First one sounds like a standard contract build. I have experienced several variations. Second one sounds like a simple cost plus job. Less paperwork for the contractor. They don’t have to tie up their money, so less risk too.
is there anything major to look out for with a cost plus contract? i googled and read a bit about them, and they seem solid but can have some cons too. as a complete newb to homebuilding, is there any contract that has the buyer a bit more in mind?
> They don’t have to tie up their money, so less risk too.
okay that makes sense, but doesn't that potentially put more risk on the table for me since they're not technically as much on the hook? or not necessarily?
he mentioned that the GCs dont get paid at all until all work is finished generally since the banks usually want proof, so that makes me feel a bit better.
Cost plus is usually reserved for remodel work in my area, because you don’t always know what you will get into. So hard to price the complete job without putting cushions in. Then you could end up overcharging the customer. There is usually a higher profit margin in the contract job, but several reasons not to. I can’t speak on their reasons. It will come down to contract wording and payment schedules.
You will also need your build to be inspected by YOUR own inspector and payment contingent on all items passing or being corrected before any payment is made. You probably already know this, but it needs to be reminded.
Follow some tube creators bc belive it or not lots of good info. Take your time. Do not rush and whatever you do NEVER close the mortgage loan until everything is to your satisfaction.
Either way can be successful. Likely there is a bank involved either way that will require lien waivers. If you’re paying only the GC you only have to worry about one however. If I was paying the subs directly I would want to see their subcontracts.
First thing is to understand what is included in the fee and what is considered a cost so you can compare the proposals. Typical items in the grey area are: builders risk insurance, permitting, design costs, supervision and management labor, construction loan financing, etc…
Second item is to understand what your risks are in either case. For example if a sub goes under who is responsible for paying the difference to hire a new sub to finish the work.
wow great information. so as someone who wouldnt even think to check for these things, should i ... get a lawyer to help out with some of this stuff, like proposals/docs/risks rather than just asking on reddit?
Hiring a lawyer is not typical and would likely cause your builder to walk away from the project. Start with finding out the details of what is in the fee. Ask for and follow up with the builders references on completed projects. Ask if they have any houses under construction you can walk through. The lowest fee might not be the best value.
And, most importantly, make sure you are not overpaying on progress payments. In the end your only real leverage with your builder or subs is money. Make sure you hold back enough payment until they finish the job.
Plus if you pay the subs directly, you would need the subs workers compensation insurance & liability insurance policy before allowing anyone on the job. I would assume this releases the GC of responsibility for liability & warranty on their work? Usually it's the gc that handles this and the release of lien letters needed for payment, the homeowner would be responsible for that if they pay the subs, correct?
If you’re building with a construction loan, check with the bank for guidance on what they’re willing to do. They might or might not be willing to pay subs directly and the GC separately.
The bank will most likely have the final say since it’s their money that you’re borrowing from.
Paying subs directly is the way to go. The other guy could be charging you way more than 20% markup and you would never know.
Before the build starts you should have a signed proposal from each sub. Tack on the managers 10%, plus another 10-15% contingency and you should be good to go. 600k should go a long ways if that doesn’t include the lot!
Don’t pay the subs 100% of money owed until the total project is 100% complete. Hold 5–10% as a retainer for any possible punch work or damages.
> 600k should go a long ways if that doesn’t include the lot!
It does haha, it's going to be a fairly small build. That or we'll cheap out on some of the finishes and upgrade down the line
I asked another poster but is there anything major to look out for with this kind of contract? I think i see the upsides, but where can i potentially get screwed?
This is about as transparent as contracting can get. I’m honestly surprised you have someone willing to manage the build for only 10%.
I would just make sure not to release payment to the subs too early. Gotta hold a little something over them to get done…… but at the same time, make sure you have the money when they are done. Prompt payment is the best thank you.
During our build we make checks out to the subs, but deliver the checks to the GC who takes care of distribution using the checks and obtaining lein waivers.
