Home Builder Negotiation Questions

[rgood]

Guys - I appreciate your help and I got alot of good information - To answer some questions - No, we are not building in 2011 - And as far as I know where we will be building there is only inspection for the Septic Tank and for the electrical, so it's not like there are a group of inspectors I can draw info from.

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"?


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?

 

[dmccarty]

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"?

Depends on what is in the contract.

It could also be the price of the land. If the house was in the city the cost per square foot would likely include the cost of the land.

If we looked at the contract price we had with the builder to calculate the cost per square foot the price would have included everything including the power, well and septic but not the land. In our case I contacted the power company years before building the house and they ran underground power to the house site well before we started building. The builder managed the connection from the transformer to the house.

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."

Up to you and the builder. We did not use any contractor's we had found. The GC used his contractors. We did pick materials used in the house such as the brick, windows, doors, trim, shingles, paint colors, kitchen stuff, bath stuff, hot water tank, recessed light cans, light bulbs, appliances, etc.

The well pump and pressure tank were put in by the well driller. I wish I had had some say on that matter. The HVAC I picked the brand used.

Some of these things we brought or had delivered to the house site. For other material he did the scheduling.

One thing you have to keep in mind if you start picking and ordering materials is that you need to make sure that those items get to the house when the subs need them. Otherwise you can mess up the building schedule.

If YOU do some work it is even more of a risk to the builder. And the schedule. I did all of the out side stuff on the house but that did not effect his schedule or get in the way. One time there was a job I could do, trench with the back hoe from the house to the well, but I did not feel that I could get that trench dug in time. So the plumber did the work. Which mean I paid for it since he had to rent the equipment. I did bury the lines in sand and covered the trench since I could do that without effecting the GC.

But I felt I needed to stay out of the way digging the trench even though it likely cost me a couple hundred dollars. Which is chump change compared with the total project cost and the cost of having a delay.

I designed the house. He built it. I stuck my nose in to verify he was building per the design. He only missed a few things which we resolved easily. Other than my checking on things I stayed out of his way. We had one major risk in the house. One of those things that can go really wrong.....

We did not like the front elevation of the house. The wifey and I could not get it the way we wanted. Then, in the middle of framing, the wifey finds a photo of a house for sale. The house had the front porch design detail we had been wanting but not getting down on paper.....

We printed a photo of the house for sale. I met with the builder and framer. Using the ink jet printed photo, we sketched out the elevation change using a cube of bricks as a drafting table. :laughing::laughing::laughing::laughing: We came up with a design. We nailed the design and printed photo by the front door.

They built it.

We got what we wanted. At the very last minute. But THAT was a gamble. That sort of design change is very dangerous. It can be very expensive and I would not recommend that approach. :laughing::laughing::laughing:

But it worked. :thumbsup: The only reason I did it was because I trusted the builder and framer to get it done right. And they did. But do not do this.

Later,
Dan

 

[WM75Guy]

It sounds like you want a home like Jim Walters Homes built. They went out of business in 2009. You could get the home XX% complete, like 80% or 90% where you could finish it out depending on what you wanted to do. One problem is financing. Most lenders want the house complete before closing. Walters financed their own. Another is warranty work. The builder can say your work caused a problem with his work and you get to fix it. To avoid these problems you either need to be your own GC or let someone else do it all.

 

[bstrom]

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.

This is a how a real professional operates and uses a good system for both parties. Find someone like this with a reputation for hard work, treats his subs, crew and you right, doesn't badmouth people and can finish the job and you will be all set.

Don't get an amateur who works for 20 dollars an hour and pays his people 10 to work skilled construction.

 

[ustmd]

Guys - I appreciate your help and I got alot of good information - To answer some questions - No, we are not building in 2011 - And as far as I know where we will be building there is only inspection for the Septic Tank and for the electrical, so it's not like there are a group of inspectors I can draw info from.

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"?


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?

As for number 1, in my experience, the $135/ft does not include things such as a septic tank (consider that a septic system usually runs $8k-20K depending on conditions). For the water and electrical, hook is usually include, if by hook up you mean the power company has run the power to the meter on the side of the house or the water pipe is within 20 ft of the finished building. If the contractor, has to run 1/2 mile of suppply pipe from the edge of your property to the house, it will be an extra.

As for #2, it all depends on the builder. When I had a GC build my house, he lined out each main activity with a price if he did it. For example interior paint was $900, (1 color) if I wanted him to did it, he would charge $900 (I painted). Other cotnractors will require you to outline what you want to do first before and the contract will clearly state that you will be responsible for carpet, etc and so it will never even come into the quoted price.

