Builders percentage question

athensmomof3July 26, 2010

Just got a bid back from the builder we want to use. He has worked with our architect LOTS, plus he has excellent taste himself and a good eye. He is not going to be the cheapest which is fine with us. . . just want reasonable.

The builders fee was 10 percent of the cost of the build. What is an appropriate range? Does the percentage go down as the price goes up? It sounded like a bunch of money to my husband for 10 months (estimated time frame) of work . . . considering he has a couple of other things going on as well.

I do have the utmost confidence in him after talking to him about various things and him giving me the precise right (GardenWeb checked!) answer.


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Do you understand all that his 10% covers. This is not just his wage.

It covers all his overhead from business insurance to cost of his vehicle. His warranty work when things need fixing. Just a few of the things he has to pay for.

10 percent is on the low end. 15 to 20% is the going rate here.

    Bookmark   July 26, 2010 at 6:42PM
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I thought it was on the low end. . . hence my question about build cost. This is a pricier than average build, so he is making in the 6 figure range.

Thanks for the input!

    Bookmark   July 26, 2010 at 6:46PM
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There is no reason you can not try to negotiate the percentage.

The homes in that price range around here take 16 months to and upwards to finish. If he can meet that deadline he may be saving you a bunch in interest fees and would be something to take into account.

    Bookmark   July 26, 2010 at 7:19PM
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He actually gave us a 9 to 10 month estimate. He is busy enough that he has a number of subs that have a lot of loyalty to him so he does not have a lot of hanging around time . . . when he calls, they come. He is also a smart guy, second generation builder but with a real head for business and also for the technical aspects of the build. We have had a couple of friends who have used him for similar type builds and he has been in that time frame for them as well. From what I understand from friends is that he schedules his subs like clockwork, so little down time. Good point about the interest though!

    Bookmark   July 26, 2010 at 7:27PM
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I paid $80k for a 4-5 month build. This was much more than 10% - you are getting off with a good deal. Does he have staff that he pays a salary too. Really - I'd be concerned at that price that he works on kickbacks from subs.

    Bookmark   July 26, 2010 at 7:40PM
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I don't know how a kickback would work. I have hard copies of all estimates from his subs that he included in his estimate. Some he got several quotes from. Others he only got one - like the foundation guy and the drywall guy. Both he said were always on the lower end in pricing when he got mutiple quotes but they did excellent work, came when he needed them, true craftsmen type folks so he didn't see any reason to get other quotes (although I am sure he would if I asked him to). He just liked to use them, thought they were very reasonable in price and high quality work. He went with the mid range window quote (which was 77k) versus the high range (102k), etc. Did a Grand Manor roof quote (48k), which was the least expensive version priced. My husband did ask him about that - as several things seemed to have a little wiggle room in them.

As far as the quote goes, I think it was quoted a bit higher on a number of things. His roofer said he quoted a bit higher because his suppliers didn't like to give firm quotes more than 30 days out so he erred on the side of being more generous. There were a couple other things like this, which were noted on the estimates. So if anything, the estimate may be a little high, which may inflate his fee to a degree. He also did say he may be able to work these down a bit but that generally didn't happen until it was a firm job - carrot and stick idea. He said that more as well if we save x on the framing then you may want to do something a bit pricier on your lower level patio.

He did offer to do a firm price guarantee, which he said he never used to do before the bottom fell out of the market.

It was very interesting though. He does a good bit of work at Reynolds Plantation at Lake Oconee and had the builders yard there price out some things. The concrete price in Atlanta/Athens (where we are) is 12.00 a yard less than the concrete price at the lake (Greensboro GA). He priced both and is getting the concrete from the Atlanta area supplier.

I do trust this guy as being honest - we grew up in the same neighborhood, my parents know his parents (his dad is also a builder), and my husband delivered one of his kids. Maybe he is doing a big snow job on us but I am a skeptic (maybe the lawyer in me) and I trust him . . . zero sleeze factor! Plus he has been doing business under the same name for years and years . . .

Here is a link that might be useful: Builder website

    Bookmark   July 26, 2010 at 8:00PM
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We paid our builder about 10% of the cost to build, with a fixed price contract. We did not pay the percentage on places where we added/went over- it was a fixed cost to build. We had many bids on our home, ranging from 6% (that guy came down in fee but we thought he was low balling the bid) to 15 % (that guy got run out of town by his debtors- phew!). The 10% was pretty typical, although I believe they used to charge closer to 15, until the housing crash... Our builder is also very busy, and I am sure it is a combo of quality and pricing.

