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Exorcising old demons - how to control costs

Posted by mtnrdredux (My Page) on
Sun, Nov 25, 12 at 12:24

We just finished a gut reno and addition to our primary home (2.5 years in the making) and we were very dissatisfied with our GC. And, though we did set out to do a no-holds barred project, I now realize that a lot of what I chose was needlessly extravagant, ie that building without real regard to costs upped the costs significantly for probably only marginal enjoyment, and, of course, adds little or nothing to resale.

So we now we are starting a new vacation home project (I will call it a new build though not sure if we will be a tear down or massive gut and rework). This time, I don't want to end the project feeling as I do now; ie, that I was ripped off by the GC and also that I wasted money due to my own poor choices. ( I mean poor in the sense that the reward doesn't justify the expense).

So... this time, I am entering into the project with costs in the forefront of my mind. Perusing this forum, my preliminary plan is a simple rectangle with simple roof line, rectangular rooms in multiples of four to save on materials and labor - where possible, plumbing lined up in the same area of the house, uses the existing foundation, etc. I am going with an unfitted kitchen because I like them and it will cost less. I am choosing basic tiles, flooring, lighting, BA fixtures. No rainshower heads and glass doors, etc. No heated floors (i forgot to how to program the ones I have here, and never turned them on, not once).

I will be deciding in the next few weeks or so on builders and architects. What I am looking for is some advice on how to minimize those costs. I am not trying to be unreasonable, but surely some people control those costs better than others. And on high end projects, it has been my experience, a lot of professionals and trades are used to dealing with clients who don't pay any attention to costs.

So, a few neophyte questions (one project doesn't make me much more than a neophyte):

1. If I really do know my footprint, floorplan, and have a good idea of the elevation I want, should I hire my architect hourly instead of as a % of the project? Is that something only junior architects agree to?

2. Has anyone hired a builder as a consultant during the design phase as a second set of eyes costing things? I refuse to believe that the only way to build is to end up taking twice as long and twice as much.

3. Like everyone, I hate spending my time picking out items, then telling my GC what I want, then having him buy it and mark it up 25%. I understand that they are assuming many risks when they do that, and I understand they need to earn a living. With 2x4s, I understand. But with, say, a Viking Stove, I don't get it.

So , a few questions re working with a builder.

3a Does anyone do a whole house on time and materials?
3b Can I insist to see all the bills so that I know they keep to the agreed mark up?
3c How low can markups go?
3d What can I exclude from them and buy myself? Eg lighting, bath fixtures, kitchen appliances
3e Can i bring in my own guy to to finish carpentry and built ins?
3f What is the best way to make sure the builder is paying the subs. How practical are lien releases as you go.

Thanks, again, for all of your help.


Follow-Up Postings:

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RE: Exorcising old demons - how to control costs

Re subs & payment, lien release etc. IANAL, but my attorney said 10% retainage of every payment to be withheld until 30 days after completion is pretty standard. He said it was important to hold it until after the handover (30 days) because that was the time limit for liens. It's possible this could vary state by state. You should consult an attorney to review and advise you on negotiating a contract of this magnitude.


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RE: Exorcising old demons - how to control costs

FWIW, our builder has told us that it is our responsibility to buy the appliances. If that's what you want, I imagine you could tell your builder that.


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RE: Exorcising old demons - how to control costs

Oh yes, sorry if that wasn't clear. We will def use an attorney, as we did last time. But the collective experience and wisdom of GW makes a powerful supplement to hired professionals, I've found.


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RE: Exorcising old demons - how to control costs

I am an architect and I have always worked for an hourly rate with a budget estimate for the time needed for each phase of my work. If I go over my budget I would be expected to have a good explanation. I sometimes set a not to exceed price if the work is clearly defined. I would only ask for a fee based on a % of the construction cost for a multi-family or commercial project.

Time and materials means setting hourly rates that includes the GC's OH&P for all workers ahead of time. It is far too unwieldy for use on a house with multiple subs; it is normally used only for small jobs where only one contractor is involved. An entire house could be done using a Cost of the Work plus a Fixed Fee to achieve a similar result if a lot of unit costs for labor are included.

Any payments based on markups of the contractor's actual expenses must include the original invoice that the contractor paid. There can be no exceptions.

One of the dilemmas incurred in single family house design and construction is that there is no incentive for a builder to use a contract that gives more control or protection to the homeowner than would be found in an ordinary Fixed Price contract with a lot of Allowances that often include labor as well as materials. Accepting such a contract is a classic homeowner mistake. The only way I know to avoid it is to hire an architect to represent you and to write the specification and contract.


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RE: Exorcising old demons - how to control costs

Oh yes, sorry if that wasn't clear. We will def use an attorney, as we did last time. But the collective experience and wisdom of GW makes a powerful supplement to hired professionals, I've found.


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RE: Exorcising old demons - how to control costs

mtnrdredux,
I have had a similar experience regarding 'over building' versus enjoyment value. I have done things to our house that was excessive for the neighborhood and my pocketbook.

Since then, we did 1 moderate sized project where my DH was the GC. It saved a lot of money and allowed us to make choices regarding how we spend the money. This is probably not something that you can pursue due to the distance of your vacation home.
3a Does anyone do a whole house on time and materials?

I think time and material actually can end up costing more money because the GC does not have the incentive to reduce the cost. I have never done a 'whole house' on time and material but we did a large remodel on T/M. At the time, it seemed like a good idea. Now I don't know.
I think a better way to build a house is to create a 'shared risk' between the builder (payee) and the owner (payer) in terms of cost over runs and excessive delays. I am not sure how that is done but I would look at the contract structure of large commercial buildings and get ideas from there.

