When a wannabe new house owner decides to not use an Architect or to cheapen his Architect’s fees, he is cheating himself or herself. That person might be congratulating themselves thinking they saved several thousand dollars. However, this is being penny-wise and pound-foolish.
What does this mean? Well, here’s the real world deal: If you do not have your Architect create very detailed CDs (Construction Documents), you’re never going to get a General Contractor (GC) to build your new house on a Fixed Price basis. They will only go Cost Plus.
Cost Plus is where the Contractor charges whatever it costs him to pay all his material suppliers and subcontractors, with no guarantees as to total cost, Plus a typically large profit piled onto that. With you picking up the tab.
Now you might be saying: “Yeah, so what?”
Here’s so what: YOU’RE PROBABLY GOING TO PAY A COST PLUS GC POSSIBLY AS MUCH AS A THIRD MORE TO BUILD YOUR NEW HOUSE THAN YOU WOULD HAVE IF YOU HAD YOUR ARCHITECT CREATE DETAILED DOCUMENTS.
How could this possibly be true?
Here’s how: If you would pay your Architect to create a great design, with thoroughly detailed documents, there might be a Contractor willing to do the project on a Fixed Price basis. Why is that? Because Cost Plus Contractors’ classic statement is: “There’s not enough detail, with too many unknowns, so I have to go Cost Plus and it will cost whatever it ends up costing.” But an honest Fixed Price Contractor should not mind giving a fixed quote to build your house, because a well-detailed set of Architectural Documents takes most of the unknowns out of the equation.
Are you starting to understand this? Some Contractors DON’T want detailed Architect documents so they can go Cost Plus. In Cost Plus arrangements, they have no skin in the game. Whatever they let their subs and suppliers charge them, plus often another 20% on top of that. As a matter of fact, the more their subs charge them, the more the Contactor makes. Understand the math there? If the amount the GC bases their profit on is higher, they make more. For instance: if your house costs $1,000,000 instead of $500,000 the Contractor’s profit on the million dollar house is 20% x $1M= $200,000. In other words: $200,000 of pure profit.
Now then if your project had cost $500,000 then 20% x $500k = $100,000. In other words, half of the larger number. Starting to get it?
Anything you can do to induce a Contractor to go Fixed Price is going to work out better for you, from any honest Contractor. What is meant by that? Because here’s what Cost Plus GCs will say and probably do if compelled to give a fixed price: they will calculate the cost of the job, with their 20% profit, then throw another 20% profit on top of that. We have heard Cost Plus GCs tell us that’s what they would do.
What you want: honest Contractors who will do the work involved to obtain honest quotes from multiple sub contractors and material suppliers, BASED ON ACTUAL, DETAILED PROPER ARCHITECTURAL DOCUMENTS, with a reasonable profit margin. If they have no unknowns, they should be able to figure the real price.
If you’re a shrewd Cost Plus GC reading this, you’re going to say: “What about possible increases in material prices during the course of a project?” Okay, how about adding a clause in the contract that fixes the material costs for 3 months, then allows an escalation OR a reduction if costs change by more than 10%? There could be a baseline of costs agreed to for typical things, from a public source, like Home Depot or Lowes, for the price of a 2x4x8 and several other things, monitored month by month.
So: as in the beginning: don’t be penny-wise and pound-foolish. What is meant by this: if you try to coerce your Architect to only do skimpy work, you’re thinking you saved several thousand dollars. Whoopee. What you’re not understanding is that you just forced the SEVERAL HUNDRED THOUSANDS OF DOLLARS of the construction cost of your house to become probably up to 33% MORE, due to a Contractor saying they have to go Cost-Plus with you “due to all the unknowns.” Which gives the Contractor the opportunity to pretty much do whatever they want and charge you whatever they want. All because you thought you were being shrewd, hammering your Architect to only do skimpy drawings.
If you had only compensated your Architect fairly to produce a detailed set of documents, perhaps your Architect could have helped you find an honest Fixed Price Contractor to provide you with a price perhaps about 67% of what you may end up paying your Cost Plus GC. These numbers will of course vary based on your specific location, available contractors and other factors.
Note: the above is not fiction. It is based on real world experiences involving a Senior Staff member of this Architect, during the course of bidding, pricing, negotiating and building his own custom house project.
But what do we know? We’ve only been designing custom homes for the last 52 years and helping Clients save big money on the construction end, when we are allowed to do so. The information for the article above came from real-world experiences of the Senior Staff Architect at this Architect firm during the bidding, pricing, negotiation and construction of his family’s own new house, now under construction. The above is Not fiction; it is real. He was quoted numbers of upwards of $200 to $250/SF for his house from Cost Plus Contractors and he ended up signing a contract with a Fixed Price contractor for $166/HSF (when you include the owner’s own separate costs, added to the tasks of the GC). So: the savings from having detailed architectural documents combined with an honest Fixed Price GC makes for substantial savings.
And you know something else? There’s a huge bonus: you get a nice Architect- designed house custom tailored to your family’s Lifestyle and Land. Which is something most non-Architects aren’t well-equipped to provide. And with an Architect design, you often receive details and specifications that provide better details and material usage to result in more water-tight construction, greater durability, better energy efficiency (for lower power bills) and larger glass areas facing your beloved views. Non-licensed people are not as capable at doing this as a licensed Architect who specializes in the design of custom houses. Especially an award-winning firm like HOME ARCHITECTS ®.