Don't assume that the contractor will want all of the finish work. I have done a remodels, where the GC was more than happy to hand off the finish work to me. As one said, "the finish work is where I get most of my callbacks and make the least of my money. Please do all you want".

Three things to consider:

1. Your builder has overhead and fixed costs that he needs to layoff on every project and a profit to make on every project. Those costs and profit requirements will not vary much based on small changes in the scope of work on a house build. For the most part, the builder still has the same fixed costs if you do the painting and carpeting, etc. He will just spread those fixed costs over the other parts of the project--some builders will even just have a flat line item for overhead that is independent of the cost of the project.

2. You can same some money if you can do some of the work yourself, but don't assume you can always get it cheaper sub'ing the work out to Lowes or other independent sub contractors. Two reasons: (a) Lowes and Home Depot Services have driven down the price that contractors can get for some of those parts of the projects specifically because the home owner can comparison shop and (b) the contractor is most likely getting a much better price from the subs than you can get on a 1 time deal and is passing that savings through (with a mark up) to you (isn't the free market great).

3. Becareful of what you take on in the project and how it affects the overall timeline. If you sign up for something and another activity is dependent on your part, you are on the hook, not the contractor. For example, if you decide to hang the sheetrock, the float, texture, paint and final electrical can't be done until you finish the sheetrock completely (everyone only wants to come once to the job).

Good luck

 

[phiferpharm]

I started down the path of having a new home built in North Florida last week. I just got the preliminary floor plan, and exact list of what will be included. To go directly to your questions it includes: Impact Fees, Ground prep and tree removal, Well, Septic tank, Electrical, appliances, and quite a few other items.

As a price comparison, it has 2173 sf of heated space, 557 sf entrance, and a 660 sf covered screen porch for just under 200k . If you would like to see a pdf of what it it looks like and what is included, let me know and I'll send you a pm copy of it.

 

[BruceWard]

1. A GC in my area would include all costs. You need to ask the GCs you are taking bids from what if anything is not included in their bid.

2. I would ask the GC to bid specifically breaking out the area you may want to do yourself. I am the GC for my house build. I bid everything out to subcontractors with the plan to do some of the work myself. I need a bid and the money in the budget incase I do not have the time to do that work.

 

[beppington]

If you're comfortable doing it & are a little patient & willing to run errands, you could consider acting as the "contractor" yourself. I did for my house in '92. My friends did for their new house 3 years ago - Their mortgage company required that they hire a licensed contractor, but when he turned out to be a loser, they fired him & did it themselves & the mortgage co never said a word.

You can save a bundle & be the boss.

The beauty of this is that basically the entire thing is under your control. You get to make all decisions, decide who's gonna be working on your house, fire those that turn out bad, etc. You can also decide to do some of the work yourself, if you know how to do certain things, & save even more.

 

[johnrex62]

Guys - I appreciate your help and I got alot of good information - To answer some questions - No, we are not building in 2011 - And as far as I know where we will be building there is only inspection for the Septic Tank and for the electrical, so it's not like there are a group of inspectors I can draw info from.

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"?

The answer is "It Depends". A generalization like price per square foot is intended to be applied to similar buildings in similar circumstances. In one area where homes are sold by a developer in a subdivision, it is helpful because all the homes have the same general conditions of sale applied to them. In another subdivision you have to discover if the conditions are the same and make any adjustments yourself. If one development has septic, then the price per square is including septic for homes in that developement, but if across the street they have sanitary sewers, then it is not part of the price per square but the sewer hookup might be.

Bottom line is you have to ask and never assume anything. Every case may be different and should be documented in your contract.

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?

This is very common in custom home building and even available in limited ways on tract and semi-custom homes. Ask and see what the builder is willing to permit. Some will let you do everything and they are content to take a 10% fee to handle permits and inspections, others may be very reluctant to allow you on the construction site until closing for liability or other reasons. You can negotiate anything in between figure head and full service package depending on what type of builder you get and how much they feel you can handle. Most will not allow you to take on critical tasks if they don't feel you have the capability to do it right because their reputation or paycheck is on the line if you mess it up. Cosmetic things are usually no problem. You do a crappy paint job, you live with it. You screw up the electrical you don't pass inspection and the builder doesn't get his construction draw. Very different scenarios so you can see how this might negotiate differently based on you.

