When we first went into business, we were a local green home design and building company in Albuquerque, New Mexico and built every home we designed. After becoming experienced and proficient with green home building and sustainable home design, we expanded our design services and let the building portion of the projects go to other green home builders. We have stayed up on our building skills by occasionally building local projects.
The building industry still primarily uses the bidding method for determining project costs. We've never liked this method because it is not really fair and it doesn't give an accurate accounting of the actual costs of building. We also don't agree that the project's financial records are the contractor's' private business and not shared with the clients. We have improved these approaches by adopting the Cost Plus a Fixed Fee and Open Books methods.
Cost-Plus-A-Fixed-Fee
The cost-plus-a-fixed-fee method is the most straightforward, simple and fair system we've found for building a custom home. In this agreement, the homeowner pays for the materials, at the contractor's price, and the labor to build the home and also pays a set salary for the contractor that is fair and reasonable.
The way our cost-plus-a-fixed-fee works is that the homeowner and the builder agree on a fixed fee that the builder will be paid for acting as the general contractor on the project. Several factors are considered when determining the fee— the estimated value of the home, its size and complexity of the project, the weather at the time of year the home is being built, the driving time to the project site, the proximity to building materials and the local building climate, to name a few. Finding a great contractor is a must, and they should be paid a fair price for their services. Even though you might think that you can do it all on your own, it will most likely save you a lot of time and money in the long run to hire the right contractor.
Bidding
Typically, builders use the bidding method when they build a new custom home, but at Sunlight we have realized that this is not the best way. For example, builders can give you a bid that is too high or they can give you a bid that is too low, both of which could cause problems for you later. If a builder bids too high then goes on to build your home, they get to keep the money left over from the project. Usually, builders want to keep the cost as low as possible, but that means that you will probably be sacrificing energy efficiency and maybe causing you to have to do more maintenance down the road. If a builder bids too low, you will be on the hook for the rest of the money when the project is only half finished and they are out of money. In other words, there is a lot of risk for you in the bidding process and that is what inspired us to come up with our approach.
Contractor Fees
The national average for the contractor fee is 15% but it can range from 10% to 20% depending on the other conditions. As a Sunlight Homes customer, we can help you negotiate the fee with your builder to start building your sustainable custom home.
Once you have negotiated this fee, your builder knows that he will be paid fairly for the work and it won't be a gamble. There will be no incentive to cut corners. From there you know it’s simple, you know that your new home will cost the contractor fee, plus the actual cost of materials and labor. The builder still has an incentive to work efficiently on your project because this will allow them to finish your job in a timely fashion and move on to other projects. The more projects builders can do in a year, the more they make.
In every well run project there also needs to be an element of trust and respect between the parties involved. It's important to feel comfortable with the builder that you choose. If you are successful in this regard, the cost-plus-a-fixed-fee approach adds predictability to the building process.
Cost-Plus-A-Percentage
Sometimes the cost-plus-a-fixed-fee method is confused with cost-plus-a-percentage. With cost-plus-a-percentage, the builder's fee is a percentage of the total building costs. The problem with this is that your builder has an incentive to drive up your building costs to bump up his fee. We do not recommend this approach.