GC bid

jasperdogFebruary 11, 2012

We have gotten bids back from two general contractors. The pricing for material and labor is fairly similar between the two. Bid A has the profit listed at 5% and overhead at 6%. Bid B has the profit listed at 11% profit and 10% overhead. Any thoughts? 11% total seems reasonable. 21% seems painful and the price of the project is currently beyond our limit.

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I'd be VERY suspicious of any contractor that only charged 11% to build a home. That is super cheap and you may have issues with someone like that. 20% was the going market rate for a long long time, and it's only recently with the downturn in construction have you seen people willing to cut that figure. Many of those who cut their percentages too low will not last----and may not even last through your job.

    Bookmark   February 12, 2012 at 12:09AM
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The Builder/GC percentages could depend on what part of the country you're in. I'm in the south and thought I'd always heard the profit/overhead was around 10% or so total.
We've built all of our own houses so I can't say I have any direct personal experience with that though.

I did just find a very interesting article about it on The National Association of Home Builders website.

Check out this link:http://www.nahb.org/generic.aspx?sectionID=734&genericContentID=169974&channelID=311

FROM SITE: "Not surprisingly, the share of sales price going to a builder�s profit has dropped from 8.9 percent in 2009 to an all-time low of 6.8 percent in 2011 (see historical comparison in Graph 1). The remainder of the sales price is divided between overhead and general expenses (5.2 percent), sales commission (3.3 percent), financing cost (2.1 percent) and marketing cost (1.5 percent). Each of these shares is similar to the breakdown in 2009".

    Bookmark   February 12, 2012 at 1:49AM
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Interesting NAHB numbers - so I would read that as 7% profit and 5% overhead when changed to a custom built home. The problem with those numbers is that is not really for a custom built home - those are probably Toll Brother's numbers which may not be similar to a local 2 or 3 houses a year custom builder. I would expect profit and overhead percentages to be much lower with a national builder.

I am pretty suspect myself at 10% but 12-15% in today's market is probably right. But obviously it is regional and should be lower in the South.

    Bookmark   February 12, 2012 at 6:31AM
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I wonder how these contractors spend 5% to 10% of the construction cost of their projects to run their businesses. I suspect some of them make up an overhead number in order to lower their proposed profit percentage. Maybe the surviving contractors in my area are smaller but I can't remember ever seeing the two numbers broken apart in a proposal. The markup range has been 10% to 18% and their overhead has shrunk to near zero in the past 3 years. I'm surprised they aren't sleeping in tents on the job site.

    Bookmark   February 12, 2012 at 9:45AM
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Thanks you for the responses. That is very helpful. We will negotiate with GC B for a better price as this is who we would like to work with. Hopefully we can come to an agreement that works for both of us.

    Bookmark   February 12, 2012 at 10:58AM
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