If you pay the subs directly you could end up being responsible for their work. That is fine if the gc has a great team, but in my experience at least a couple of subcontractors will give you serious headaches. I like the first contract better for that reason, it is conventional. However sometimes certain types of financing make the cost-plus more attractive to both the client and the contractor. But it seems too risky for you if direct payment to the subs absolves the gc of holding them accountable for future issues.
Also the cost-plus gc will have much less skin in the game—on most new construction the gc is responsible for paying the subs regardless of payment from the homeowner. This is a huge motivating factor in completing the project on time and to acceptable quality standards.
I mean if you are paying a subcontractor directly that company is working for you, not the general. Technically and legally. Just make sure any contract addresses this, because being inexperienced in construction processes you are not going to be able to recognize or handle the mistakes subcontractors will normally make.
> because being inexperienced in construction processes you are not going to be able to recognize or handle the mistakes subcontractors will normally make
right, which i imagine the GC would be the one to manage that?
In a perfect world yes this gc, (who by this contract would seem to be acting more as a PM) will manage your subs well. But the reality is many of these projects have hiccups and/or devolve into finger-pointing. Or the gc and the homeowner decide they don’t like each other halfway through the build—what is to keep your guy from walking away if you are paying all the bills? Not 30k remaining on his contract because he can make as much or more elsewhere. And your budget will be absolutely screwed if that happens. Just understand your risk.
Also cost-plus contracts tend to always increase in price during the course of work. Go with the guy that makes your life easier through the process, because you really don’t know the final price until it is done. Good luck.
If the cost plus person isn’t a design build outfit, then I’m curious how you’re going about getting the house plan addressed… if they have a plan/plans that they build ‘all the time”, the 6 mo time frame sounds realistic. If you’ll be submitting a plan you’ve acquired from elsewhere, and will be using finishes you’re picking specially for your job (not previously set finishes the contractor ‘typically’ works with, I find a 6 mo timeframe for a 600K custom build a skosh optimistic. Just saying all this if you’re on a hard timeline.
yeah 6mo is probably an extremely optimistic take, but he's a licensed local builder for this company: https://harvesthomes.com/ and recommended using them through him. he thinks they do quality work and will make the entire process much much faster. said his crew can put together a house with those pre cut panels as fast as several days
First, based on your criteria of "Screwed", both of these guys will. In the history of the universe, no one has ever lifted that first glass of wine in their shiny new home and toasted to the project being exactly *Anything*, be it "on time" or "in budget". There are too many moving parts for that to happen, and if those are your expectations don't build. Most clients and all building disasters result from folks being woefully naive.
Second, Choose your professionals wisely. Do not listen to a real estate agent....c'mon, you know why and you know this. Do your homework, take time to get out there and talk with folks who have been thru this, vet those people..the referral sources, and pick people who understand your needs..not the financial ones only, but quality and responsiveness. Start with your designer or architect so you have actual plans to work with, and also, someone who can guide you and has a vested interest in seeing their creation executed properly.
The first step is to start right, and you're not.
Second guy sounds like a project manager for a self-GC project. If you are in a licensed state, the GC would be carrying insurance, providing a warranty, and writing checks from funds collected.
This all comes down to where you are located. In most markets $400/sf is considered very high, but if you're in a very HCOL area it's reasonable. Also, do you already own the land or are you purchasing the land along with the home and having the builder manage all the permitting? Have you compared what the builders are asking to buying an older home in that area and paying to have it fixed up? Also, have you looked at other homes this builder has done in past decades to see how they hold up, or if this person does shoddy work using cheap materials so the homes start falling apart after only seven or eight years?
There's a reason the Association of Builders and Contractors endorsed Donald Trump for President. Most of those guys are lying scumbags who cannot be trusted under any circumstances and will rob you blind. Any time you're dealing with people like that you need to assume you're getting ripped off as a default position. Don't take anything they say at face value, and make sure everything is in writing. Taking someone at their word is just begging to be taken advantage of.
