general contractors (and pounds of flesh)

We’ve started “dating” builders and while we’ve gone to second base with a couple we haven’t hit a home run yet. “Dating” is probably an appropriate analogy (one we’ve previously used, I believe, with architects). There’s the first date where we’re getting to know each other and where one or both parties either realize that it’s worth a second date or that the party’s over before it started (Why won’t he return my phone calls?). There’s the gold diggers: highly attractive and world class but won’t touch you unless you drive a Ferrari (or are at least building something nice to house that Ferrari). There’s the Birkenstocked poets who promise the world but almost assuredly can’t deliver. And then there are the potential Mr. Rights who are whispering the right things in our ears but, through second dates, start revealing some potentially disturbing traits (stop reading now if you think this is starting to get a little too homoerotic…). If we could just Frankenstein the best bits of the various builders together, we’d have our man! But then we’d have quite a bloody mess and, most likely, a ruined chain saw. And without a chainsaw, how is the plumber going to rough in the plumbing?

A big sticking point is price. It costs more to build in the big city than the not-so-big city. The big city typically has (and in our case does have) more stringent requirements and codes than the not-so-big city. This adds to costs. Furthermore, building in the city generally requires true custom building: your house is going to be a one-off. Therefore, no suburban economies of scale (“We’re gonna build a hunnerd of these suckers!”) or mega-builder with his own crews and, thus, lower overhead. Then add to that green building, which is slightly different than standard building, and the costs creep even higher. While it runs 80 to 100 bucks a square foot to build in the burbs, it costs far more in the big city.

One builder we talked to, one I vaguely adore, pretty much said that he won’t touch a project that’s under $200 a square foot (I’ve noticed that the cool kids drop the “square” bit and just say “foot”. The scientist in me just can’t do it…). Gulp. And their fee, including site manager, for a house our size amounted to 30 percent. Double gulp. Yet another builder was at 22.5 percent; 25 percent if you added in charges not included in their fee (something to watch out for when comparing builder to builder).

According to what I found boogieboarding the interwebs, builder fees generally range from 10 to 25 percent with the higher end for luxury homes that are complicated and demand detail. Of course, those homes cost more as well. I reckon that the most talented and competent builders are the ones that rise to the top of the luxury market and make the big bucks, deservedly so. While our house is (hopefully) nice, it is by no means a luxury-level product. That makes it a little hard to pay luxury-level building percentages… The conventional wisdom I found describes 15 percent as reasonable and less than 10 percent as run-for-the-hills-because-that-builder-doesn’t-know-what-he’s-doing.

The other thing that’s a little disturbing about the business is that the incentives for the builder generally work against the homeowner. For example, one way to build a house is a fixed price contract. The builder bids on the project and delivers it at a fixed price. Therefore, the more cheaply the builder can build the home, the more money he makes. Not a good incentive for quality. And if things start going wrong early (i.e. overbudget), corners can really get cut toward the end of the project.

Another way homes get built is cost plus. Whatever it costs to do something, the builder then levees his percent fee on top. Therefore, there’s no incentive to find good deals on items and services because (1) it’s eating up his time (and time = money) and (2) finding a less expensive alternative cuts his pay. The builders we’ve spoken to thus far are cost plussers. One builder, recognizing the warped incentive of cost plus, fixed about half their fee at the beginning of the project and let the other half plus on the cost of the project. Not a bad idea, but the dis-incentive is still there.

Another way of getting a house built is through design-build where the same company that designs your house builds your house. The advantage here, presumably, is that the designers are working with the in-house builders to get an in-progress idea of cost and theoretically optimize the design and build process to save costs. The bad news is that you’re pretty much stuck with that builder. The good news is that your budget is built into the project from the get go; therefore, you greatly reduce the risk of a design do-over if the initial bids come in too high.

Right now, our screening bids are coming in too high. One bid is within reach, but only if we suck the soul (and the green) out of the house, and we’re not sure we want to do that. We have one more screening bid to come, so we’ll keep our fingers crossed. At least his cost plus is a more reasonable 18 percent…

{photo by mwah; of a pal's pal's house getting constructed over yonder on Shoal Creek]