy monsters who are out to get you for all they can" comments (not that the original poster of this comment was, but I did see a few that were and were what sparked my comments tonight so I thought I'd share the other side of the fence for a change) Have a great night and if I've offended anyone please accept my apologies and know that I do see there are many sides to each story and am not saying this builder & realtor are in the right. I am urging you to research it with the right folks in your situation and then make the best and most informed decision you can. Maybe even look at a few other builders in your area and one of the best ways to get builder recommendations is ... dum da da dum ... local realtors ... because they see the homes the local builders build and they shouldn't have any problems telling you the quality of any of the local builders & for free. Just remember to return the favor if they do help you get in touch with a good builder who does a good job for you. Hey, maybe even a marketing fee ... but only after they help you negotiate a lower cost + contract than you had before!!! ;) Goodnight!...See MoreHow much over on a fixed price contract?
Comments (13)Sue: I don't know enough about construction to know why the foundation might run over either; I'm just trying to anticipate possibilities. Perhaps if soil conditions in that area required a more extensive foundation? One thing our G.C. said is that if anything really bizarre turned up and they needed to bring in a soils engineer, we would have to pay the engineer's fee. And, I presume, any additional cost for construction related to his findings. No septic; county sewer and water. I rate-shop loans every few months. Consistently for us, our best deal is with Wachovia to do a C-P loan. We can lock in a permanent rate for 12 months, or pay an ace to get an 18-month rate lock. I have no idea whether to do that or not. We pay interest only during construction on the cumulative amount of the draws. We own our current house free and clear and won't try to sell it till after we move into the new one. We paid cash for the property the new house will be built on. So, there won't be any unexpected expenses with our living situation. Of course, prorated property taxes and insurance for a longer build, but I've budgeted for a 15 month build on that and it's a small house that's expected to take 5 to 7 mos. Two related issues on that, though. One, is I don't know what the homeowner's insurance company will do once we do the demo and start building. At first they'll have nothing to insure and gradually they'll have more and more of a house they're insuring. Secondly, I don't know how the city and county will handle our property taxes. In Ga, for the county at least, the assessments are based on what you own on Jan.1, with taxes due in Sept. I don't know what I'll own on Jan. 1 and I don't know if they'll re-value it if it's a vacant lot (should and will also being 2 different things) or periodically during the build. Many mysteries here. BTW, do you remember me? I'm the one who said "I don't buy a lawnmower without my attorney looking at the contract. We love our atty. and he loves us"? That's me. But I do all I can do first, to save attorney's fees. I spent a few years reviewing contracts in the legal dept. of a huge finance company, so I'm comfortable with the initial reading. And I know when I need help. My atty. usually gets contacted by me during the negotiation stage for some help. Then he gets the preliminary contract with a list of questions clause by clause. We work well together hammering things out that way. dixiedoodle: we should all be so lucky as to have your deal! If we go more than 2.5% over the fixed price, for the unexpected, we have no choice but to dip into the IRAs. But it won't be the end of the world. We've been hacking down the size, etc. of this house till we can go no further. It's a stretch. And we are nervous. I do love your wording about the substitutions. I have printed it out for my contract file. Thanks to both of you. I'm always informed by what you......See MoreNewbie question on allowances in a fixed price contract build
Comments (5)An allowance is a small Cost-of-the-Work contract inside a Fixed Price contract. Of course, that loses the benefit of a fixed price so you should only use an allowance when you have no other choice. Selecting materials and their installation methods and including them in the Fixed Price contract can save you money. An exception would be kitchen appliances that are normally supplied by the owner and installed by the contractor. Removable equipment should not be in the allowances. An allowance should not limit you to a particular sub-contractor or supplier unless you agree in advance. You should have the right to reject a sub's proposal or ask that others be considered. Try to structure the allowances so they are for materials only and installation is in the base contract price. That means you must determine the quantity of the allowance items in the contract