Home Builder Negotiation Questions

[dave1949]

Very good advice from Eddie and others about the money management aspect of home building.

I would find a builder/contractor that will really work with you to reduce your personal financial risks. Besides paying only after the work is done satisfactorily, another way is to set up a construction account at a local bank and pay for all materials directly yourself - not through the builder. Building supply companies will give you the same discount as they give the builder if he is in good standing and willing to cooperate with you.

Insist the builder opens dedicated accounts for your home build with suppliers and be clear that you wish to be able to audit the materials on the account versus materials delivered to the site.

This takes the guess work out of the situation where you hand the builder a large check and hope he is current with payments to suppliers. There is really no reason to put yourself in that position. I would walk away from any builder who tries to give you reasons why he 'just cannot do that' for the materials.

On the subcontractor payroll side of things, be willing to audit that process also by asking the subs if they are up to date on payments from the builder/GC.

These are what I think are common sense and common business practices that would reduce the chances of getting in trouble on the financial side of building. Keep in mind, you are running a business while your home is being built.
Dave.

 

[beppington]

Dave ... To me, if you're gonna oversee the details & accounting to that extent, it's just another reason to act as your own contractor. Maybe he could hire a licensed bldg contractor to be his assistant, so he's still in primary control of the project.

 

[dave1949]

Dave ... To me, if you're gonna oversee the details & accounting to that extent, it's just another reason to act as your own contractor. Maybe he could hire a licensed bldg contractor to be his assistant, so he's still in primary control of the project.

Not a bad point. The main difference is most people are capable of auditing a financial process and counting materials, but they may not have the knowledge, time or desire to get involved at the owner-GC level. Best of both worlds for many would be to pay for the knowledge and resources of a competent builder while maintaining strict control over the finances.

Businesses spend a lot of time and money auditing, counting and verifying. There is a reason for that. Just saying, it's a good way to do your home building business too.
Dave.

 

[thatguy]

1. When people say a house costs $135 a square foot to build, what all is included in that price. It probably varies from builder to builder, and I'm sure whatever it includes is in a contract. But, does it normally include a septic tank, water hook up, electric hook-up etc or are those "Extra costs"?


2. I want my builder to do most all of the work, but I figure I could negotiate with Lowes or someone for carpet installation and I could do the interior woodwork myself and I might do the tiling of floors. I'm guessing that builders like to do all of the work, because they can utilize their own subcontractors etc and more work is more money. So If I say I will do this, this and this by myself, but I will give them the opportunity to bid the whole thing, my concern then is that they will inflate the main price and say, "Well you only save X amount by us not doing the whole job."

Any insight into how to handle this?

My answer to #1 - ours included driveway (gravel), septic, well, HVAC, water heater, expansion tank for well, Kitchen appliances (allowance), faucets (allowance), lights (allowance), guttering, burying the gutter runoffs, sidewalks, screens for the windows, 1 yr warranty, gas logs.. We paid extra for the shower doors and garbage disposal because we didnt think to include those in the quote.. We also had to buy our own toilet paper holders, towel bars/hooks, bathroom mirrors, medicine cabinet..

We have a detached 24x36 garage, walk up unfinished attic (1300 sq ft - i think it would be considered a 1.5 story house), and a 2000 sq ft living space.. Based on talking to other ppl in the building industry i 'think' our cost was about $110/ft main living, $50/ft for garage, and $30/ft for unfinished upstairs. These prices include any extras/upgrades we did that were paid out of pocket.

2) IMHO - UNLESS you are really qualified I would not attempt to do some of the work yourself.. The biggest thing a GC does is coordinate subs - and if you are going to do something that has to be done before a sub can finish you will end up taking longer to get finished (and costing you money on the interest you will be paying on your construction loan).. Especially if you work full time and are trying to install stuff after work/weekends..

Also if you buy stuff that is not the same quality (ie Lowes/HD dont carry the same quality as where contractor supplier does) and it breaks the builder wills say "i just installed what you gave me"

ALSO - if the builder buys and installs it, you have HIS warranty if something goes wrong.. Otherwise its up to YOU to get it repaired/fixed/replaced..

I know one friend tried to be his own GC, but after figuring it all out he didnt save any money.. The builder will get a better discount than you can get at Lowes and the friend didnt have the headache.

just my thoughts

Brian

 

[EddieWalker]

I've had clients do this. They make copies of the receipts and try to figure out what is what. It sounds like a great idea, excpet it's impossible to know what everything is by looking at the receipt. They ask me what it is, and even though I bought it, Idon't have a clue what some of those codes mean in describing what it is that I've bought. If I have thousands of dollars worth of things on a receipt, there's no way of knowing what they all are. If it doesn't get used, it goes back to the store. I will buy more then I need so I don't have to go back to the store. Then I return it and credit the client the difference.

Be careful on how much extra and unneeded stress you want to add to the process of building your dream. This could be the best time of your life, or it could become your worse nightmare.

Eddie

 

[aczlan]

I've had clients do this. They make copies of the receipts and try to figure out what is what. It sounds like a great idea, excpet it's impossible to know what everything is by looking at the receipt. They ask me what it is, and even though I bought it, Idon't have a clue what some of those codes mean in describing what it is that I've bought. If I have thousands of dollars worth of things on a receipt, there's no way of knowing what they all are. If it doesn't get used, it goes back to the store. I will buy more then I need so I don't have to go back to the store. Then I return it and credit the client the difference.
Be careful on how much extra and unneeded stress you want to add to the process of building your dream. This could be the best time of your life, or it could become your worse nightmare.
Eddie

Some builders might charge more if you tell them them up front that you will be auditing them like that due to the extra work needed to explain it to you.