3b Can I insist to see all the bills so that I know they keep to the agreed mark up?

Yes. We have.

3c How low can markups go? You need to ask what the local standard is right now.

Each region has its 'current' mark up. Our most recent small job had 18% GC mark up. Yikes, I thought.
3d What can I exclude from them and buy myself? Eg lighting, bath fixtures, kitchen appliances.

All of the above. However, you need to work with designers and builder closely so that all materials are available in sufficient quantity when needed. If they are not there, it causes delays. Delays cost money to the GC. They have to pass on the cost somehow to the owner that was responsible for the delay. If you are buying items yourself, the timeline has to be specified on the contract and the consequence of not meeting the timeline.

3e Can i bring in my own guy to to finish carpentry and built ins?

We have done this on smaller projects. In essence, we were the GC for the smaller projects. I am not sure if the GC will agree to this. For the GC, the most of the money is made on the finish work of the a house, not the shell of a house. The more expensive the house, the more money goes into the finish work.

I have used multiple GCs. We have finally settle on a very experienced honest thoughtful GC that really understands the building practices that makes the buildings last.

I work in a field where experiences are learned accumulatively through years of work experience. Building houses is no different. Inexperienced builders are learning on the job. You don't want to be someone's first house he/she builds.

We use our GC quite a bit since we have rental properties that need to be maintained. There are aspects of building that is not showy but will create a house that is weather tight, will last decades without leaks, rots, infestations etc. You need to find a GC that can do this and also create an esthetically pleasing house. I would find a quality builder that has demonstrated building houses that last; no leaks, settling, cracking etc decades after he has finished the house. Once you find a quality builder with experience, work with him/her to come up with a mutually agreeable contract. Most good builders will want to build a quality product for you since they have pride in what they do. Good luck.


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Hey Mtn! It's nice to hear your experience since I'm working on our forever house and had to give up the radiant heat because of the cost. What do they line that stuff with, gold?
So our GC wants nothing to do with buying appliances or lights. He put in our contract, with no input from us, "Appliances and decorative lighting fixtures to be supplied by owner." He doesn't do developments and said most of the custom builders he knows also don't want that hassle. I think that's a reasonable request for you to make in a custom build if it's not your builders default practice.
As for cutting costs, is there anything salvageable in the house? The property we tore down on our new build had great solid wood kitchen cabs. They were 50 years old and in mint condition. While we're not using them in our kitchen, our GC removed them and put them in storage. We're going to try and use them in our laundry room and playroom. If the home has a fireplace mantel or even salvageable doors that's another place to save. Also look at the smaller things like door knobs.
Oh and back to cabinets, have you thought about IKEA? If I were doing a second beach home again I think I'd seriously consider that route and also their wood counters stained and waterloxed.

And then for time and materials... We did an extensive gut on our current home with that and I don't know how I feel about it anymore. If they took a week longer than planned for something, we paid for it. By the end I wanted to hear a fixed price or at least a less elusive price than "About 3-4 weeks of labor and about 2k for materials." If you go that route you just want to make sure you're not working with a slow poke :)

I'm very excited to be a fly on the wall of this project!
Christine


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RE: Exorcising old demons - how to control costs

mtnrdredux has posted on one of the key issues in homebuilding and this thread should probably become a reference thread for all of those involved in designing and building.

Expenses can be controlled in a variety of ways:

--Through a disciplined and realistic approach by the owners, from beginning to end. What are your true needs and what are your hopeful wants? Do you know the difference, and can you stick to the important differences?

--Through design and some necessary compromises. To achieve a well-designed, balanced home, it will be necessary to blend plan, elevations, interior spaces and finishes into a good wholistic solution. Don't let the tail wag the dog: you don't need a 15' X 20' laundry room with cubbys for all the kids--an 8' X 8' room, with washer, dryer, laundry sink and large double closet will suffice!

--Well documented plans and specifications for all of the work that the builder must provide. Leave as few loop holes, subject to interpretation as possible. Have documents that show everything that is important to you, the way that it is important. This is called "knowing what you will get for your money"!

--Find an experienced builder, that is, one who builds custom homes and not stock, repeatable standard construction, which is to say, a builder who will build what you want, not what he/she want to build, the way they like to build. By definition, this means a builder with a custom-home track record of success.

--Choose the type of construction contract best suited for your situation. A Fixed Price contract, by definition, will have a lot of contingency fees built into it by the builder, since he/she cannot predict exactly what it will cost and the time it will take. A Fixed Price contract will normally have a higher initial cost, than say, Cost of Work, plus Fee.

--Changes: minimize them! If your construction documents are thorough and complete in the beginning (and you've confidently approved them), resist the urge to upgrade, fine-tune or change for no good reason. Change orders are how many builders compensate for an initial bid that is "too good to be true"! Remember the value of discipline for owners.

--Construction and Contract Administration. You may be the type of person who readily enjoys the challenges of reviewing all of the builder's monthly invoices and dealing with all of the many decisions, confrontations and conflicts normal to construction. If so, this is the time for your direct and close involvement. If not, consider retaining your architect for these normal services, which architects are well-experienced in handling on your behalf. This also gives you an additional pair of eyes, and year's of experience, to represent your best interests throughout construction.

All of these will help save expenses and give you the house you want and pay for.

