Building a Home? Don't Do This!
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- Опубліковано 13 чер 2024
- For those of you thinking of hiring a general contractor to manage the construction of your new home, be sure to avoid the cost-plus contract. In this video a builder discusses why this is a bad contract agreement for 90% of the people out there. The builder also discusses the preferred type of contract that is in the best interest of the customer...not just the builder.
Here's the link to the video, "Is it a Good Time to Build a Home"
• Is it a good time to b... - Навчання та стиль
Thanks so much for this information. I’m wanting to build within the next year but it’s very expensive in my area right now. I appreciate you and love watching your videos!!
I've just been looking to do that, so I'm glad you noted some considerations that I had not thought of. The problem here (in Alberta, Canada) is that you have to secure a new home warranty that ties up a $10,000 or more bond for 10 years that is onerous to apply for as a self-builder, plus you have to be registered with the province to be a licensed builder. They really have crushed the small contractor and the self-build guys.
So informative! Thank you for sharing. 🙌🏻
100% agree. I did the cost plus fixed amount, either way a cost + gives you very little if any benefits. The project just dragged on, and on. As you stated, no incentive for the general contractor to save you any money OR time. Never again.
It dragged on because the contractor was taking it in the shorts
Valuable info! Thanks for sharing it.
I am a builder and I've been doing a modified version. I charge a flat fee for my service and have the customer pay all the bills. I give them a budget up front and we shop subcontractors if they want for each job. It seems to work well as long as you're dealing with a reputable builder who will give you an honest budget. Customers love it because they know exactly how much I'm making since they all think you're getting rich and by the way I don't charge 20%.
Less then, maybe 15%?
@@travisburch4342 it depends on the complexity of the house but generally in the 10 to 15% range
Several,problems with that…you take on no risk and you get a guaranteed salary/profit. You also have no incentive to push project along directly.
@@johnwhite2576 if I were to give a fixed price to someone I would need to add a "cushion" to it to make sure my profit is covered. With my fixed fee the buyer saves the "cushion" and feels better knowing exactly what I'm making. I have plenty of incentive to push the house to completion because I always have other projects coming up and need to complete the current ones to make room.
Are you in RI or MA? I’m looking for a builder for a custom home.
Can you create a playlist on your page of your videos for beginners?
Im assuming its a floor plan, all the services needed (bathroom, kitchen, etc) and idk what else lol thats why im here😂
Thanks for your videos they’re all very informative! Im a subscriber to this channel starting today!
I'm a mid-high end remodeler. I live on the front range of Colorado. I can't find subs that take pride in their work.... and I'll pay them whatever they want. I can't imagine trying to negotiate discounts when I can't get the work done at asking price. I am very particular.... a bit OCD. I outline my needs before I hire someone and tell them that I will gladly pay for above average work.... they promise me the world and then they drop off their new hire and tell me how slammed they are.... I'm changing my business model because I can't handle the stress anymore.
@Robert John Thomas, I hear you. I'm handy but not a builder or remodeler. The contractor situation on the Front Range has been absurd for years now. I found that it's much cheaper, faster and far less aggravating for me to do big projects myself, even if I get it wrong on the first 2 tries, and waste a ton of time and materials. I don't blame you a bit for changing your business model.
Same way here in TN, I’ve hired a few different contractors to do some land clearing and they all come out to bid, all promising the moon and of the three I’ve hired, only one did as he said and then at the end asked if I was pleased with the job. I gave him extra work and told him it was due to his awesome work ethic, something that is lacking in todays society. No body wants to go work and nobody wants to do their best.
Im headed to Colo Springs area in the summer. Looking to buy a piece of land in El Paso County or pueblo county and have a home built. Do you build
Thank you.
This is a no brainer.
I'm skeptical the interest rates on a 30 year fixed will be 4% in 2023. Maybe in 2024 but we're in the for a long hard road out of this.
Doing a cost + build right now. A little nervous the builder will squeeze the balloon to inflate the price. If I did fixed he would inflate the price of the build, and then work hard to get the lowest cost on materials etc. so I end up paying him even more. It seems like a damned if you do, damned if you don't situation.
This sounds like a great deal…for the builder.
Any reference to the design/layout of the house in your background at 1:23-1:40? Beautiful.
