You have purchased property, selected an architect and interviewed several builders.
Now you are tasked with choosing a builder to make your dream home a reality. So how do you compare the various builders since none of them stack up apples-to-apples?
If you are finding that the contracts and quality of construction matches up evenly between all the builders that you like, then you may consider asking for a construction fee proposal. This will allow you to compare exactly what they offer you and how much profit they expect to make on the project.
The main topics normally covered in a fee proposal typically are:
- Pre-construction services
- Construction phase services
- Define overhead vs. billable costs
- Identify general conditions
- Billable project labor: craftsmen, administrative and management
Of the major factors that drive the contract cost of a home, the fee is one that the builder has direct control over. Their fee generally consists of overhead and profit and will vary from company to company. Depending on the services that are offered, the size of the company, and their aggressiveness within the market you will find a wide range of fee options put on the table.
You will invariably find that each company presents their fee differently. One construction company might offer a fee of 3% while another company may offer to build the same home for an 8% fee. At first glance you are probably thinking that you will hire the company that is only making 3% since it seems to reason that they are taking the lowest mark-up on their product. But will that really be the best choice for your home? What you might not see is that they really have their profit buried in another line of the budget like carpentry, for example. If your builder is wearing bags and pounding nails every day while providing oversight and management then that 5% difference in fee could be buried in the carpentry budget. But you must consider if are they able to fully manage the project if they are also working full time as a carpenter on the jobsite. It could very well be in your best interest to have a full time superintendent on the site to ensure that all the trades are maintaining your desired level of quality. Consider asking for a breakdown of the construction budget so you can see where your money will be spent.
Also, a low fee does not equate to a lower overall construction cost. You may see that the company presenting the smallest fee proposal will have a higher contract price than their competitors. It might not make sense, but each and every company will take a different approach to bidding your project. Don’t let your contractor play a game of hide the pea with your money. Ensure that the relationship you are entering into with a builder is one that you feel comfortable with. And most importantly, be certain your contractor will build you a perfect home.