As for construction contracts, payments and liens, why not simply use the industry standard contract for construction from The American Institute of Architects, which calls for, among other things, a 10% retainage by the owner for every progress payment to be withheld until satisfactory completion of the project? It takes a lot of the worry off the owner.

Good luck with your project.


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RE: Exorcising old demons - how to control costs

Hi Christine,
Thanks, good to know it is common to have lots of exclusions. There were some last time, but since the design/build contract also included an allowance for ID work, that may be why not much was excluded. Particularly galling as all you have to do is scan my gazillions of posts to see I really did the ID work... for better for worse!

What should be salvageable is the foundation, septic & water treatment (both new). I like the exterior doors and interior doors and want to try to reuse all of those (tho sometimes that costs more than you save). I didn't plan on a fpl in the new house, but it's there and in a spot that will work, so we may as well keep it (supposedly it has a new liner). It has a new roof, but I don't like the roof line and I don't like what it does to the upstairs interior either. I do think IKEA has some good products, but I've always wanted a true unfitted kitchen. I have really thought it through and I think the way we use vacation kitchens and the space we have, will make it work. In my kitchen in my primary house, we take a up a ton of room because we have multiple sets of dishes and serving pieces, and special use baking, cooking, and appliance items. I have gone 7 years with a vacation home that did not have a springform pan, or a cake pan shaped like a horse head, or a silver tray, or a food mill. This is why I know I can get away with a lot less storage at the beach. And, if I am wrong, in the future I will just add cabs.
We have done a few little projects around the house post-GC. We made over the pool kitchen, and then we did our "Itty Bitty Stonehouse" project. They have been time and materials. Partly because I am hiring the labor directly --- I pay the guy who actually does the work -- I have loved this model and had zero stress. I feel good about paying him because I know he works hard and is honest. And what it costs is what it should cost, KWIM? That's all I ask for. I suppose it is a pipedream to hope I can extrapolate that to a whole house!

Oh and I like watching your project, too!


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RE: Exorcising old demons - how to control costs

Hi Mtn!
Congrats on the new house project!!

While I definitely didn't do a good job keeping costs down, I did source a ton of stuff myself. I found all of our light fixtures, and I brought in people to do things my GC couldn't (fireplace, concrete sinks, etc.) He knew up front about some of the things I was doing myself and other things evolved (i.e. we didn't like his granite people so brought our own in mid-project). We had no problem because we had everything ready for him when he needed it, and we wren't charged anything extra for them working w/ our stuff or letting our people install stuff. I also let him know up front that I wanted to get these things myself because there were many things he couldn't get (antique fixtures, etc.)

We did get our appliances, plumbing stuff, tiles, etc. all through the GC but had no markup on any of that stuff. The plumbing girl commented our builder is the only one who lets her send the quote and bills directly to the customer because every other builder puts his markup into the bill. We had a fixed price contract with allowances for appliances, tile, plumbing, lighting, etc and an understanding that there was not going to be markup on those items. In areas where we ended up sourcing our own stuff that the contract called for the builder to buy (we ended up finding our own stair risers, for example), the builder just deducted our savings on those items from cost overruns in other areas. This would be the way I would do it again- I never got the point of the builder marking up the cost of products I buy, and in fact, the plumbing girl the builder sent us to matched online prices so I paid less from her to buy every item. I don't see why you couldn't tell builders you are working with to price things w/o a markup.

We did not work w/ an architect because we knew pretty much exactly what we wanted and our builder had a residential designer he worked with. We had the builder first and then discussed our needs with him and he worked w/ the residential designer that came up w/ a drawing.


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RE: Exorcising old demons - how to control costs

Kaismom,

Nice to know I am not the only one with "builders' remorse". : )
You are right, we can't GC the beachhouse for two reasons. 1. Logistics. 2. Ignorance! We still don't know enough to GC.

You are right about "shared risk". Or put another way, alignment of interests. It's hard to achieve.

I feel so stupid about the markup thing. Our GC said it would be 25% (that was what we had heard from others in town). I hope we can get it lower.

That is a good idea about agreement on how we handle the things we buy.

I guess I can just leave some of the finish carpentry out of the plans.

Last time, we chose a GC who had done a project very similar to what we wanted to do (expand and renovate with an historic look), and who we knew socially and thought we could trust. Alas, and I say this without qualification, they are thieves.

ANother good point to find someone who did a project 10 years ago and see how that looks!

Thank you.


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RE: Exorcising old demons - how to control costs

Renovator8,

Thanks for your input. I wasn't sure if asking for hourly rates was offensive!?
You have also made me see the architect role in a new light. I think I need to tell the architect that I need their cost management skills as much as technical and artistic skills?


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RE: Exorcising old demons - how to control costs

So the way Beagles did hers is pretty much the same as our arrangement. I can use people I want where he either doesn't have someone or doesn't care who we use. We pay those people directly and he doesn't do a fee unless he ends up really managing it. He does 10%, but I heard 25% more than not when I was researching.
With architects I imagine you're going to get a lot of what I got : if you're building in this location you should expect to pay up the wazoo (especially in my fees) and as an architect I will insult you for expecting to do anything but that. I learned to handle this by saying "Can I come and see your house?? As an architect of your caliber I imagine it will blow anything I can dream of away!". Of course all but one said No. :) Sarcasm is my best friend.
Another thing I think you could save on is finding someone to do built-ins and such off island and making a trip over to install since the cost of living and materials is better off island.
Oh and don't get rid of the fireplace! My GC and I were just talking about how expensive masoned fireplaces are today. If it's there and works, keep it! Or if it's on an outside wall, maybe see if you can save it and flip it for outside use.


