Are they both working with the same architectural plans? I would check out the builds of #2. Is a credit check possible?

Yes, they are working on the same plan.

Why can't you just tell the builders both what numbers you want for your allowances, and then get more comparable estimates? An allowance is just a number written into a contract - you can tell them what number you want there, at least with any builders I've talked to. They like to give low allowances as a starting point because it makes their bid look better - but YOU should be the one to determine the final number.

If you want to spend $8600 on plumbing, tell them both to give you a $8600 plumbing allowance (or even a $9000 plumbing allowance, to cover the little things that cost more than you expect, price changes between now and when things are purchased, etc).

#1.

You've seen his work. He's fair with allowances.

Don't be surprised if #2 asks you for both the overage from the allowance AND a 20% change order adder.

Just list the things you want as part of the contract and remove the allowances for those items. Then you'll get closer.

Based on what you described - if both total contract amounts are the nearly the same, I'd recommend builder #1. when you look at selections overall, you have:

Builder #1 allowance: $57,500

Builder #2 allowance: $35,000

Your current estimates: $55,400

There is a huge overall difference between #1 and #2 and #1 comes much closer to your own estimates.

In our just completed whole home reno (fire restoration) we had a large selection budget which we worked out with the builder before hand in pretty good detail discussing what kinds of things were luxuries we would likely spend on and what were things we didn't want to put extra money into. Everyone has different tastes and preferences and unless money truly is no object, then trade-offs are always made when planning meets a real world budget.

I agree that #2 sounds like they may be low-balling the selections allowances in order to put a lower up-front price on the overall contract. This doesn't immediately disqualify them but I would definitely follow up with both builders about what happens if you go over the selections budget (is the purchase price marked up or subject to change fees?) AND what happens if you underspend the budget. In our case, the builder had their standard profit margin applied to the selections allowance budget - they had a fixed amount of profit on what we were going to purchase through them already baked in to the up-front contract price. If we overspent on selections, we didn't have to pay more overhead - we just had the extra added on to the contract without markup. If we underspent the overall selections budget (which we did) the remaining amount of selections money was applied to the overall balance of the contract. This actually would increase the profit margin on the books for them - but didn't change the upfront profit at all. This system seemed very fair to us and we were glad to work within it. As it happened for us we ended up with about a $7k underspend which reduced our final payment.

For both of them, I would try to find out about overage and underspend of the selections allowance and ask what happens in each scenario.

Finally, I would recommend seeing #2's work in person before signing a contract.

I agree with Lyfia...why allowances at all?

Look at their work (both of them), first-hand, and talk to their former clients... you won't regret doing it, but you may regret NOT doing it.

None of the above.

A apartment/commercial builder building his first SFH is not going to have a good handle on SFH costs, even if his allowances are more generous. The rest of the costs that he is assuming are going negatively impact him, and things will go sideways because he won’t be making the money he thinks he will. Margins are much slimmer on SFH.

#2 is just playing the typical lowball and make it up on allowances process that the tract builders use. He’s not going to be able to build a custom home very well either. Everything will be a change order.

Ask your architect for local contractor recommendations. Be prepared to wait for someone. Next spring, maybe, should be your goal to break ground. It’s August, after all. And if you get there sooner, great! But don’t get in a hurry to hand over your life savings go someone who hasn’t done this before, or where every sneeze will be $1 for a tissue.

GreenDesigns,

#1 is in business around the area for so long and build quite a lot of custom houses around the area. The houses he built were features in magazines, kitchen showcases, etc. He is not building a lot of houses as he is getting older (he is 70 now). He was born and lived in the town his entire life and knows the weather, winter and what to do with the work.

I too believe that #2 is playing a little with the lowball... and I'm afraid that we have to use some change orders with him. He was not giving me the itemized expenses though asked many times.

I think you just answered your question.

+1

"He was not giving me the itemized expenses though asked many times."

Kiss of death, IMO. Go with the first one. (Or start all over again, but that sounds painful.) If you want the garage drywalled, add that with its cost to your contract.

#1 may be better for fewer change orders. But don’t count on there “only” being a couple of grand in change orders. There will be tons more than you think. That‘s just construction.

Be sure you have that 15%-20% contingency fee put back. If you don’t spend it on the build, you’ll need it for the window coverings, and other things that you will need to get the home ready to live in after construction.

Why not go to all the vendors and pick out your materials. Then put these costs in your allowances, then you would have a true cost. You could always change your mind but this would get you make your final selections but this would get you close. This is what I did and ended up about 5% over budget in the end. Also don’t forget to budget for landscaping. Do you have a HOA and do they require a plan review fee?