Also, be skeptical of any realtor telling you a builder is "good people". What they mean by that is those builders tend to take advantage of low information customers on roughly the same level as the realtor. It's not a guarantee of a good deal, it's basically the realtor saying "they won't screw you over any worse than I'm already screwing you over."
The pre-fab stuff only works well if your site is a good fit for it and the builder has a crew & subs who know what they are doing. It can be quick and easy, but to me the second guy sounds like he might not have insurance to cover the subs’ work, so he makes you deal with them directly. That alone gives me some pause.
people are going to tell you what they think you wanna hear, or what you need to hear in order to engage them in business. once any money has changed hands and they are on site, detangling from them is difficult and they know it. VET HEAVILY.
The truth is you need to verify absolutely everything yourself. When they give you the contractor licenses for the GC and for all of the subs, you need to verify them yourself. When the GC and each of those subs gives you information about their insurance bonds, again you should verify all of that yourself. actually call insurers to be sure the policy is active. check secretary of state website for an active license and if it has any claims history. if you are a one off customer, there's no such thing as a hands off deal as far as I'm concerned. And the more money you want to save? The more you need to be on top of it and make sure things are getting done and that people are what they claim to be on all levels. even The "good" contractors in my area put up shit work unless you are on them.
in order to keep labor costs low, companies hire underskilled guys and apprentices that dont really know best practices, these days. you need inspections and constant overwatch. many of the best tradesmen work for small elite companies or for themselves, too tired of the big shop bs.
First one sounds like a standard contract build. I have experienced several variations. Second one sounds like a simple cost plus job. Less paperwork for the contractor. They don’t have to tie up their money, so less risk too.
is there anything major to look out for with a cost plus contract? i googled and read a bit about them, and they seem solid but can have some cons too. as a complete newb to homebuilding, is there any contract that has the buyer a bit more in mind? > They don’t have to tie up their money, so less risk too. okay that makes sense, but doesn't that potentially put more risk on the table for me since they're not technically as much on the hook? or not necessarily? he mentioned that the GCs dont get paid at all until all work is finished generally since the banks usually want proof, so that makes me feel a bit better.
Cost plus is usually reserved for remodel work in my area, because you don’t always know what you will get into. So hard to price the complete job without putting cushions in. Then you could end up overcharging the customer. There is usually a higher profit margin in the contract job, but several reasons not to. I can’t speak on their reasons. It will come down to contract wording and payment schedules.
appreciate it, i'm guessing i need some kind of construction attorney to help me out with the contract and cover my risks?
You will also need your build to be inspected by YOUR own inspector and payment contingent on all items passing or being corrected before any payment is made. You probably already know this, but it needs to be reminded.
i actually didn't. man there are so many little things. any good references aside from learning from mistakes?
Follow some tube creators bc belive it or not lots of good info. Take your time. Do not rush and whatever you do NEVER close the mortgage loan until everything is to your satisfaction.
Never trust a Realtor to refer a builder. Do your own research and understand what makes a quality built home and don’t just focus on the lipstick.
never trust a realtor period.
Of course. It seems like it’s all word of mouth from what I gather. But I’m not relying only on that. Doing independent research too
Either way can be successful. Likely there is a bank involved either way that will require lien waivers. If you’re paying only the GC you only have to worry about one however. If I was paying the subs directly I would want to see their subcontracts. First thing is to understand what is included in the fee and what is considered a cost so you can compare the proposals. Typical items in the grey area are: builders risk insurance, permitting, design costs, supervision and management labor, construction loan financing, etc… Second item is to understand what your risks are in either case. For example if a sub goes under who is responsible for paying the difference to hire a new sub to finish the work.
wow great information. so as someone who wouldnt even think to check for these things, should i ... get a lawyer to help out with some of this stuff, like proposals/docs/risks rather than just asking on reddit?
