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Fees are paid out of various accounts, from revenue.
You are providing the revenue.
The price of everything includes the cost of marketing/sales/distribution.
That cost is almost always substantially greater than the 5-6% commission ( split 4 ways) for a real estate transaction.
Quite a can of worms being opened here! Welcome to building.
Builder (Seller) pays the commish...but maybe you want to get it deducted from your building costs so you are not paying 10% of a commish...yes?
Builders proposal should be detailed...VERY detailed. On a $500,000 home it probably will approach 50 pages...maybe more.
Are we talking "cost plus" ? No incentive in that deal for the builder to keep costs down..in fact, it is just the opposite. The higher the costs, the more he makes.
Included in the builders costs will be time and materials, plus an allocation of his overhead, and then you pay 10% of that total. Make sure you understand what you are paying for. It's all legit...just understand all of this going in.
In this market, what you will pay for a custom built house is VERY high. Building material costs are through the roof (excuse the pun). The market value of the house will not come close to the amount which you will pay to get the house built. Just sayin, so you don't have false expectations. Some folks don't care..it is their home--where they live. Others get very nervous about this. Ten years fom now? Who knows...you'll probably get your money back.
That 10% 'fee' on costs.....every change, upgrade, substitution, etc. come with the 'recalculated' fee. So if you add, say, $25,000 for 'upgraded' windows over the original estimate (is it an 'estimate', or a 'firm' contract? You need to know) then you need to add $2500 for the updated fee. A good builder won't nickel and dime you with this crap, but if you are a pain in the a$$, the builder will make you pay EVERY time. Just know this going in, and get it in the contract (which is a seperate part of the contract aside from the specs on what the house will be built from).
It's all good in the end....just know going in that there are pitfalls everywhere and you need to have EVERYTHING in writing..up front. Even then, there will be plenty of items which will 'change' or need to be 're-addressed.
Oh...don't forget to add 10% (plus fees) to your own budget for 'overuns'. No matter how tight your original contract, there will be plenty of things which will be added/changed which will push the final cost at least 10% over the original estimate.
Good luck. Truly...with the right builder, it is an excting and fun project.
Builders proposal should be detailed...VERY detailed. On a $500,000 home it probably will approach 50 pages...maybe more.
Good post overall, and I agree with most of it. A good builder will also want things in writing. It protects both sides. For example, when you come back later and say "this isn't the carpet I picked", they can pull out the "picks" sheet and the invoice and show that they match.
But on the above item, I can't imagine anyone's paperwork stretching to 50 pages. We build in the $300,000-$400,000 range most often, and even with the 10 page contract included, our paperwork rarely goes beyond 20 pages. Spec sheet is usually 3 or 4 pages, and picks sheet is usually 3 or 4 more pages.
I can't imagine an initial proposal being 50 pages, unless a plan is not provided and has to be explained in writing for some odd reason instead.
Lacerta.....i guess it is a mater of detail. I just checked my spec sheets, and they are 23 pages. BUT, they cover everything from Temporary Utilities and Sanitary Facilities to Employee Parking to Earthwork (fill, compaction, etc.) to Molding and Paint choices, to...well, you name it...all in detail. Yes, there is overkill, but as you know...when things get off track, it is nice to have the 'paperwork' to fall back on. General Conditions is seven pages, and the Contract is seven pages. Total is forty pages, plus the Exhibits/plans/drawings/surveys, etc.
But, we're 99% done, and there have beem NO problems along the way with the Contractor. We had just one sub whose work was inadequate, and we reached a settlement which suited everyone's situation. All in all, a tight experience stemming form a solid agreement with REASONABLE expectations from all parties.
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deals vary, basically the RE agent should get 5% on the sales price of land, and builder 10% on the value of his contribution (improvements to the land that BUILDER manages).
BE CAREFUL be sure you have recourse to fire / change builders, BE SURE you get Lien Releases from ALL material suppliers and sub-contractors. (This is why I build my own... usually for under $50 / sf). I have several non-diligent friends who paid for their houses TWICE (once to the builder and later to the suppliers who weren't paid, and had liens on the property).
Have fun, this process can test your mettle. (I consider it fun, but can be frantic too...property # 23 currently in process) I have a good friend who does that many per month....
My spec sheet consists of one page very short and very blunt performance criteria,. AND a Microsoft 'Project' plan sheet with specific schedule (to the day) that EVERY selected sub MUST SIGN and commit to performance ON SCHEDULE. SERIOUS consequences for non-performance. (completed 5500 SF very complex rural site in 5 months (2 story garage, cars on each level, stone fireplaces, and custom wood and tile work)) $48/sf (including view lot)
My design criteria can be exhausting since I live / build in a federally protected region with lots of geology and artifact rules, but I do all my own CAD design and engineering so it has become 'cut&paste'. (thank goodness...)
MOST IMPORTANTLY get a GOOD (Very good) sheetrock / texture team. You will be STUCK looking at their quality for the next 50 + yrs. 6 of us factory 'engineers' built at the same time, and some of them have very poor quality interiors. (LOTS of cracking and nail pops 2-5 yr later). Get referrals, look at homes done several yrs ago)
Last edited by StealthRabbit; 08-02-2011 at 11:36 AM..
Excellent advice thus far! It is much appreciated. You would think in THIS market that it might "cost a little less" since people aren't building as much as they used to but that doesn't seem to be the case. The big issue I have right now is what will the house cost and what will it appraise for. My concern is that the appraisal may come in well below the price of the home.