The biggest issue that you are going to face is massive cost overruns because the design isn’t even finalized yet. And you are pulling and pushing it into something much more costly, and not nearly as attractive, and into McMansion territory. It’s not evolving for the better, and it wasn’t great to begin with.

The design needs to be finished before you can even think about “bids”. A good builder can’t account for unknown costs, and there is way too much unknown about the basics of this house. You’re only focused on the jewelry costs, and the dress and underwear isn’t even picked out yet.

Jay S - no matter what builder you use, don't go into a contract expecting to need change orders later. Change those things BEFORE you sign the contract.

A bid is a starting point for negotiation. You don't have to sign what they present to you, you can require them to make changes before you sign (and if they won't, you can move on to someone else -- obviously there are some parts of a contract that they will never be willing to change, so you have to decide if those are acceptable or if you want to find a different builder).

If you don't like the allowances, ask them to change the allowances to something that is acceptable to you before you will sign it, rather than expecting to go over your allowances later. It is MUCH easier to deal with this stuff before there are two signatures on a page. That's true of any contract in life, not just construction.

GreenDesigns, sorry, it's not started with an impeccable design where I live. Here is what's done in the area by home owners.

1. There are big lumber and building supply companies where I live. Customers go to a draftsman with these lumber companies with their ideas or plans you have and explain everything. He designs a plan and the owners sit with him 3-4 rounds to make the changes they want or until they are satisfied. The biggest advantage is that these draftsmen know the pricing of all the materials and if requested, they give pretty good estimates on the project. Remember, the customer haven't even seen a builder yet, but gets a pretty decent estimate. I know some eyebrows are frowning, but they are pretty good with that from experience.

2. Once you like the plan outline, you go to the builder to get the ball park estimate. This is to avoid the waste of money with an architect if the builder gives a much larger estimate than your budget and the design is too complicated to change. Draftsman cost only $250 and if you buy products from the stores, which is guaranteed almost, they reimburse that money.

3. If the initial estimate is comfortable with the customer, then they have two options.

A). Go to an architect and get the plan optimized. this will save lot of time and effort as the architect already gets a pretty good idea about the plan and needs and the specifications. It gets into the details from there with listing all specifications and the exact bid/estimate until all parties are on the page.

B) if you like the plan and the estimate, go ahead with the plan that the draftsman provided. The funny thing is that, in my neighborhood, people were so happy with the draftsman from a specific lumbar company that no one ever went to an architect. I visited four houses he designed and they are just beautiful.

I'm at stage two now. We like the plan even though many here including you doesn't like it. But, that's fine. I have been to houses which are similar to mine and I like the flow and functionality. it may not fit others but this is the flow exactly me and my family wanted.

I may not go to an architect as I like the way the design is turning now. It's more of an agile house construction way than the waterfall way... it may not work for others, but is working for me so far.

If you're trying to apply agile principles like SW dev into home building - it's going to be a rude awakening.

failing fast costs big $.

just_janni, I'm an agile project manager... I use building a building to differentiate between agile and waterfall. Thats not what I exactly meant here.

Unless you are "cost plus" itemized expenses are meaningless, but allowances and how they are treated are telling. Most builders are fixed price as most lenders demand it.

#1 looks like the best fit. If you are still considering #2, have the builder match allowances with your selections.

Lol , are you going to have sprint session every morning asking what flooring contractor is working on? That theory will not hold up for house building. You should know the difference between discrete manufacturing and process manufacturing.

Have you researched lawsuits, complaints with licensing boards, simple google reviews, better business bureau, Dept. of Consumer Affairs, etc?

"Unless you are "cost plus" itemized expenses are meaningless, but allowances and how they are treated are telling." Jeffrey R. Grenz, General Contractor.

AMEN! and AMEN!!!!!!!!!!!!!!!!!!!!!!!!!!! (the extra !!!!!!!!!!!!'s are a nod to Robin)

The difference in the builders' allowances are more than just dollars and cents. In my opinion, the differences correlate with the quality level the builders are assuming. The builder who's included higher allowances in his estimate has a different-- and higher level quality--- vision of your home in his head.

What Janni said about agile principles. LMAO. Rude awakening is being kind

PS. Ask me how i know

Contract types are frequently interchanged on this forum but are essential to understand as one does not get to treat their build like cost plus in one aspect, and then treat it like fixed price in another aspect.