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RE: Exorcising old demons - how to control costs

I just want to second the point Virgilcarter made about changes....make All the changes you want...on paper. But once building begins, then stick with what you've got unless the change is essential or will make a massive payoff. Changes are very expensive.

Also, I think you've taken the first big step which is awareness of the situation. Is the $12.59 knob really that much better than the $2.59 one? Don't they both do the same thing? I also think it can be fun to make bargains happen....the remnant granite for the guest bath works great with the green demolitions vanity and I found the backroom discontinued decorative glass tile to go with it. No one walks in and says, wasn't that glass tile discontinued?

Maybe set a cap per room of one or two splurges and keep the rest basic. Especially since, nowadays, you can find some really nice looking stuff in lowes and HD and the like so basic need not be painful.

Also, try to check out the local suppliers. I spoke with one home owner who really shopped and she said by buying all her plumbing fixtures from one local guy, she got far better pricing than anywhere else.

Focus on what really matters...engineering makes a home comfortable, so put money into making sure it all works...hvac, plumbing, electrical...

We saved money by putting the thick crown molding in the public spaces...we used much less in the private spaces, but the fact that it's there means literally no one has said, didn't you get skimpy with the crown in the back?

We saved money by shopping on the Internet....$550 hammered copper prep sink for $125 on eBay...custom made solid mahogany double front doors for $1200 vs $6000-8000 elsewhere...


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RE: Exorcising old demons - how to control costs

Annie,
We had a ton of change orders on our last project. The phraseology drives me totally batty, implying as it does some fickle dilettante redoing layouts at a whim. The total cost of our change orders was massive. However, most of them were due to VIF items, site conditions, the building dept not grandfathering anything anywhere, and things the GC forgot to include. We changed relatively little once we were underway. My goal this time is to make it even less! It's part of the reason I lean toward bulldoze and start over rather than deal with the complexity of doing gut reno and new roof lines and additions on 1925 house.
I think you have (no pun intended) hit the nail on the head. Bargains are usually more fun then splurges. I told my DH splurging on a build feels a bit like splurging at a dessert buffet. The anticipation is a lot more fun then the result.

Beagles, It's always good to hear how other people have structured their contractor relationship. I think the Amish influence our there in PA is an ethic we need more of around here!

Virgil, I am going to print out your checklist and keep those items in mind. Thanks for taking the time to post. As for the 10%, we did that last time, and it really didn't help. The GC was behind in paying the subs, so they would not work anymore, and the punchlist with us was quite large and involved some very big ticket items. So in the end, the math for the GC meant it made more sense for them to just walk away and forego the last 10%. Our lawyers said they will probably just start a new company under a new name if the subs or we try to sue.


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RE: Exorcising old demons - how to control costs

Do you really need an architect?

I know, that may sound like blasphemy, but we replaced an entire second floor (3 bedrooms & 2 bathrooms) and just used a draftsman. Granted, he worked in the building department of a nearby town, but the drawings were very detailed with exterior elevations, roof plans, insulation plans, etc.

If you have a simpler plan with simpler rooflines, you might find a skilled draftsperson who can translate your goals and needs into code-compliant plans that include space for HVAC and plumbing. You seem able to draw basic plans already and clearly pour your heart and mind into this sort of project.

Using a draftsman could save you a few thousand dollars (ours cost about $650 including 6 copies of the plans on large format paper). I don't suppose you're buying in MA, or I'd give you a referral in case Bruce would drive out to the coast :)

Purchasing your own materials: Yes for lighting, vanities, medicine cabinets, door knobs. No: I would not do it for plumbing fixtures, but if you know what you want and can give it to the contractor he can give you a decent allowance estimate (at least it will be close). And you have priced the windows already, so that's good.

Hiring another builder to double check your builders pricing? Ummm, I would not do this unless I did not trust my builder. I might be a sap, but I gave the guy the code to my garage which gave him access to the whole house as he built the new second floor. I trusted him. Then again, we had an agreed to price and he stayed within it. But, I would hire another builder to act as an inspector at different points. Like, when the framing inspection is done and the windows/roof are flashed in, the electrical and plumbing is roughed in, that sort of thing.

Last thought, are you limiting your search to those who advertise as "custom home builders" or are you also including people who do additions and large scale renovations? Your project, since you are keeping the existing foundation and septic, straddles the line between new build and big renovation. I mean, if a contractor can do a mother-in-law addition with kitchenette, full bath, and living space on a new foundation or build a new second floor on existing space ... Why is that so different than this project? You might find GCs who do renovations are more used to working within a budget. Sometimes there is a bias that if you can afford to build NEW then your wallet must be very deep.


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Hi Engineer,
I had not thought of the term "draftsman", but I had wondered if I need an architect with a "capital A" or a less exalted figure. I guess the issue is I probably do want someone who has enough experience to be my advocate vis a vis the builder. But, if i truly like my floorplan and truly stick to the footprint, I am not sure how much value I am leaving for an architect to bother with. The one thing I do need help with, and it's a biggie, is how to reconcile all the french doors and windows I want with the simple, highly symmetrical and restrained exterior elevation I am drawn to. Not easy I don't think.