I have already purchased the piece of property. Just for the house alone, I was given an estimate of approx $160/sq foot. I consider this to be a fairly high level home with granite everywhere, hardwood throughout, nice trim, 3 car garage, steel porch with tiled floor, custom cabinets, etc .... But add in the land and we're talking closer to $190/sq foot!!
It's a great neighborhood but I feel I'm getting robbed here and I'm paying a lot more than a cost+12% fee + 5% realtor fee.
It is hard to know whether the 160/sq ft price is out of line because we don't know the market in which you are building. I would say for a high end home, the figure is about 'average'. I don't think you are bieng taken advanatge of, although many here will say otherwise. You get what you pay for when you pay attention. Things like a proper deck framing , or at least facing, for example, adds materially to the cost. Some would be happy with the pressure treated hanging out, or used for flooring. If that is unaccpetable, for instance, the cost goes up...a lot. But in a 'conversation', it is still 'just a deck'. See what i mean?
The builders fee at 12%, above and beyond his overhead, is a little high...but probably coming down from 20% during the go-go years. Now most builders are lucky to find work and are just looking to stay alive.
The five percent....well....i just don't know. I don't blame them, but realtors can get a little cranky about fees. Most work hard for it, but on a 'to be built house' in a development....maybe they did a little less than average. I saw one deal where the builder just told the broker 'you are getting a flat fee of $ X....and that is it.' The broker was happy..and he didn't really have much input (nor should he) into the plans and building of the house.
BE CAREFUL be sure you have recourse to fire / change builders, BE SURE you get Lien Releases from ALL material suppliers and sub-contractors. (This is why I build my own... usually for under $50 / sf). I have several non-diligent friends who paid for their houses TWICE (once to the builder and later to the suppliers who weren't paid, and had liens on the property).
That reminded me of a very good point. In my opinion, Lien Waivers aren't worth the paper they are written on. Material suppliers in my area won't sign them, and subcontractors lie and say they paid for the materials when they didn't. That is why, in my opinion, anyone who closes new construction (or recent extensive remodels) without buying expanded title insurance is an idiot. We, as the builder, insist upon it. In fact, we PAY for it for the buyer, just to make sure everyone has it. As real estate agents, we also insist on it for our buyers if we aren't building the house. It is that important. (Note: That may mean you have to go with the title company the builder is already set up with, since the title company will only issue it if they know the builder is reputable, and it is a lot of hoops to jump through to set up with a new title company).
Quote:
Originally Posted by robiu977
Excellent advice thus far! It is much appreciated. You would think in THIS market that it might "cost a little less" since people aren't building as much as they used to but that doesn't seem to be the case. The big issue I have right now is what will the house cost and what will it appraise for. My concern is that the appraisal may come in well below the price of the home.
I have already purchased the piece of property. Just for the house alone, I was given an estimate of approx $160/sq foot. I consider this to be a fairly high level home with granite everywhere, hardwood throughout, nice trim, 3 car garage, steel porch with tiled floor, custom cabinets, etc .... But add in the land and we're talking closer to $190/sq foot!!
It's a great neighborhood but I feel I'm getting robbed here and I'm paying a lot more than a cost+12% fee + 5% realtor fee.
In my opinion, the appraisal should be your concern. We have found that some lenders are willing to do a pre-construction appraisal from plans and specs, that is honored for 6 months. I would highly suggest asking your agent and lender about doing that.
As for the price, construction costs are up substantially right now. Besides that, price/sq.ft. is a very poor way to price a house. I've heard it said many times that is like buying tires by the pound. We actually refuse to answer the question "What $/sqft are your houses?" (which we get asked a lot) because we have built houses at $70/sqft and houses at $250/sqft. It all depends on finishes. (Also, kiitchens and bathrooms are the most expensive rooms in the house, so if you have a big kitchen, or extra bathrooms, that will raise your average $/sqft too, which is also why smaller houses are usually higher $/sqft than larger houses of equivalent quality, because a higher percentage of the house is kitchen/bathroom). If you are building a custom home with lots of upgrades, $160/sq.ft is probably reasonable. You also didn't tell us what size garage you have on this house. Garages are usually not included in the square footage. So if you have a large garage, that raises the average as well, without adding to the square footage.
There really is a lot that goes into it, so it is difficult to say whether $160 is a fair average or not, but my guess is that it probably is for the quality you are describing.
The five percent....well....i just don't know. I don't blame them, but realtors can get a little cranky about fees. Most work hard for it, but on a 'to be built house' in a development....maybe they did a little less than average. I saw one deal where the builder just told the broker 'you are getting a flat fee of $ X....and that is it.' The broker was happy..and he didn't really have much input (nor should he) into the plans and building of the house.
This is where it gets sticky. We have had agents who, in my opinion, didn't earn $50 on the construction process. They introduced us to the buyer and then showed up at the end to get their check.
We've had agents who actually hindered the process, and because of their interference, actually cost the buyer more money than they saved them. For example, we had one guy whose agent insisted on having meetings 3 times a week throughout the construction process and each meeting went on for 3 or 4 hours. So rather than throwing in some upgrades that we might have done for free, we charged him for every single last penny of every upgrade he wanted, plus a "change fee", plus our builder's markup.
And then we have the agents who know what the right way is on new construction to help their clients. They made sure all "picks" deadlines were met. They contributed opinions when asked. They informed their client of important things to know (like the fact that when your foundation is poured, you will think they forgot half your house, it is an optical illusion) And they visited the construction site at significant milestones to make sure there were no mistakes. Because mistakes will happen. A window will get framed in the wrong place, or the carpet guys will miss a vent cut-out, or a wall that was supposed to be a 2x6 will get framed as a 2x4, or something. A good agent will help you catch these things and get them fixed. Sometimes even before the builder does.
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