Can you please make a video on the house plan Quinn 29921 from Advanced Home Plans. It's more of a modern design under their affordable plans. I'm a new subscriber to your channel. I'm located in Illinois contemplating building.
Dang. Those interest rates did NOT come down to 4%… :/
I went with my current builder because it offers a fixed price contract. All appliances, surfaces, and materials were specified in the contract. Thus, they couldn't cut costs by going with cheaper surfaces, appliances, etc. The builder controls its costs since it does not use subcontractors. The builder also only offers limited options. For example, all kitchen appliances are identical and from the same manufacturer. All counters are the same surface and color as are all the interior walls. All windows and doors are the same across any home that it builds. The builder does provide custom floor plans and two exterior finishes. It is not for everybody, but I like builder's design esthetic and it is not my primary home. However, I would consider this approach if I were to build another primary home.
If you pls, Is there a chance you can give me info of this builder? I am currently seeking one in RI. Thank you
@@mariagomes9882 Cover Build Techology is the builder, but they only work in the city of Los Angeles, CA. 😞
@@kdockrey thank you
Is there a way to put into a cost plus a shared savings provision? Ie if total.cost less than x, will kick back builder y bonus
That is why as contractor I always build spec houses.
So what is the best way to negotiate with a GC fix contract?
We do work for a cost+ builder. He charges 30k flat rate to gc the home. And he does shop prices for his clients.
Do anyone have a builder that does fixed price contracts in Georgia
Cost plus doesn’t have to be a percentage of the total price. Just make it is a fixed fee of the total estimate. That way the builder isn’t incentivized to inflate the building cost. You can also add a guaranteed max price which limits how much the builder can spend before it starts hurting their project. You can also add incentives and rewards if the builder comes in under budget or finishes on time.
Cost plus is not one size fits all. It is absolutely the better pricing model for all parties because there’s no confusion and there’s no risk for the builder getting screwed and the builder can also do the job right and also it can save the owner a lot of money. Builders are going to add a ton of markup to give themselves cushion if they are building with a fixed price model.
Do you build in the la belle area in Florida
Cost plus only gives the relationship with GC and subs to inflate labor cost for GC kickbacks.
However it is good for modular homes
How much does having a budget help combat that?
You seem to not understand how cost plus is cheaper. Every line item has to have cost of materials and labor. The plus is for unforeseen issues or too many change orders from the owner to the builder. The other way, the builder can hide material costs and labor giving himself a cushion you can’t see and you agree to upfront. In the end, you’ll have no idea what he pocketed on the build.
A good home builder that is cost plus would be benefitial as you will get a better end result as no corners would be cut. Finding such a builder would be the hard part as some its just get in do it as quick as you can and run
That's not what happened to me vetted builder and he builds expensive home in myrtle beach. My house is a mess many code violations that the county didn't find now just hoping to get it right
Fixed price contracts are great until a builder hits a snag, blows the budget, and has no motivation to finish. Then come the cut corners, material substitutions, and legal battles. There should always be clauses in a contract for inflation, materials costs and unknowable conditions that may arise
Your are making my point for me Adam. There are too many things that can go wrong to have an open-ended, cost plus contract. Your fixed price contract will have details about how to deal with material cost increases or other unforeseen issues like poor soil conditions. And yes, the contract will also include remedies if the builder doesn't finish. These are all very standard. And, a smart consumer does a proper job of vetting the builder to make sure they will finish because they have a reputation to uphold.
Adam -the problem is what is ‘cost’ and what is the ‘plus’….the most principled contract is the builder earn a fixed fee for his services that reflect the amount of time and specific expertise he has to put into the job, not a percentage of the cost of a sub zero refrigerator which is no harder to install than a whirlpool.it’s a heads I win, tails I win situation. Builders don’t need a percentage of a house to cover their costs-they have fixed and marginal costs-their actual cost to supervise the construction is fixed, it’s not variable once they know the size location scale and right finishes ie luxury vinyl or carpet vs wide hardwood. There’s no mystery. And especially for GCs who sub out all their work- and this is increasingly the nature for most ‘custom builders’ their overhead is even more knowable . A proper way to build a house would be to charge by the hour for their time-this is in fact . Fact how they account for their side of the books internally. If clients knew what GCs made PER hour, 90 per cent would quit their day jobs . build themselves . Then there is the conspiracy with permitting office and regulatory agencies;they will spout off nonsense like the client needs to purchase builders insurance, not the gc, the client can’t pull a demo permit, only the gc or the architect etc etc etc. ALWAYS pull permits in your (clients) name-even if you have to pay someone -consultant, architect etc, to do the virtual ‘running’ vast majority of permits all happen in line now anyway-you don’t need s-women with a ‘friend’ in permit office….why would u want a gc to have that sort of leverage on you, threatening to walk off the job and reapply in midstream for permitting. I see these disingenuous Shameful claims being made all the time. We need this recession in building industry to drive out bad GCs, bad subs, and tore some kind of balance between reasonable expectations of builder as well as clients. Some things GOT to change…
I'm confused. I wish someone would explain...how shows like 100 day dream home on HGTV can build homes from the ground up for $350k and remain in budget but other videos make it seem impossible to build a home for that amount.