I guess I think I should at least entertain the ideas of the best and brightest --- because what do i know? But then, I think ... if I am starting with so many constraints, what is there for anyone but a draftsman to do? I don't know. I will have to just have an honest chat with the (small) group of architects who I know do work in the area.

Our town bldg dept inspects at each phase, do you think that is insufficient?

In re finding the GC guy vs the renovator, I think you make a good point. I just worry if they have the depth they need. There will be a bias, no matter what we do, because it is an oceanfront home. We will never get the pricing that an inland local would, and I suppose in some ways that is fair, or at least progressive.


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RE: Exorcising old demons - how to control costs

We mostly stayed on budget by having a give and take approach. So if we splurged on one thing then we had to cut out something else. The most important thing you are doing is keeping your floorplan simple. That was our biggest extravagance. Some of splurges that did not provide good value:

1. We decided to have both our master and guest suite on the main level. This made our footprint( foundation and roof) much larger. Our rational was that we have aging parents and a main level guest room would be useful. Turns out our parents don't really visit us that often and who knows if they ever will.

2. We also put hardwood everywhere and carpet in the secondary bedrooms would have been cheaper.

3. DH insisted on having French doors from the master to the yard. I told him that he will never open them and I was right. Windows would have been a lot cheaper.

4. 2 powder rooms on the main level. one in the Mudroom and another formal one near the living room.

I have often wondered how I would do things differently if I were to do it again. My GC did not mark things up 25%. For example, when he got the bid for the plumbing fixtures, he forwarded it to me, that is what we paid plus 10% (cost plus). But where we disagreed on was labor costs. Those bids are elusive and not as concrete. For example, the plumbing bid did not include 2 water heaters so that would be extra even though there were 2 water heaters on the plans. And excavation was 40k over budget even though we hadnt changed anything and nothing unexpected had happened. Whenver we had a disagreement between a sub and us he never asked the subs to eat the cost or to explain. he just expected us to pay. If a sub made a mistake, I did not feel that it was fair to make us pay for the repair. For example, drywall repair bc the subs installed things incorrectly or framed things incorrectly. So as your bids are coming in, review them carefully and make sure they are detailed.

p.s. I love our heated floors in the master bath. Worth every penny- you must figure out how to program yours!


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RE: Exorcising old demons - how to control costs

Btw, on the question of draftsman vs. architect, see if the local building dept has any suggestions. That's who gave me the name of the guy we used (along with 4 other names because they can't make a recc). Or, if there is another town next to your town that is more blue-collar than the one you are building in, you could ask them for local suggestions.

I suggest that because I grew up in a town with lots of small farms and blue collar workers, but we bordered a town on the water that had a much higher median income. There might be a town near your vacation home with a similar vibe.

Our building inspector steered me away from the "big A architect" route because he felt they were going to charge me a lot more and layout something that would be way more expensive to build. That's probably unfair to most architects, though the one time I consulted with an architect firm they wanted $5k to figure out if we could put a deck over a first floor addition and draw the plans. That seemed like a LOT of money to me ... We went with a ground floor deck instead.


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RE: Exorcising old demons - how to control costs

I am reading some puzzling comments about markups. For a fixed Price contract the original markup quoted by the GC is included in the contract price so it is no longer relevant. It should only reappear when there is a Change Order. Most Change Orders are due to unforeseen issues (often caused by incomplete drawings, lack of designer experience or unknown subsurface conditions), work intentionally not specified in the drawings and listed as an Allowance, or a change of mind by the Owner. There's not much that can be done about subsurface conditions or changes of mind except to budget a contingency amount for them, but it is possible to greatly reduce the risk of cost overruns from Allowances.

Allowances should be avoided whenever possible but when you must use one it is essential that the scope and nature of the work be defined in the drawings (e.g., number, location and types of lighting fixtures, etc.) even if the designer has to guess. This puts the installation cost in the Fixed Price. It also allows the GC to include his material/fixture markup in the Fixed Price (when a Fixed Price is determined by negotiation instead of competitive bidding) and the resulting absence of markups for Allowances makes the homeowner much happier (as evidenced by earlier comments) at virtually no cost to the GC. Also, I believe the markup for Change Orders should include the GC's Profit but not Overhead which should be covered by the Fixed Price assuming the Allowances are a small part of the project cost.

But without complete drawings an Allowance becomes a small Cost of the Work contract within a Fixed Price contract and is often under-budgeted and over-marked up which is painful for the homeowner. It's just one of the ways a builder moves a project forward since the alternative is to ask the Owner for more complete drawings or to provide them themselves neither of which is good business for the builder. In other words, if you find yourself walking trough the house with the electrician pointing to where you want outlets, fixtures and devices, you can enjoy the money saved by not having a lighting drawing until you get the cost proposal for fixtures and installation with the GC's markup.

Unfortunately, in order to lower the cost of Allowances the Owner needs to make sure the written contract and the drawings are properly prepared and that is virtually impossible if the contract is in the form of a proposal from the builder that includes specifications in outline form and the drawings are prepared buy a designer/draftsman who has no other project responsibilities and will not provide any construction phase services. A lawyer can make sure the contract offers you legal protections but will usually have little idea of how an Allowance section should be written (a subject for a later discussion).

A construction contract should provide controls and protections for both parties but because the more experienced party is usually the GC, if the Owner has no professional representation he/she must rely entirely on the GC to protect both of their interests. That is a clear conflict of interest but surprisingly it often works out but sometimes it doesn't. It's really a gamble. Some Owners are comfortable gambling and others prefer to pay for some form of insurance.