even if it is arbitrary. If the quantity can't be determined try to put an installation unit price in the contract. An allowance clause should state that the final resolution of an allowance is by a Change Order signed by the owner. It should say The Change Order can be 1) an increase in the contract amount equal to the difference between the Allowance amount and the actual final cost, 2) a decrease in the contract amount equal to the difference between the Allowance amount and the actual final cost, or 3) a decrease in the contract amount equal to the entire allowance amount (material supplied by the owner). Ask the GC to put his OH&P for allowances in the base contract price so that increases and decreases in the allowance amounts will not be increased or decreased by mark-ups. Warranties vary with the products. Usually there is a warranty from the manufacturer and if you supply the material the warranty will be from the manufacturer to you so keep the paperwork. The installation would be warrantied by the GC often for only a year (check your contract and the laws of your state). A problem arises when a material fails and you have to pay for the removal and reinstallation. However, that will be the case after the GC warranty ends so you are only increasing your risk for that period of time. Unfortunately, really bad products often fail in the first year. So, find out how long that period is and avoid supplying the materials that are unusually expensive to remove and reinstall (like whirlpool tubs, etc.)....See MoreCan a contractor charge a processing fee?
Comments (14)So by way of follow up all these months later - I never used that bad general contractor again but it took weeks to hire a replacement for the exterior work then forever to get him in. Luckily I had my own electrician and flooring person fix his work in the interim and my time/materials contractor install the final kitchen a month later as planned, and worked with a designer to make it work wonderfully (plus a lot of my own time and effort). The exterior work (window/door conversion) took another 6-8 weeks and wasn’t done until 2 months ago, and while we didn’t save money on the replacement person, we didn’t spend more on them for the same things either. With the money I spent to fix the bad GC’s work, I was probably out a few grand (sad to say) and my designer figured he was going to leave me in the lurch either way either when he did or toward the end - her theory was that he would leave me in the lurch the moment he was a few grand ahead and could safely run and pull out his profit, so she said NEVER to let him get ahead of me in terms of my paying a moment ahead of work (live and learn). The only thing that galls me is a deposit he never returned, so I’m planning on emailing him with a demand for it back. The demand is drafted, the architect who referred him expects it ��" but I can’t seem to push the button on the email because it will be so unpleasant when I do (he'll refuse to give it back, he'll ignore the email, I doubt he'll actually pony up a penny). The architect who referred him to me has very clear backup for what was wrong and knows it wasn’t acceptable. I’ve left it to him whether to refer the jerk to anyone else. My designer thinks I should just walk away from the lost deposit and figure it was a bump-up in price for the job. Other bids from (now I know) better contractors were well more than the cash I left him with. So while I lost money and a decent amount of security (for example, for the first time in 7 years we now had a mouse on our parlor floor, I figure from something not well sealed behind the scenes by the GC, but who knows; plus I'm concerned because the plumbing he did was so bad that I worry a lot about water issues coming up especially ones I don't know about). But what an education. By the way, as it turns out the bad GC's electrician left a ton undone and done improperly so I had my own electrician fix that. The plumber who installed the final kitchen pointed out that the GC's plumbing work was shoddy (range's turnoff valve installed at the wrong end of the wall/range connection; bad height of the plumbing for the range etc.); the carpenter showed me a screw sticking down out of a railing the GC's guy installed, about an inch down where someone grabbing it from below could have torn their hand badly (that one galls me the most, and I don't think that was intentional; the GC's guy wasn't that good and the GC never bothered to come check his work... poor hiring and poor supervision were the culprits there). So beware! I love my new kitchen and deck but who knows what issues lurk behind... not electrical and unlikely structural since I had an architect involved, but more plumbing,,, and some functional like a bad washer/dryer layout because of his poor choices and advice to me on the fly (and I wish I'd had my designer and not the architect for a lot of these decisions, the right advice is so key)....See MoreThe Cook's Kitchen
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