Hello, just a quick question. In my preperation for owner building my home,and for purposes of getting an idea of potential savings, I have read in one book that there is a builder markup on new builds of 20%, another lists a contractor markup of 10%. In yet another “Contracting Your Home,” the author claims a builder markup of “up to 20%”. Is this accurate, what is typical? Is there typically a general contractor markup and a builder markup on top of that?
Thanks,
David P.
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Replies
David-
First of all, there's no "set markup" that builders use. Secondly, most legitimate contractors would go broke (and many have) if they worked on only a 20% markup. By the time a contractor carries insurance, vehicles, office expenses, cell phones, etc., unless he subs everything out and runs very lean, the typical "markup" is more like 40-70%, for a gross margin of +/- 30% (don't have a calculator in front of me to do the exact math).
This is not to say that you'll 30% by building yourself. There's several recent threads here regarding owner-builder projects, and they go into detail on why you won't get the job done for the same price a general contractor would. To sum it up though, you may not get volume discounts from suppliers, the subs may not price the same to you as to a builder since they know they'll be doing a lot of handholding, and you'll invariably screw up- either in missed scope, double-bought scope, or just plain mistakes.
I'm a bit confused on your "builder markup" vs "general contractor markup" question, though, Where are you seeing the distinction between GC and builder?
Bob
Now don't get to thinking that you might save as much as 70% since bob threw that figure out there, LOL!
here's another angle for you on those potential "savings" -
I have helped and seen several DIY folks do there own home to "save" money.Mostof their supposed savings came from taking shortcuts in ignorance and not doing things that really needed to be done. That means that they ended up with a lower quality house than they might otherwise have had. ( Not that all "builders" do everything right either) We see a lot of questins here from people asking why is thios or that not functioning right and what can be done about it. Too often, the answer is to tear it apart and redo it the way it should have been done in the first place. The long term costs of amature work and management are high e3ven iof the upfront costs are lower.
I know a lady who spent fifty cents for every dime she saved buildfingher house. That's a long saga
If - and that is a big if - you do everything right and get lucky with good people as subs, you might build a better than average house and save 7-8% from having a GC build it for you.
If you do everything yourself, you might "save" more, but you would have to give up your day job, and maybe your family that you are building it for. The tensions of doing this sort of thing have disrupted many a family.
I am assuming the diff between GC and builder you are refering to and that Bob questioned would be;
Builder - he has the whole developement and sells completed houses on his lots.
GC - you buy a lot and hire a GC to buiilda house for you on that lot.
But it would be good if you defined your own terms for sake of understanding.
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Come on Piff! 70% savings should be the MINIMUM he should save, no? LOL
That's why I put the next sentence in there above not really expecting to save 30% (though I missed the word "save", and I'm too lazy to go edit it...lol).
What makes me laugh the most, and the part I didn't comment on, is the fact that these "Be Your Own Contractor" books tote the fact that contractors work on a 10-20% markup. That tells me the authors have never actually been contractors, or that they worked on a 10-20% markup, went bankrupt, and now have to write books telling others how to build their own homes.....lol.
Bob
dave.. gc'g your house is not where you save the money.. the only savings comes from sweat equity..
IE: every dollars worth of labor that you replace with your own labor or your wife's labor is money that you can apply to something else in the home..
the saving money by being your own GC is chasing teh rainbow for most people
Mike Smith Rhode Island : Design / Build / Repair / Restore
Mike is on the right track. Look for a discussion here about getting a Cert of Occupancy before the house is fully completed. You can save cash money by doing much yourself, such as painting, wallpaper, ceramic tile, cabinet hardware, gutters, landscaping, etc, but you expend personal time that could be used for something else.
Whenever you are asked if you can do a job, tell'em "Certainly, I can!" Then get busy and find out how to do it. T. Roosevelt
The craftsman formerly known as elCid
Hi David, a couple minor things here...
1) remember you're asking this question of professional builders and contractors. Don't expect warm fuzzy answers about how to accomplish your goal. (And I mean that in a GOOD way to all you guys out there). My Dad is a carpenter and he thinks I'm the dumbest guy in the world for wanting to tackle our own new home. To some degree I think he's right. :-)
2) If you are going to do it 'yourself' be sure you have good mentors, counselors, advisors on hand to assist you. We're going to do it because our friend - a licensed builder - lives 1/4 mile from our new home site. My Dad is a carpenter (though he lives 12 hours away, still invaluable on the phone and w/e-mail pics it's like he's right there), my brother-in-law built his own home several times and can provide great advice, etc. You need these folks around you - and even better yet ON THE SITE - to help you through the process.
If you don't have much experience in the trades and/or you don't have experienced folks that can hold your hand I think it would be a big mistake to tackle it on your own. There are just too many 'tricks of the trade' that could never be covered in the owner/builder books.
