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GC fee questions

Posted by six172 (My Page) on
Fri, Mar 21, 14 at 14:46

Hello Everyone,

I just had my budget meeting with my GC so I'm still trying to get my head wrapped around a very large number. However I have some questions about what is standard practice for the GC's fee on the build. Is it standard practice for the GC to add their fee to the total of the bill or just to select items in the build? Specifically my question is why am I paying a flat percentage 10% on the cost of the lot, and the permit for the city fee? I understand paying the fee on the labor, materials, as well as the subcontractors and such. I am certainly not against my GC making money off of me, I understand that he needs to eat also I am just curious if this is standard or not.

Thanks everyone.


Follow-Up Postings:

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RE: GC fee questions

I think both are common. If they add their fee to the total it probably averages to a similar amount if they just selected a few things to add it to. For example,10% of the total bill can be the same as 20-30% of just the bigger categories. Look at the bottom line and whether you think its reasonable, not how they get there necessarily. That's my 2cents anyways. If the GC wants X-amount for the job, they are going to get it one way or another.


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RE: GC fee questions

I have never in my life heard of a GC charging a % on the lot!! They are making 10% for doing NOTHING????


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RE: GC fee questions

For a contractor's mark up on the lot and city building permit, it means they must have done something that's add-value to each. Is that the case? Are you in a design-build or other sort of turnkey venture where the contractor provides everything, including the lot and building permit?

Good luck on your project.


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RE: GC fee questions

Essentially that is the case here. I found the lot and went to a builder associate of mine and asked if they would be interested in building us a house on that lot. I bought the plans for the house online and provided them to him. We were going to buy the lot and then have him get the construction loan, but he said it would be easier on the finance side to just have him buy the lot and at the end of the deal we just pay him for the whole thing. Which was fine with me, we gave some earnest money about $15K to show we had skin in the game and to get some things off of the ground. They presented the budget breakdown to us the lot is $70K and the city building permit is $40k. I see in the budget line by line how everything shakes out and I have no issues with what we are paying up until the end. The sub total shows everything including the building permit and the lot and then they add their 10% fee on there. Their fee at the end of the project is going to be around $40K for the whole thing. For a house that is going to be around $400K with their fee, I'm just not so sure those things should be included in the fee. I don't know how this all works so that's why I came to you good folks.

Thanks


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RE: GC fee questions

He is selling you a complete product, he can and should make money on the complete product.


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RE: GC fee questions

40k for a permit? Where is that?


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RE: GC fee questions

ditto on that permit fee!!. That's outrageous!!! If the GC is charging 40k TOTAL for his fee, that is very reasonable.
millwork......Lots are sold at x amount.....WITH should the GC make an EXTRA 10%??
I hope you're getting several quotes on this build.

This post was edited by robin0919 on Fri, Mar 21, 14 at 23:08


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RE: GC fee questions

good luck with your project

This post was edited by Renovator8 on Sun, Mar 23, 14 at 8:19


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RE: GC fee questions

Only 10%? That's low.


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RE: GC fee questions

good luck with your project

This post was edited by Renovator8 on Sun, Mar 23, 14 at 8:21


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RE: GC fee questions

Sounds like the house itself is 250K (400-40-40-70), so the GC fee is exactly 16%of that. Otherwise it is 11.1% of total (360,000*.111=39,960)
I guess if the GC is carrying the financing on the lot and fees, then a finance charge comes right out of that GC fee. I don't know what sort of interest rate the GC has with a bank, but let's say it is 4%. The land and fees will be financed from the beginning, so a years worth of financing is $4400. Not figuring interest on any other materials/labor, this nets your GC (40000-4400=) $36,000. Figure that the averaged finance amount on the house will be about half of the actual house (2500000/2=125000) with a years interest of 5K. In addition, everything that I read on here says a bank charges 5% fee on each draw (125000*5%=)12,500 is what you would be paying in fees to your own lending bank not including interest. So figure some of this stuff in for how much you would be paying different to this guy versus someone justdoing 10% of house cost (250K*10%=)25K. You may be further ahead with tthis GC to let him finance the whole build. However, the house really is his until closing in this case. That would drive me nuts, but I have some control issues.
I hope my math didn't confuse you, and I will be happy to clarify it. My degree is in finance, so my instinct is to compare actual costs of one build to actual costs to another build. I am also assuming a 4% interest rate, which while close, is obviously not exact. If the GC happens to have cash to finance the build himself, he would be better off putting it in the stock market that putting gas in his truck and driving to work, so I am assuming bank financing for him too :)


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