Aaron Z

 

[s78wingrider]

Wingrider you are missing a few key points.

First, was your help covered by Worker's Comp and a liability policy? Were they paid on the books or by cash? I'm a builder and my comp and liability add up to about 25% of what I pay in wages. Add in the associated costs of putting an employee on the books with Social Security, payroll tax, unemployment insurance etc...

Second, you make it sound like builders are getting rich. Nobody around here is, myself included. Should they do it for free or is it OK for them to make enough money to feed the kids?

Most of my work is done on a cost plus arrangement. I give the owner a detailed cost estimate based on the plans. I bill them my discounted cost for materials and subcontractors, and a fixed hourly labor rate. I then add 10% at the bottom of the invoice. The 10% covers my profit and overhead. If the project exceeds the estimated cost I suspend the 10%, basically working for free to finish the job.

This has proven to be a fair system for both parties over the 15 years I've been in business. Neither the owner or builder are at any risk and the owner knows exactly how much I will make on the project.

Communication and trust are the keys to successful construction projects. I do mostly high end custom homes and renovations. Many of them are second homes and the owners are not around much during construction. Typically I'm in touch with them almost daily, on the phone or emailing progress pictures.

My advice is to find a builder you like and have an open honest conversation about your expectations. Ask him what his profit will be and how he marks up materials and labor. If he won't look you in the eye and give you straight answers find someone who will.

Guess I should have said also, builder's don't make enough! Found out when building my Daughter's house, it's a 24-7 JOB because it was all I thought about through the whole process! :confused2:

 

[soal man]

Although, I did get alot of good info, I didn't directly see answers to my questions below

1. When people say a house costs $135 a square foot to build, what all is included in that price. It probably varies from builder to builder, and I'm sure whatever it includes is in a contract. But, does it normally include a septic tank, water hook up, electric hook-up etc or are those "Extra costs"?

We should be moving into our home by the end of this month. Some of the quotes we received included the septic, water, and electrical hook-ups and some of them didn't. The builder we hired would not do any of them. I did the electrical and water and I have hired a septic contractor to put in the septic system after I obtained a permit from the health department.

To me, when someone says it costs $135 a ft sq to build a house, only the heated and cooled areas are considered.

2. I want my builder to do most all of the work, but I figure I could negotiate with Lowes or someone for carpet installation and I could do the interior woodwork myself and I might do the tiling of floors. I'm guessing that builders like to do all of the work, because they can utilize their own subcontractors etc and more work is more money. So If I say I will do this, this and this by myself, but I will give them the opportunity to bid the whole thing, my concern then is that they will inflate the main price and say, "Well you only save X amount by us not doing the whole job."

Any insight into how to handle this?

I had our builder bid on the whole house without me doing any of the work. I then went back and had him give me a bid with me doing some of the work. He then gave me a line-item amount that he would reduce his bid by if I did that portion. This went on for a long time until we finally reached a deal that both he and I were happy with.
I ended up doing all of the electrical, insulation, and about half of the flooring. In all honesty, I have probably cost myself an extra month's interest on my construction loan and have delayed the builder from receiving a couple of draws when he normally would have. Throw in the stress, aggravation, and loss of sleep for the last few months and I can say I wouldn't do the electrical again unless I had plenty of free time.

My advice to anyone is to take your time in planning and negotiation of the contract. Be specific in what you want and what will be provided. Specify type of doors, finishes, water heater, HVAC SEER rating, etc, and make sure it's written in the contract.

I'm in a rural area and I didn't have any trouble finding people to bid on my house. I actually had people calling me and asking to bid as they had heard from others that I was going to build.

Good luck!

 

[Dogballs]

I've had two clients ask me to provide cost documentation of all materials that went into their house, right down to each nail and screw. I'm happy to do it, but I make it clear that I need to charge them my hourly rate to put it all together. Both were fine with paying me to do it.

Normally I don't bill out the time it takes me to put invoices together because that's just the cost of doing business. But photocopying hundreds of material slips almost doubles the time it takes me to put together a monthly invoice.

 

[beppington]

In all honesty, I have probably cost myself an extra month's interest on my construction loan and have delayed the builder from receiving a couple of draws when he normally would have. Throw in the stress, aggravation, and loss of sleep for the last few months and I can say I wouldn't do the electrical again unless I had plenty of free time.

Re: My suggestion to be one's own contractor: If you do it, it's good that you get to make all the decisions ... but it can also get old because you have to make all the decisions :laughing: & figure out how to handle all the problems.

The good thing is that once you're done at least you know how the problems were handled, that it was done the way you wanted, that nothing was covered up or done in some half-@ssed way (unless you told 'em to!)

Each person's experience would be different, of course, some would go smoother than others, etc. For me it was no walk in the park. It took some real determination to push on thru to the end. I tend to be kind of a perfectionist. It also didn't help that I was 22 at the time, & I wanted to be out partyin'! (slow to grow up? Nah, I'm never actually growing up :thumbsup