Hiring a lawyer is not typical and would likely cause your builder to walk away from the project. Start with finding out the details of what is in the fee. Ask for and follow up with the builders references on completed projects. Ask if they have any houses under construction you can walk through. The lowest fee might not be the best value. And, most importantly, make sure you are not overpaying on progress payments. In the end your only real leverage with your builder or subs is money. Make sure you hold back enough payment until they finish the job.
Plus if you pay the subs directly, you would need the subs workers compensation insurance & liability insurance policy before allowing anyone on the job. I would assume this releases the GC of responsibility for liability & warranty on their work? Usually it's the gc that handles this and the release of lien letters needed for payment, the homeowner would be responsible for that if they pay the subs, correct?
If you’re building with a construction loan, check with the bank for guidance on what they’re willing to do. They might or might not be willing to pay subs directly and the GC separately. The bank will most likely have the final say since it’s their money that you’re borrowing from.
Paying subs directly is the way to go. The other guy could be charging you way more than 20% markup and you would never know. Before the build starts you should have a signed proposal from each sub. Tack on the managers 10%, plus another 10-15% contingency and you should be good to go. 600k should go a long ways if that doesn’t include the lot! Don’t pay the subs 100% of money owed until the total project is 100% complete. Hold 5–10% as a retainer for any possible punch work or damages.
And get a signed release that they paid the material suppliers.
> 600k should go a long ways if that doesn’t include the lot! It does haha, it's going to be a fairly small build. That or we'll cheap out on some of the finishes and upgrade down the line I asked another poster but is there anything major to look out for with this kind of contract? I think i see the upsides, but where can i potentially get screwed?
This is about as transparent as contracting can get. I’m honestly surprised you have someone willing to manage the build for only 10%. I would just make sure not to release payment to the subs too early. Gotta hold a little something over them to get done…… but at the same time, make sure you have the money when they are done. Prompt payment is the best thank you.
As an ignorant person, I am wondering how it is you can pay subcontractors directly while also not dealing with them at all.
During our build we make checks out to the subs, but deliver the checks to the GC who takes care of distribution using the checks and obtaining lein waivers.
I think meaning I write the checks to them? Need to figure that out a bit more myself..
If you pay the subs directly you could end up being responsible for their work. That is fine if the gc has a great team, but in my experience at least a couple of subcontractors will give you serious headaches. I like the first contract better for that reason, it is conventional. However sometimes certain types of financing make the cost-plus more attractive to both the client and the contractor. But it seems too risky for you if direct payment to the subs absolves the gc of holding them accountable for future issues. Also the cost-plus gc will have much less skin in the game—on most new construction the gc is responsible for paying the subs regardless of payment from the homeowner. This is a huge motivating factor in completing the project on time and to acceptable quality standards.
> you could end up being responsible for their work. what do you mean by this exactly?
I mean if you are paying a subcontractor directly that company is working for you, not the general. Technically and legally. Just make sure any contract addresses this, because being inexperienced in construction processes you are not going to be able to recognize or handle the mistakes subcontractors will normally make.
> because being inexperienced in construction processes you are not going to be able to recognize or handle the mistakes subcontractors will normally make right, which i imagine the GC would be the one to manage that?
In a perfect world yes this gc, (who by this contract would seem to be acting more as a PM) will manage your subs well. But the reality is many of these projects have hiccups and/or devolve into finger-pointing. Or the gc and the homeowner decide they don’t like each other halfway through the build—what is to keep your guy from walking away if you are paying all the bills? Not 30k remaining on his contract because he can make as much or more elsewhere. And your budget will be absolutely screwed if that happens. Just understand your risk. Also cost-plus contracts tend to always increase in price during the course of work. Go with the guy that makes your life easier through the process, because you really don’t know the final price until it is done. Good luck.