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RE: Exorcising old demons - how to control costs

In re finding the GC guy vs the renovator, I think you make a good point. I just worry if they have the depth they need.

This is a very important point. The ocean front homes will have some of the harshest environment that a home has to face. I think you need someone that has made mistakes and learned from them in regards to the materials and building practices to use and avoid.

I am a firm believer in hiring experts for what they do best. I would not build a custom house without an architect. That is just me. Unless I am just updating what is there and not changing the original look of the house, I would not find a drafsman adequate.

If you are buying a house from a builder that builds several of the same houses, then you are hiring the builders' expertise to build a like-kind product. Many of the people on this forum are building such homes. They are not building a true custom home where everything is being done for the first time. For that reason, a large scale renovation is actually much much harder than building new because it is always a one-of-kind experience, as you know.

If you can find a builder that has done a similar project with the kind of look that you are after, then you may be able to get through the project without an architect. My back of the envelope numbers is that $150 to 300/sq ft x 3000 sq ft = $450,000 to $900,000 to give you a nice home but not something that is out of the 'ordinary nice' just for the builing (plus the GC/architect etc). For example, our friends built a house facing the Pacific Ocean that has a solid wall of glass without any visible framing. The glass is about 1/4 to 1/2 inch thick sky-scraper glass. This is not your typical budget minded build. There is no way they would have done this house with the number I threw off above. Their home is about the size of your ocean front home, not any bigger.

As you start this building project, you do need a budget that you can work with. If you need to be able to sell your home at a certain point, you do need to start with a budget that is in keeping with the local real estate. (if you are in the Hamptons or Nantucket proper, obviously your budget is quite different from a tiny town in Maine) I would start there to establish a working budget. Then go look at homes at that price point and see what you can get for that much. You can probably up the budget by 10 to 20% but not by 100% if you ever needed or wanted to get some/most of your money back.

Another factor that I consider is the liquidity for my kids when and if the property is handed over to my kids (or for myself in my old age). I do not have enough money where the kids will have enough to maintain the property in perpetuity (taxes and maintenance can be about 2 to 5% of the value of the property per year).I would want to make it so that the properties are sellable, which means that it should not be too over built for the area.

Once you establish a ball-park budget based on these external considerations, then you can start working with what is feasible in that price range. Either you will say, I am okay with that level of finish and quality or you will say, hell with the budget, I need/want more! OR I will find every bargain I can to stay within the budget. So either way, you are working with a budget.

Spend some time and educate yourself what different price points buys you in that area. Then you will have more information to work from.

A realistic budget will determine which direction you can and should go.
I wish you the best. I think Renovator has given you much good advice.


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RE: Exorcising old demons - how to control costs

Kaismom,

Thanks so much for your detailed and thoughtful response.

And you are right, the very thing that makes this property so special, practically jutting into the ocean, makes it totally vulnerable. That means you can't skimp on quality materials and construction.

I am definitely going to hire an architect. I guess I am trying to decide between one who, in this niche, is well known and featured in books and magazines, or if I simply need someone very technically competent, kwim?

The numbers in our market, for oceanfront, are $300-$350 sq foot. (please avert your eyes if you live in a normal part of the world and not in the Northeast or California). I have started every conversation with every builder and every architect by telling them I want people who feel that cost control and creative, efficient solutions are their forte. I can't believe it is absolutely necessary to spend that much. (see footnote)

I also think that people throw $300-$350 around because they can't imagine a house like we really want to build. They've never had clients at this price point that didn't want bells and whistles. For example, they all allowed that if I want an unfitted kitchen (which I do, mostly for the look, but I have thought through and planned out all the ergonomics of one, too) that could save 100k.

Our footprint is 2100 sq ft above ground and maybe 500 finished basement, plus a lot of covered porch area. Hopefully the builders are right and the foundation is usable. We also have the grading we want, and the utilities are all there, septic, etc. That all helps defray some costs. Even so, I think we could go up to 750 on the build and not have over improved for the market. So we have room that way.

We did look at all the homes on the market in our price range (ie what we paid plus assuming up to 750 to build). So we have a pretty fair idea of what can be supported.

As for carrying costs, that is one of the attractions of this location. Taxes are incredibly low. On a $1.8 million home, for example, the taxes are $6500. Our former primary home sold for less than that and has taxes of $45,500! That's apples and oranges for a lot of reasons, but, by any measure, the low taxes are a very big attraction of this place. In fact I would say it probably clinched it; in the other market where we considered beachfront, taxes on a $2m house were $22,000, for example.

Another very attractive thing is the rental market. The home we are buying was rented by the week last summer. I could see by checking the online availability calendar, it was booked May thru Sept. It rented for $4200 week - and we think it is a dump. A comparable pristine house we saw rented for $5500 a week. I had categorically said I won't rent it out, but now I am thinking we should design and furnish it with that in mind. That is a lot of money (yes, I know, we pay fees out of that and taxes, etc). But we aren't the kind of people who will want to spend every day of every summer there.

FOOT NOTE
The first house we saw when we went shopping was a new build and it was done perfectly. Really nice finishes, layout etc. All i'd need to ponder over would be throw pillows. I happen to know it was built by long time residents who are well connected, and that they built it on spec for resale. I figured that their builder and architect might be good choices for people who can give us good value. Know what? Their building permit indicates an estimated cost for material and labor of $411,000. I know people can play some games with that number, and it doesn't include everything ... but ... they built a very nice home with nice baths and kitchen and a similar size, and with much more complexity in the layout and rooflines etc.