    Bookmark   July 26, 2010 at 8:18PM
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I just talked to a friend building in Atlanta and from what I understand builders fees in Atlanta range from 9-12 percent right now for top quality builders, so I guess it is a combination of the market and our area? Although I think the builders in that price range in Atlanta are mostly building much more expensive houses than we are so these percentages mean more money for them . . .

    Bookmark   July 26, 2010 at 8:32PM
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We did a cost plus 10% deal. And that was 10% of the labor, no materials, so estimated about $13,000 for a $260,000 house. He also provided labor himself (mostly framing and electrical) and earned more money that way. We could have had a fixed price contract, but chose to do it this way because it gave us the opportunity to save a little money. Which it did because we came in under budget.

    Bookmark   July 26, 2010 at 9:20PM
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We also paid 10% and our build is going to be 10 months. We are probably at a similar price point. Sounds about right.

    Bookmark   July 26, 2010 at 9:58PM
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We are paying slightly over 10% to builder.... first started talking in Nov/Dec. to discuss floor plans,.... the house should be done next month :)

    Bookmark   July 27, 2010 at 12:45AM
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If the contract is for Cost of the Work Plus a Fee of 10% of that cost, the fee is as low as I have ever heard of but what you need to pay attention to is the definition of "Cost of the Work". Does it include any of his office staff or offsite overhead, how much of the work does he do with his own forces and what are their rates, are any allowances reasonably accurate, how much rental of tools, etc.?

Kickbacks are simple. A sub gives back part of his compensation to the GC under the table. If this is done in the form of a discount paid at the end of the year it is still illegal but hard to discover. Since a Cost of the Work contract clearly specifies what Cost means, a kickback is fraud and can be prosecuted as mail fraud. A GC would have to be a complete fool to take that risk but it still happens.

    Bookmark   July 27, 2010 at 9:04AM
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Kickbacks can also be in the form of billing one job high( for example a cost plus job) and billing the next fixed bid job low. Doing work and not billing for it on the builders own properties.

The dishonest will find a way.

    Bookmark   July 27, 2010 at 9:32AM
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Yeah - I've heard of a percentage fee and then the builder bills hours for a supervisor. Then there are the change fees.

Athensmom - you really have estimates already for every sub and you've looked at them? I'm impressed because I was involved in a lot but I can't say I looked at the Port a potty invoice or the cleaners.

I don't think there were kickbacks involved in my build but it would be quite easy. It could be as simple as an electrician charging $4 a sq ft for your house and charging hime $3.50 for a spec house or a fixed price house. The electrician is ok to work for $3.50 when it benefits the builder knowing that he'll get $4 at times when he does a cost plus (or variety of). Discounts after the fact in the form of year end rebates after your build is done. Anyone who has been in long term business relationships with people can come up with a million ways to do this. Most small businesses work for nearly free sometimes in exchange for more profitable work. I'm a physician and I take care of an uninsured patient from a steady referrer. The insured patient pays more to make up for it and it is all perfectly legal (in the most regulated profession there is). I think everyone knows this happens particularly at the hospital level.

I'm not at all saying that this is going to happen to you (as I don't for 1 second think it happened to me), but it would be naive to think it is impossible. It really is par for the course in perfectly non corrupt people. Like I said, I do it all the time, as does every MD/hospital that takes care of uninsured people. Different situation entirely but the concept is the same.

    Bookmark   July 27, 2010 at 9:41AM
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Macv - I actually think the 10 percent fee is pretty standard in this part of the country (Atlanta area). I know of two folks building houses right now. Both are in Atlanta proper, and both are doing a fixed fee contract. One is paying 9 percent and one 12, with different builders. One builder only uses his subs (the 9 percent guy) and one negotiates everything (the 12 percent guy). The 12 percent guy is building 3 big, expensive houses right now and is getting some great negotiating power (negotiating for 3 houses instead of one) and doesn't charge for change orders (unless they are major changes to the scope of the work), which is why that person went with them. Both are very well respected, long time builders, who work with very well known architects in Atlanta.

The builder we got prices from has built with our architect multiple times and came very highly recommended by him (he also works consistently with several other prominent Atlanta architects). It has been my experience that architects, at least around here, have a handful of builders they like to work with and work with over and over. I guess it is easier on the architect if he knows he and the builder are on the same page and he can trust the builder to have a critical eye for detail. The two houses in the above example are both being designed by the same architect and both being built now. The architect recommended both builders to his clients, both interviewed both of them, and each picked a different one.

As far as the kickbacks, I obviously don't have every single quote but I have over an inch of paperwork from 250.00 to termite treat under the slab on up. It comes down to trust I guess, and I figure when someone has been in business 20 plus years under the same name, has personal referrals from 3 friends, is highly recommended by our architect (and several others he builds for regularly), etc. there is not reason to be overly suspicious.