Good luck, Rob
"We're going to do it because our friend - a licensed builder - lives 1/4 mile from our new home site."
Rob, I really hope you're still friends when your house is finished. There's more than a few threads on this site about the mixing of friends and business... :-)
Regards,
Tim Ruttan
Good point. Believe me, there's no one that knows that better than I. I started a business with my best friend (at the time) a couple years ago. Long story, things didn't work out, and now we don't talk. Our mindset is that if this guy can do it for us - that's great. If not we have a plan B and a plan C as well. We're not willing to sacrifice a friendship again, and I've made that clear to this guy.
- Rob
yes there is markup, just like any other business out there. Markup covers many things, material just doesnt magically show up when its dreamed of ordering, plans and planning dont fall from heaven, scheduling subs isnt done by a magical scheduling gnome, problems arent solved by a genie in a bottle.
Dave,
I'm not a professional builder, but a very advanced do-it yourselfer that has gotten into the real estate rehabbing business because of it. Several years ago, I built my own house - even designed the thing. Developed the water supply (gravity fed spring), cut access roads, etc. It turned out well, with lots of help from subs and neighbor (retired building inspector). My advice:
Do it. Plan on spending an incredible amount of time, and do as much hands on as you can. Expect to make it your primary occupation.
Anyone who thinks 150K to 250K is a ridiculous price to pay for a 2,500 sf quality built house should build one sometime. It'll make you think twice about doing it again. (but I would).
Bob
Bob,
Thanks for the encouraging post. I am making this my full time occupation. I am also an avid diy'er though probably not to the same extent as you. I have a very extensive wood shop, and have been doing cabinetry in my spare time for the past 3 years. I have a very experienced carpenter friend who will be working full time with me as well.
As for resources, I have an Uncle who's a retired carpenter, my cousin turned his single floor 1,800 sq ft ranch into 3,600 sq ft two story. Also, i have an aquaintance who is part owner of a home building company in town, he will be bidding out the sub work and materials.
I am subbing out the excavation , foundation, framing, plumbing and electric. I may sub out at least part of the drywalling, in order to get a very flat, smooth surface to work with. Part of my motivation is that i love to build. I am planning to do as much of the work as i can with Mark(carpenter), and possibly a few others. I am intending to do the doors and windows, hardwood floors, tile, painting, trim work, vinyl siding, roofing and possibly the HVAC.
Once the house is sealed, i will be able to get my wood shop inside and begin working. I do plan to get it to Cert of Occupancy, then move in and finish up. If you wouldn't mind i would appreciate getting your thoughts and hearing your expience with the diy work, and if you have any tips or advice.
-David
ever otice how a automechanic can jack up parts by 200% or more and one rarely thnks about it, or the $200 dollar washing machine part. But a contractor who jacks up 20-25% is a thief and its the american way to chew him down on the final bill. try that with your mecahnic. a $1.49 coke at Burger king costs them maybe 20cents,,,,markup, and I bet HD is making at least 40% on materils
I agree with all postas said above, many contractors have a large overhead, phone books, advertising, tools, insurance, workers comp, shop, office, dog food, pizza etc. 20% is just covering bills, and if they are unfortunate to miss a week or two of work due to the weather or economy, the bills keep coming
From yur seond post it sounds like you have a good knowledge base and many skills and friends that can help. You are subbning out the major parts and that is good .
If you have the time and skill you could end up with a very nice project and save yourself a few dollars
Headaches you could encounter, keeping subs on schedule, quality of subs work and all the family and friends that sya they will help, getting them to show up
Good luck and let us know how it goes
As a retired mechanic, I'll have to take issue with your post. Mechanics constantly have to deal with customers who say "But I can get it for $24.95 at Autozone". Waaay too many people think that anything over a 10% markup, in any kind of business, is a ripoff ...
Dave
I apologize, and I know you have faced these issues too and I should not have generalized. Obviously you fight the same issues that many of us see all the time, but I can get that at home depot for ..................
One of my good friends is a appliance repairman that bought out his retiring boss and now own the store. So I know what his mark up is, that's what based that.
The coke and BK comment came from one of my friends who actually runs two McDonalds
My comments came from 6 years as a foreign car mechanic for an independent shop, a store manager for Beck Arnley Auto parts in Washington dc for 2 years, a manager of a Chrysler dealership for two years. Still have lots of friends in that industry
I burned out on the high pressure , high sales tactic and went into the job that got me through collage, summer construction. Used that to put me back to school, and went into teaching for 8 years and administration for 4 years before burning out again and went back to what put me through school again, construction
It was great to get out again and pound nails, I love it even in the rain and mud, been back in construction now for about 11 years, 9 as an independent GC.this is it , wont leave this field, love it too much
unfortunately my health and age is forcing me back into the office more, thus so much time to be on FHB
but I told you all that to let you know where I was coming from , to make those generalizatins I did.
but I do apologize for stepping on any toes
No apology needed. My comment was just meant as an illustration that whatever business you're in, some people will think that ANY markup is excessive.