In most cases, a builder will quote you a price based on his own experiences with material and labor costs. If you think you can handle a task and want to do it yourself, he will subtract his estimated costs for that task from the price and let you do it. You may often find that his costs are lower than your costs unless the job is mostly labor. Painting is a good example. His material costs may be a couple hundred less than you can buy for, but the labor is 85% of the job cost and yours is "free" while his is $15-$25 per hour (depending on job market and location of course. Labor is cheaper in "border states" a lot of times )

My father was a homebuilder for 50 years and I spent a good 20 years of my early years on the wrong end of a hammer and shovel helping him. When I built my own house I was too busy with a paying job to do it all myself, so I hired Dad as general and whenever I wasn't on the road I grabbed a hammer, paint brush, screwdriver or whatever. My Dad did everything else, including hammer work on the rough and finish carpentry. My job was paying performance bonuses with catalog merchandise to reduce cash payouts, so I was able to get my appliances through the catalog and move my appliance allowance to other upgrades in the house to keep my financing costs lower.

There are lots of tricks and techniques in building to allow you to reduce costs without sacrificing quality or even quantity. You just have to do a lot of frank talking with your builder to discover what you can and are willing to do to accomplish them. There are no concrete rules as to what is included or excluded on any given build or what is normal across the board because of all the varying conditions that could exist.

 

[EddieWalker]

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"?


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?

If you get a quote of $135 to build a house, then I would that to include everything required to be livable and completely finished. That includes your septic system and all other utilities.

$135 a ft is a high end home where I live. This means high ceilings, tile and wood floors, granite cabinets, tons of trim, rock and brick exteiriors, steep pitch roof with dormers and every other fancy, high dollar extra that a high end home comes with.

The big home builders have figured that about 1/3 of the cost to build a house is materials. The rest is labor and permits.

Where I live, homes are brick on the outside and the price to build ranges from the mid $50's on up. I've built brick houses with tile and wood floors in town with city utilities and sold them for $70 a ft for a nice profit.

Doing it yourself is a very good way to save money, but it is also a very good way to through away a bunch of money and get a house that you might be proud of, but not as good of a house that a person who has built a hundred houses could have done for you.

While doing part of it yourself sounds like a great way to save money, it doesn't always work out that way. Do you have to time to do it when it needs to be done? and can you do as good of a job as somebody who does it every day? Do you ever finish a job and think it's good enough? or do you see flaws in what you do, but think that nobody else will notice them? Are you a perfectionist that takes forever to get it right? Can you drop whatever else is going on in your life/work and get it done so you don't hold up the other subs?

I have clients want to save money and help out by doing part of the work. While they mean well, they rarely actualy do what the think they can, or do it to my satisfaction. They also have jobs and can only do the work after they get home, or on weekends. It rarely works out, and in my experience, I've learned to give them the bid for the job without taking into consideration what they say they will do. If we talk about it and they say they will do something, I will make a not of deductions that I can take off of the bid if they do it, but if they don't, then the bid remains the same. I've only had one client come through on this and do the work they said they would.

On a bathroom remodel that I did last year, the homeowner wanted to save some money by doing all the demo work on the old bathroom. He spent a month busting out tile and tearing things apart. I told him that he did a great job, but all he really did was make a big mess that wasn't anywhere near done when I was ready to start. He did all that work, but because i had to clean up his mess, repair his "oops" and finish it off. After all he did, he didn't save anything on his remodel because his "help" really didn't get it done.

Buying carpet from Lowes may or may not be what you want to do. Price and compare similar carpets from a flooring store. The pros use certain stores becaue they get better rates and higher quality carpet. Lowes and Home Depot like to charge per the foot instead of a yard. Do the math, and review the brands. I've never found a deal at Lowes or Home Depot that compared to my flooring store.

There are all sorts of builders out there. Most have a set amount that they charge. 15% for a GC is about normal around here. He handles everything for that and makes sure it's done right. If he's good and does his job, that's cheap. If he's a dud, doesn't follow up, doesn't make sure the subs are doing their best and creates headaches for you, then you will hate life and his fee is an insult. The subs are going to charge what they charge. What you really want is for them to be there when they say they will be there!!!! Showing up is going to be your biggest nightmare after sloppy workmanship. Most subs work for wages and do one job at a time. They make a living by keeping busy. Good subs are in demand, lousy ones have lots of free time. How will you know the difference? How will you know what the going rate is and what is fair? The GC isn't going to make enough extra by hiring the most expensive sub and taking their fees onto his percentage. The diffference is insignificant for him to do that. Besides, his fee is figured into the original bid and what he says he can do it for. That is your contract, and it's up to him to make sure the subs do the work for what he says they will. If he says he will build your house for $135 a fot and you want a 2,000 sq ft house, then his 15% fee is set and shouldn't change either way if he does the job he says he will.

Good luck,
Eddie