As far as physician billing goes, yes it is fine to treat a patient for free. But it is illegal to waive a copayment as a courtesy and accept the insurance payment, although it happens every day (and is offered to me regularly in a small town as a doctor's wife but I don't take them up on it because I know it is illegal). I guess there are all sorts of kickbacks and it is impossible to think of every way there could possibly be a problem. . . again comes down to trust (with some due diligence thrown in)!

    Bookmark   July 27, 2010 at 10:20AM
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There are innumerable ways a general contractor so inclined can benefit beyond the stated fee that you'll never know about. (I remember one general who would brag about the $50 K he picked up in referral fees from subs on a single not so major home build.) But I don't know what better recommendation you can have of the builder in question than his reputation and examples of his previous homes.

I would normally never build for cost plus 10%. But since you're suggesting a building cost of $1million plus, then it would make more sense, especially for a builder with several projects on the go.

    Bookmark   July 27, 2010 at 12:31PM
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We are paying 9%, but all the other quotes were at 8%.

    Bookmark   July 28, 2010 at 12:52PM
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Don't know if this is germane because we are in rural Central Texas and our build was completed four and a half years ago: our builder percentage was 14%. The build took fourteen months and then some. It was supposed to be completed in twelve.

    Bookmark   July 28, 2010 at 5:37PM
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We're in Chicago and will be paying our builder 15% with a "cost plus" contract.

    Bookmark   July 29, 2010 at 2:35AM
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10% is normal. If a builder is below 10% I would question them. They may not have a lot going on so that's why they are shooting low. And why don't that have a lot going on? Maybe the builders who are better are busy and they are more than likely at 10%.

In building you generally get what you pay for.

Good Luck!

cc: construction services

Here is a link that might be useful: Construction Contracting and Project Coordination Services

    Bookmark   April 1, 2011 at 12:32AM
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I enjoyed looking at the builder's photo album!

    Bookmark   April 1, 2011 at 7:11AM
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@athensmomof3 and others: I was doing a search on the forum and found your post, when you said the builder charged 10% of the cost of the build, that does not include any labor fee in general correct? My builder quoted me 12% as overhead but we also see a list of different labor fees (for brick work, drive way, tile work etc) in our total build cost. Thank you for your help.

    Bookmark   June 9, 2012 at 10:45PM
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No - 10 percent in addition to the cost. So the masons charged their labor and we were charged 10 percent on top of their labor as a fee for the builder and to cover the builders supervision and overhead.

The way your builder did it is standard and what they mean by cost plus . . .

    Bookmark   June 9, 2012 at 10:55PM
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thanks for confirming!

    Bookmark   June 9, 2012 at 11:04PM
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We're paying 10% but our builder is also open book and we can see every receipt. Open book is getting you awfully close to full disclosure.

    Bookmark   June 10, 2012 at 8:08AM
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We're paying 10% but our builder is also open book and we can see every receipt. Open book is getting you awfully close to full disclosure.

    Bookmark   June 10, 2012 at 9:03AM
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A "Cost of the Work with a Fee" contract (commonly called "Cost Plus") should always require the builder to show the owner proof of all expenditures for the project. Any discounts or kickbacks from subs or suppliers must reduce the Cost of the Work.

The so-called "open book" should consist of an itemized "budget" that is updated with actual buy-out prices and expenditures each month thereby providing the owner with an increasingly accurate prediction of the final cost.

Such a contract will often require a contractor to present multiple bids to the owner for subs and suppliers.

    Bookmark   June 11, 2012 at 8:33AM
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We are doing 10% of the sticks and stones not total cost. 10% is not calculated on the the lot, architectural, engineering, building or sewer/tap fees or contingency which the bank required. We are in the $1.5M range. We are in Colorado. We received 3-5 bids for each component and we select the sub contractor with full price/invoice disclosure. We interviewed 10 builders and all had the same contract and percentages ranged from 8-15%.

Good luck with your project.

    Bookmark   June 11, 2012 at 10:58PM
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I will be building a custom home in a few months. I am looking for a builder in the Atlanta metro area (not north of perimeter). I am looking to engage a quality conscious, custom builder who can work at 10% ideally but would consider a rate between 10% and 15% as I consider the early input on structural and practical value engineering ideas of great value. My architect has not started construction drawing so it would be valuable to get the right builder involved so there is more meaningful coordination between the architect, and builder earlier on. Since our build budget is not extremely generous. We have to do quite a bit of value engineering. Also we will be taking care of our own interior design and make a lot of decisions ourselves. I saw several people posting here are from Atlanta proper, could you contact me or post for suggestions of builders you have used who can work at 10% or between 10-15%? Thank you.

    Bookmark   September 24, 2014 at 5:18PM
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