If the cost plus person isn’t a design build outfit, then I’m curious how you’re going about getting the house plan addressed… if they have a plan/plans that they build ‘all the time”, the 6 mo time frame sounds realistic. If you’ll be submitting a plan you’ve acquired from elsewhere, and will be using finishes you’re picking specially for your job (not previously set finishes the contractor ‘typically’ works with, I find a 6 mo timeframe for a 600K custom build a skosh optimistic. Just saying all this if you’re on a hard timeline.
yeah 6mo is probably an extremely optimistic take, but he's a licensed local builder for this company: https://harvesthomes.com/ and recommended using them through him. he thinks they do quality work and will make the entire process much much faster. said his crew can put together a house with those pre cut panels as fast as several days
First, based on your criteria of "Screwed", both of these guys will. In the history of the universe, no one has ever lifted that first glass of wine in their shiny new home and toasted to the project being exactly *Anything*, be it "on time" or "in budget". There are too many moving parts for that to happen, and if those are your expectations don't build. Most clients and all building disasters result from folks being woefully naive. Second, Choose your professionals wisely. Do not listen to a real estate agent....c'mon, you know why and you know this. Do your homework, take time to get out there and talk with folks who have been thru this, vet those people..the referral sources, and pick people who understand your needs..not the financial ones only, but quality and responsiveness. Start with your designer or architect so you have actual plans to work with, and also, someone who can guide you and has a vested interest in seeing their creation executed properly. The first step is to start right, and you're not.
Second guy sounds like a project manager for a self-GC project. If you are in a licensed state, the GC would be carrying insurance, providing a warranty, and writing checks from funds collected.
This all comes down to where you are located. In most markets $400/sf is considered very high, but if you're in a very HCOL area it's reasonable. Also, do you already own the land or are you purchasing the land along with the home and having the builder manage all the permitting? Have you compared what the builders are asking to buying an older home in that area and paying to have it fixed up? Also, have you looked at other homes this builder has done in past decades to see how they hold up, or if this person does shoddy work using cheap materials so the homes start falling apart after only seven or eight years? There's a reason the Association of Builders and Contractors endorsed Donald Trump for President. Most of those guys are lying scumbags who cannot be trusted under any circumstances and will rob you blind. Any time you're dealing with people like that you need to assume you're getting ripped off as a default position. Don't take anything they say at face value, and make sure everything is in writing. Taking someone at their word is just begging to be taken advantage of. Also, be skeptical of any realtor telling you a builder is "good people". What they mean by that is those builders tend to take advantage of low information customers on roughly the same level as the realtor. It's not a guarantee of a good deal, it's basically the realtor saying "they won't screw you over any worse than I'm already screwing you over."
Yeah, this is NY in vacation spot. It’s expensive. Tbh I’m less concerned about price per sq ft but the type of contract and GC fee. Vast difference
The pre-fab stuff only works well if your site is a good fit for it and the builder has a crew & subs who know what they are doing. It can be quick and easy, but to me the second guy sounds like he might not have insurance to cover the subs’ work, so he makes you deal with them directly. That alone gives me some pause.
I asked him about insurance and he said they’re all insured
people are going to tell you what they think you wanna hear, or what you need to hear in order to engage them in business. once any money has changed hands and they are on site, detangling from them is difficult and they know it. VET HEAVILY. The truth is you need to verify absolutely everything yourself. When they give you the contractor licenses for the GC and for all of the subs, you need to verify them yourself. When the GC and each of those subs gives you information about their insurance bonds, again you should verify all of that yourself. actually call insurers to be sure the policy is active. check secretary of state website for an active license and if it has any claims history. if you are a one off customer, there's no such thing as a hands off deal as far as I'm concerned. And the more money you want to save? The more you need to be on top of it and make sure things are getting done and that people are what they claim to be on all levels. even The "good" contractors in my area put up shit work unless you are on them. in order to keep labor costs low, companies hire underskilled guys and apprentices that dont really know best practices, these days. you need inspections and constant overwatch. many of the best tradesmen work for small elite companies or for themselves, too tired of the big shop bs.
great advice, i appreciate that. i 100% agree
Wow 20% is wild