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RE:re Exorcising old demons - how to control costs

Renovator,

Thank you for your post. Our last project was design build. I will not do that again and I want an architect to represent my interests in negotiations with the builder.

I had a mistaken impression of architects solely as artists, but now I know I want one in my corner to get the most i can out of my builder. That's insurance I will buy, since, as you have said, it is an unlevel playing field, with GC as expert and client as novice.


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RE: Exorcising old demons - how to control costs

You've already received some very good advice from those much more experienced than I. My only suggestion, and I don't know how well this would work in your area or at your price point, would be to insist on hard bids in writing from each trade BEFORE they step foot on your property. We did not do this with our framer and ended up about $11,000 more than we expected/budgeted. After that little fiasco I insisted that my GC get all bids in writing before work started so that when it came time to write the check there wouldn't be any surprises unless we changed the scope of the work ourselves. This worked very well for the plumbing, HVAC, electrical, sheetrock and flooring but the roofer was $1000 more than we anticipated (didn't get in writing - he started while we were finishing up framing) and the trim guys are finishing up and I stupidly did not press the issue because we're running up on a deadline to get the house done. Now that the crew has spent a whole day fixing their own screw up, I don't know if I'm going to end up paying for today or not and I could really kick myself for not getting that bid in writing.

We have a fixed fee contract with our builder - no matter how much our house ends up costing us to build, he gets the same amount of $$ when we're done which at this point is less than 10%. I don't get charged for change orders nor do I tack a surcharge on invoices. I pay his fee in 4 installments - when we pass framing/rough in inspection, when the interior is painted, when we obtain the CO and 30 after move in to allow time to complete the punch list. We pay all invoices/trades directly ourselves every Friday - our GC does not act as a middle man when it comes to finances.


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RE: Exorcising old demons - how to control costs

Parsonse,

Thanks so much for writing and sharing your experience. I love the model you used with your GC. I suppose in that sense your GC is almost more like a project manager?

Just to be sure I understand how you paid your builder, let's assume you specd the house and budgeted, say, 500k to build. Your builder said I want to earn $50k. Now that you are building, it might be costing you ,say $600k, but he still gets $50k, in installments. ANd his involvement with trades is only as a manager, you pay them and he has no paperwork or tracking or markup or liquidity needs, correct?

Thx in advance.


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RE: Exorcising old demons - how to control costs

Sorry, I can't remember if we discussed it, but if you choose to do a teardown and rebuild, have you considered manufactured housing? They do make very solid homes, so long as the boxes can be cut up into 16' widths....don't know if the constraints would be different for shipping to an island....

We were very attracted to the process, but didn't do it because our needs didn't fit their constraints. But in your case, it might work....


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RE: Exorcising old demons - how to control costs

You got it! I keep all the records myself and I approve bids/contractors before they start work, in most cases, and can bring in whoever I want to use for any aspect of the build as well. For example, the granite guy he sent me to last week & always uses to was a major egomaniac and spoke to me like a 2nd class citizen, even making some comment about my making him a sandwich on my granite. I found my own fabricator today & my builder is fine with that. He does help steer the budget by telling me if I'm paying too much for a particular item that he can source elsewhere or if a preferred design detail may add to the bottom line, but all in all we are free to do as we wish as long as the money holds out. :). Basically, he schedules and manages the trades and gives us invoices every Thursday that we pay directly. Aside from the cost overruns it's worked very well, but I am a budget shopper and spreadsheet queen with a touch of OCD.


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RE: Exorcising old demons - how to control costs

Please learn to use your underfloor heat! We find it says money because our family no longer cranks up the furnace (which heats the whole house) just to warm up the bathroom.


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RE: Exorcising old demons - how to control costs

A Construction Manager would work as a consultant to the Owner managing the sub contractors and scheduling their work usually with the Owner paying the subs directly. Unfortunately this can leave the Owner responsible for the performance of the work. This project delivery method often involves an architect who oversees the work with the power to reject work that does not conform to the contract documents.

A General Contractor might work in a similar manner under a Cost of the Work with a Fixed Fee contract but he would be reimbursed for the cost of the subs and his own forces and would be responsible to the Owner for the performance of the work.

The most important aspect of any contract is who is responsible when things go wrong. Make sure the contract does not make you responsible for things for which you have no control or expertise.


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RE: Exorcising old demons - how to control costs

ParsonSE -
Thanks, that is very helpful. I never met a problem I couldn't solve with Excel, so I'm with you there. And, as the joke goes, I have CDO, not OCD. It's OCD in alphabetical order.
Renovator-
Thanks for the clarification. As a practical matter there are only a handful of candidates for this job (it has to be someone with experience in this niche market). So part of it might be how they are used to / willing to work


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RE: Exorcising old demons - how to control costs

Just remember that both parties must agree on all of the terms of a contract; you should not be captive to a contractor's "way of doing business" if it does not provide sufficient protection. A contractor who will not look for a way to satisfy you is unlikely to work out anyway. The time to get them to bend is in the initial interview.

Will this project price be negotiated or bid competitively?


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RE: Exorcising old demons - how to control costs

Yes, I agree. The limitations of web posting. I don't mean that I have to accept whatever they chose to do.

However, I recall way back when I did my first remodel on our old home. I was all set with my checklist, made all the calls, and found very few contractors who responded in any detail. There was no choosing between three comparable written bids with references checked. It just didn't happen.