Because it's a TV show and they're selling you a fantasy.
Armchir~breathtaking -see u around-👋
Building a home for someone now. I would never do a cost plus contract, even though they're common. The builders that getaway with it that I know, have a deep portfolio, and clients are willing to "pay" for the assurance they bring to the table. I'm doing a fixed price contract. The scariest part of that for most builders is being stuck in the job, or it dragging. It may reduce the incentive for the homeowner to move quickly on the finishes - especially with higher end homes with tons of bells and whistles. I have found a clever way to offset this , but it's a trade secret ;)
Man, I don't think 2023 has been a good year to build. Prices seem very comfortable up there in space.
I have to 100% disagree with you on this. Cost plus with each major line item providing cost to build, material and labor and the contractor has limited ability to hide the enormous amount of money he pockets for building you a home. The opposite to that and the builder has a set price and will higher the cheapest and not always the best “quality” subs out there. That brings up the issue of quality. Are you building to control quality or or are you building to the cheapest contractor out there?
Michael going to disagree with you on this one, My GC said I can use any sub I want as long as I put them in the contract so I am in process of bidding everything out on my own and then I will see what bids he comes in with, another reason for cost plus is I want total control over the build cost and more importantly over materials and with a fixed price contract you don`t have that. also remember on a construction loan application you have to list the cost and materials for the bank if you are going to fiance the project.
Sheesh! I’m saving the 20% by building the house myself. I paid a consultant $5k to sign for the bank and the rest is on me.
Hello, what do you mean? Consultant for the loan?
@@sc4933 yeah. So the bank, at least here in Texas, won’t let anyone just sign up for a construction loan and won’t let you the homeowner sign up for one either. A builder has to sign as the responsible party, but the construction loan is under my name, it helps protect the asset in case I leave the job undone. If that makes sense.
@@markbuildstx oh nice I see, by any chance are you in Houston? I would really like to connect with a Builder like that if possible. I am in the middle of trying to get an owner builder loan, but barely at the beginning stage. Thanks so much for your info!
@@sc4933 bro. I’m in San Antonio area but the guy I know is in Houston too.
@@markbuildstx thats crazy, would you mind recc him, or asking if he would be interested in partnering up?
Mortgage rates haven't fallen yet.....lol
Cost of materials dropping??!! Are you high??
Well this didn't age too well. Economy is FCKED lol
Cost plus is the way to go for certain projects. While cost plus may create incentives for builders to increase costs, fixed bid projects create incentives for builders to cut corners, use inferior vendors and materials. Additionally, some projects are difficult to fairly estimate for a fixed bid, in which case the contractor is likely to put lots of extra variance in the budget to cover his risk. The pandemic fueled inflation really showed the risk for builders in fixed bids. Cost plus the way to go with pricing uncertainty in my opinion.
I would never do this, you're exactly right. I'd still never hire a builder anyways, as I can get a house built faster for 50% less doing the general contracting myself. It will also be done right. I went to the CMHC website and got my subtrades to sign their generic build contract that's on there. I'm glad I did because I ended up in court with one clown and it ended up saving me over $6,000.
Hello what is CMHC?
@@sc4933 Canada Mortgage & Housing Corp.
Absolute BS. A fixed price contractor will cut every corner they can to make sure they come in below the number they gave you in their contract. That’s how they stay in business. I see fixed price builders here side houses with no WRB paper on OSB here 😂 good luck with that in 10 years.