Which is this contract? One doesn’t know for sure but can assume with allowances it is likely a fixed price contract, so in this instance, one is getting a price for the job, not itemized lists of costs. Fixed price contracts can and often do provide fairly detailed bids, but this is not the same thing as the builder opening his books to you. If you want that, then proceed with cost plus.

On the topic of markups, expect to pay markup on cost plus or fixed price contracts, as the home buyer should and does on any product they purchase. Trying to remove half the materials from mark-up as frequently suggested on this forum is asking the builder to work for less amount with greater risk. More expensive and complicated materials are frequently more to project manage, more effort in labor and skill to install, and CERTAINLY more risk for the builder should some of these materials need replaced during the build or the warranty period.

If one paid markup on $5,000 worth of counter tops but changed to $25,000 worth of counter tops with no additional markup, it’s easy to see how the builder is in a terrible spot if he had to replace $25,000 worth of counter tops on a $5,000 worth of mark-up fee. Simple math really.

Mark ups never cover all the potential things that can go wrong in a build, but they are a way to manage risk, which is real in any build. Increasing risk and work load to the builder by adding lots of expensive and complicated materials to manage without correspondingly applying the mark up fee is essentially asking them to take more risk for nothing in return. Many, especially those with sound business sense, will refuse to do it, rightfully so.

Thanks, Jeffrey R. Grenz, General Contractor. Thats what I'm coming to.

I asked both builders about the Mark-ups on allowances. This is the answer.

Builder 1: 99% of his customers use the allowance money and buy materials themselves. Example, a customer deliver all the lighting fixers and he subtract $4000 from the total bid. He said that in last 5 years he promote that as so many lighting speciality stores came in the area and fixtures are available online and customers seem happy with it. Essentially, he is not getting any mark up in that case as I'm going to use the whole 4000 any way. If someone sticks with the fixtures he provide, he will get a contractor's price from the local store and in most cases he will pass it to the customer. In the case of flooring, Same with plumbing, appliances and countertops. I'm going to use more than allowances and paying the extra from my pocket. So he is essentially not getting any markup from it.

Builder 2: He said we can take the allowance ($2000) and buy our own fixtures or I can give him a list of things I prefer and he will try to provide most of them. But the catch is that I wont anything I want for 2000 bucks. So, the way he work is to get discount from local stores and adjust the price all together in the total price of materials.

Sloppy approach to design and construction. I wish you luck.

I totally understand it RES 3d. But this is the way the close knit rural community where I live works... I lived most of my life in big cities and was not comfortable initially. But the houses they make are beautiful and people are happy. I think that is important.

"But this is the way the close knit rural community where I live works..."

That doesn't mean you cannot do your build the proper way. Your money, you need to dictate how you want to spend it.

"But the houses they make are beautiful and people are happy. I think that is important."

While that is an important end result, you need to remember that 6 figures of your hard earned cash is paying for this. Your money, you need to dictate how you want to spend it.

But this is the way the close knit rural community where I live works...

The process you are describing is not unusual and it is not unique to your close knit rural community. This is probably the method used by about half the communities in America, however, that doesn't mean it is the best way for you.

Most of the people here who had an architect design a house that fit the site and their needs were bucking trends and throwing a wrench into traditional methods in their communities. In the end, you are asking the builder to build a great house for himself, just as he has apparently done many times in the past, and you are going to get all his value judgments instead of yours. Which is fine, most of America buys new houses the same way, but it seems you are wasting the opportunity to build the house you want.

@Jay S Thanks a lot for making me homesick. I grew up in a place like the one you described. It was a small farm town where everyone knew everyone else and their siblings, parents, grandparents, uncles, cousins, etc. Homes, garages, and barns were built and remodeled with the most basic of plans produced by homeowners or draftsmen, no contracts, no permits, no licensed contractors, and no inspections. And it worked. It worked in part because things were simpler then, but more so because people in the community--both builders and their customers--had a high level of personal integrity. I like to think it's still the case.

The dotting of "i's" and crossing of "t's" we do today--with plans, specifications, permits, contracts an inspections is a well-intended effort to guarantee the desired product, quality level and customer experience during the construction and warranty periods. But no level of detail or specification on paper can overcome a builder/remodeler or client with low integrity.

Just an update.. I had a meeting with a local bank for construction loan and the guy asked builder's name. As soon as he heard builder#1, he said "wow, it's good. He is well reputed and we have done loans with him for many years".

I made my choice... thanks all for helping.