I have no idea in re your question. I am starting with architects and I am emphaszing to all of them that this is part of what I want them to advise me on. I'm aslo reading a great book (albeit with a goofy title) called "what your contractor won't tell you".


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RE: Exorcising old demons - how to control costs

I own that book and find it to be helpful in some areas but the authors recommendations about contracts is sketchy.

What you need to know is this:
She recommends A101 (Agreement) + A201 (General Conditions) which are intended for very large commercial projects not for single family residences. She has obviously never seen all 46 pages of these documents much less used them for a project.

She also recommends A105 (Agreement) + A205 (General Conditions) which have been revised to include the General Conditions in A105. It cannot be used as a Cost of the Work contract.

She also recommends A107 but does not explain that in addition to being a Stipulated Sum contract it can be used as a Cost of the Work contract by adding Exhibit A.

She also recommends A114 which was discontinued before the book was published and would never be used for a single family residence and it is not a Time & Materials contract as she describes it.

You should know that buying these documents online has it's limitations. When you buy the online version you must fill out names and addresses of all of the parties involved and you cannot change that when you download the file. If you want to include the contract in the bid documents you will have to buy a hard copy or find a "sample" copy somewhere online.

So, do your own homework and ask here or ask an architect before asking a contractor to use a particular AIA contract.


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RE: Exorcising old demons - how to control costs

***The most important aspect of any contract is who is responsible when things go wrong. Make sure the contract does not make you responsible for things for which you have no control or expertise.***

This cannot be overemphasized. We've had 2 issues now where the subcontractors messed up and even though we're doing a cost plus fixed fee, my builder has eaten the cost to fix said issues.


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RE: Exorcising old demons - how to control costs

Oh my goodness, Renovator, I cannot believe how generous you are with your time and expertise. Don't worry, I didn't plan to follow her verbatim, I just found the overall book had some good tips.

Rest assured, and I have never said differently, we will hire an architect. I am trying to decide whether we hire a workmanlike person or a fancy pants architect -- but there will be an architect. And I do want one who has expertise in (maybe even an enthusiasm for) the business side of it and cost control. But there will be an architect.

And, moreover, there will be a lawyer. One with specialized expertise.

Our problem last time (one of them) was that we used a design/build firm, so there was no role for the architect as a check and balance. In addition, we used an attorney who wasn't an expert in this area. But most importantly, we thought we were avoiding all the usual headaches of a major project because we were friends with the Design/Build firm principals. We knew these people socially, and through common efforts on political campaigns and preservation efforts. We had seen their work and it was in a similar vein to what we wanted. What we should have done --- and I share our mistakes in the hopes it enlightens others --- it to treat them and the transaction as if they were total strangers, rather than having a false sense of comfort and wanting to be nice, reasonable, likable clients.


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RE: Exorcising old demons - how to control costs

I'm sure you already have checked but oceanfront using an old foundation wouldn't be allowed in my state as anything old would never be up to code.

We are getting ready to be 1 year done on an oceanfront rental/vacation home. We built 2100 for about $270 but that included septic which was $20k. It also included $50k for the GC.

I am not sure what an unfitted kitchen is but kitchens aren't that expensive when you are doing basic stuff. We have a melamine/beadboard look and basic granite - $8k or so and another $2k in appliances. It is a typical 10x10 kitchen. Building for rental I would think demands a kitchen and while we don't have fancy serving bowls, we do have 16 of everything - that adds up in room. We have 5 bedrooms.


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RE: Exorcising old demons - how to control costs

Thanks, David, that's helpful. If you have already indicated or don't mind to, where did you build.

In our bidding we assumed we could not use the foundation, but oddly the two builders who Ive had look at it so far mentioned, without my asking, that is was in great shape and could be used. Maybe they are wrong or maybe they are being imprecise; maybe it would need some enhancement of some sort. In any event, since we are hoping not to have to ask for variances and such we will still assume the same footprint.

People use the term unfitted for a kitchen in a few ways. Typically they are going for an historic look, from the era before kitchens were banks of upper and lower cabinets. They may also mean mismatched. Without going off on a long tangent here, what I mean is a kitchen without traditional cabinets per se, without countertops and backsplashes. Eg things like a huge double drainboard sink, a butcher block, a large table for prep and eating, hutches and such for storage etc.

I am absolutely not building for rental. When we were looking, for every property we saw the agent gave us all the info on rental history and I just kept saying no no no. To be honest, i just don't like the idea of strangers sleeping in my bed (yes I know you can use a linen service etc) ... but still. And I am the kind of person who always decorates with a few special, one of a kind things, whether antiques or things with a personal history or things from travels or a splurge. I'd be crestfallen to lose anything, and these are things you cannot simply buy. Yet what a pain to take those in and out of storage.

Gee I think I've just talked myself out of renting!

I only mentioned rental because someone above was warning on carrying costs for my heirs Heck, with the yield on treasuries and munis right now, soon those will have carrying costs instead of paying interest! The existing home has 4 BR and a basement apt. The apt was not part of the rental and was locked (it is in severe disrepair). I can see the argument for making ours a 5br instead of 4br and a playroom, but honestly I don't want 16 people renting my house. That's too many week in and week out. The property, in tear down condition rented for 4200/wk. A pristine property with 3 BR rented for 5500 a week.

I will try to keep the possibility that i might want (or need) to rent in the future, but Ive never done it with our lakehouse (other than as donations to charity auctions) and I feel uneasy about it. We will see if greed triumphs or not!


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