It's not a cash flow issue. It's a pre-screening procedure. It's normal for some high demand builders, or tradesmen in many industries. It weeds out the customers who are mostly dreamers and not serious. It's usually the ones with the best reputation and who are the most in demand that do this. If you are wanting to use them, it's what it takes to get in line with them for the dance. You will find that many professionals require some type of initial retainer to take on clients.

What live_wire_oak said.

Keep in mind that early estimates are worth exactly what you paid for them. And they certainly are not binding. Don't be surprised if the actual bid for the construction contract does not correspond to the "estimate". There's so many reasons for this that there's not space enough here to list them.

Good luck on your project.

Some builders will bid few jobs and will get most work through referrals followed by straight negotiation.

What it means is that this builder is asking you to select him as your contractor on the basis of his reputation rather than a ballpark bid on an incomplete design. It also means he has enough work to risk such this approach. Make sure he can fit your project into his schedule. Also make sure you have a contingency fund to cover the reduction in cost control a negotiated contract might create.

Who will create the construction documents, you, the builder or an independent designer?

I can speak to your question as I did pay a builder 2500.00 to assist me in developing the specifications for my home, make suggestions to improve my blueprints and submit my plans for scoring by the National Green Building Standard. After those tasks were completed, the builder was able to give me a very accurate bid. I had met with and received bids from 3 recommended builders prior to signing the "Professional Services Agreement" with this builder. I went into the exercise believing that I would be paying for the expertise, time and effort of the builder. And that's what I received.

It may not be the way you want to go but I found the experience to be invaluable. I learned a tremendous amount and have in hand 13 pages of very detailed specs for my new home. From start to the finished bid, the process took just over a year working hand in hand with them and my house designer. Btw, I live 200 miles from where I'll be building.

The builder assumed throughout the process that I would be choosing them to build my home. That is not the case. For several reasons, I will most likely go with a different builder. The freedom to ask as many questions as I wanted and to get professional input was certainly worth 2500.00 to me. While not paramount, having my home rated for energy efficiency was good to know. If you have the time and the money, you may want to have a go at it. It worked well for me and my situation. It's a great tool.

Study plans and an off the cuff estimate isn't worth jack. When it comes to having real world numbers, better add at least 20% to the guess, plus have at least a 20% contingency fee. This builder is telling you that if you want to be serious about the project, it's time to BE serious and get some hard numbers. He's seen too many people get sticker shock and fade away when those real numbers come in higher than other no committment guesses. He needs to be compensated for his time to work with you. And you need to decide if you actually want to do this project or buy existing for less.

I'm sure you're paying well above that number in architectural fees. Or, you should be if you want to build a custom home. The two services compliment each other. The architect will give you a good design based on your needs, and the builder will help to keep your design choices grounded in your budget.

Hollysprings, I love your answer.

I paid my builder a similar fee, at the same point in the process as you are. I don't think it was quite $5k - but still, I do remember it was a fairly good chunk of change.

Yes I agree generally, it is not a cash flow problem, it is wanting to be paid for services rendered.

A very detailed bid can take 40 hours where as you can do a ballpark in four hours. I disagree that a ballpark is not useful or is necessarily inaccurate. At this preliminary stage all they can do is make guestimates.

When I was building I had a pretty good understanding of costs and what was typical or not.

I do not think that a builder asking for money in advance is a good indication of quality or how in demand they are. (some people simply want to make sure they are paid for any work)

I would never sign this sort of contract except under the condition that BuildinginTXhillctry described above where you are simply paying for preliminary building services.

Why don't you ask him?
Let him know that you got your ballpark from 2 other local builders without a fee, and you are wondering if he is understanding your ask in the same way they did.

This will do one of a couple things--he'll dismiss you as not serious (and then, you'll work with one of the other 2)
or
he'll explain his process, which is really what you are after. When you know his process, you'll also know better whether or not you can work with him.

My question is how do you compare bids then? Pay 3 different GC's 5K to see how they line up? We are bidding out a job right now for my work and its hard to get a comparison bid. I GC is writing us up a bid estimate based on the general specs we gave him, the other is putting together the same and the thrird GC whom we have used before won't put a bid together without several thousand dollars. It puts me in a weird spot. Due diligence says I need to compare before buying right?

Right. And, you decide if you are going to spend 1% of your build budget on preliminary GC stuff.

We had an issue similar to this for a remodel. In between when we had used this GC for an addition a couple years before and when we were going to use him for part II, he changed his business practice to this format--charging for "designing". I had it all designed already, but they had changed programs. In the end, I tried to negotiate that if I didn't accept his bid, that I'd get to keep the design, and he didn't agree to that. It was one of the things that soured the relationship. I did go ahead and decide that we'd pay his fee for the "design" of it all so we could get a number out of him and because he was a known quantity to us. We liked his work fine from the addition.

But, in the end, the communication was not there that we'd seen before. He was grumpy, and uncooperative in this "design" phase, and so we decided to essentially let him go before he had hired him. Though, we did "lose" our design fee, and I had to start over.

For us, that was unfortunate, but better than the alternative of sticking with him because we'd already paid some (small amount, in the grand scheme of things) and suffering through the my way or the highway mentality. We had another 2 recommended GCs, who we went with (they work together at times, and on our project one was the GC, the other was the helper...) In the end, the price was much less, the communication was outstanding, and we are very happy with our space.

Yes, I paid for a designer to work everything up for the bids to avoid the GCs doing more work than necessary. I think we are in a similar geographic area. Outside Seattle, we are in Renton for this particular work-related job, would you mind passing on your GC referrals. I still one bid for comparison. We are remodeling 3000sq foot basement of a residential home to accomodate a family living downstairs.

In my experience the bid is part of the builders cost/time/responsibility. It's what they need to do to earn a client. Our detailed bid cost us nothing and before that we were working off a spreadsheet estimate with a price range/options/upgrade list. Our builders sales person's job was to get the bid within the spread sheet range and he said that he was able to achieve t that on 90%of jobs. I would be totally put off by having to pay them for a bid. Our builder BTW is a highly reputable high end builder. Maybe it's more of a regional thing though.

I suppose that you could simply choose them based on quality and references.

Cost is not the only factor.

I feel a contractor should be willing to give a ballpark estimate so you can make comparisons of what work is done for a particular price. That is the nature of their job, and they factor that in their overall income. When building we found there was someone who usually came in double what everyone else was. An experienced builder knows a general cost per square foot...both for basic and high end.

We've done the fee upfront thing before. I would not do it again. You have no idea at this point if that builder is someone you feel you can work with. Maybe it was our bad luck, but everyone that pulled the fee thing with us turned out to be awful people once we got past the fake smiles and nicey nice.

By the time you've talked to people and gotten ballpark estimates you will have a pretty good feel as to who you want to go with. Most people do not base it solely on price, but by their general gut feelings and rapport they feel. At that point you can talk specifics if there are upgrades you want. I found that during the ballpark estimate the upgrade estimate could be compared with the basics, helping you decide if you want the upgrade or not.

Reputation, quality of work, how mistakes are dealt with, how well you hit it off with them, and work ethics should be your main deciding factor once you know the price is falling somewhere it should be. Most people make a final decision based on that, even if the contractor isn't the lowest bid. Personally I would not pay a $5,000 fee for an estimate.