It's nice to run into another escapee from the world of auto repair. I mostly worked on imports at independents, too. I just did it longer. I'd be happy to swap stories sometime in an appropriate thread...
Dave
One more thing...read the books, then forget what you read and talk to a pro. The trick is to talk to a pro...but not the one you're going to hire!
Woodside
back when I was selling new cars ... had a sale manager that used to say
selling car's is the hardest sales job of all ... only profession when the customers can look up exactly how much the car invoiced for!
That logic made sense till I went back to remodeling ... now the problem is delaing with customers that "think they know" how much the end result should cost!
JeffBuck Construction Pittsburgh,PA
Artistry in Carpentry
I think it's the same in a lot of trades. The customers think that if you supply materials for big-box prices, and charge $10/hr for your labor (and HURRY UP !) , that should provide plenty of profit...
Dave
You know, I did a keyword search on this thread for 'thief'. The first hit was your post. Why did you introduce it as such if no one else thought builders were thieves?
Additionally, I would personally love to save money on things with high markups, but sometimes its just not possible without some sort of business license (and or tax ID number).
We all have a right as a business person to make money (no one is questioning that right), and we all have a right to seek a savings as a consumer (who buys only the most expensive offerings?).
One of the reason why many come here as a non-professional is to learn, not stop perceived thievery. I'd rather do the work myself (what I can do myself) considering the poor workmanship that is in my no-quality 2500 sf home that cost me $250K. I could have settled for a 1800 sf home built on quality but not all buyers have the opportunity to but a customer built home that is quality built.
When it comes time for me to undertake the role as builder, swet equity will play a major role. I am not looking to save a dime, but build quality in a home--something completely alien to a lot of Atlanta builders. But, if Chevy can find a sucker to buy one of their pickups (that's a joke of an example, guys), Atlanta builders can find the equivalent sucker (I was one of them) to buy their homes.
Quality is not necessarily the primary objective of a builder, especially if its their living at stake.
Go for it. It's the (maybe) greatest thing you'll ever do.
But to really enjoy it, you will have to work like a GC.
Put your 8 hours a day in with your hired help. Send them home and put in an hour looking at what you did today and what your going to do for the next 3 days. Start home and spend an hour or more getting materials. Get home and spend another hour or so handling invoices, bills and other paperwork. Then take enough time to study the weather for the next 2 weeks and planning what you'll be doing for the next month. Then, and only then, you can decide tomorrows working plan. Leave for work early so you can pick up the rental equipment.
Buy, beg, or borrow a good used truck and heavy trailor, 'cuz you will be forced to make some deliveries yourself.
Listen to your gut. It knows. If someone can't convince you of the right way, postpone the decision and get a third opinion. You are the GC.
Buy stock in Milanta (|:>) and have fun on the weekends.
SamT
once you move in everything slows down. you get to a point where you feel you need a much needed vacation and there is no longer that sense of urgency to get things done. so you go back to work to recoup some of your financial setbacks. come home from working a full day and put your tool belt on? first you have to move your furniture out of the way and dust proof everything else. Married? think she is as motivated as you? If your 2nd wife is smart she wont move in until the house is finished.
dont move in until the house is sale-able
Edited 2/24/2004 11:33:08 AM ET by maverick
"Anyone who thinks 150K to 250K is a ridiculous price to pay for a 2,500 sf quality built house should build one sometime."
Curious, where can I get a 2500 sf quality built house for $150K? I could not find a 2500 sf quality built house for $250K in Atlanta let alone one for $150K. Just curious as I would be interested in a quality built 2500 sf house for 40% less than the POS I got, hehe.
Seems to me there's a persistant myth out there that contractors work on huge markups and really rake in the cash. But that's not really true. Many builders won't even do new homes because of the slim or nonexistant profit margins.
Before you try building your own house, read the Spec House from Hell thread. I can't imagine the vast amounts of money I've saved so far by doing hundreds of hours of labor on the house. /-:
How's it going, Norm?
Cut the small talk and get me a beer.
I can't imagine the vast amounts of money I've saved so far by doing hundreds of hours of labor on the house.
But, Boss, just think of all the fun you've had along the way, and all the new things you've learned....lol.
Bob
I know you were kidding, but....
I really DID learn a lot from the experience. And there were many days I enjoyed the process. My Wife and kids learned a lot too. My boys are probably the only one in their classes that know the 3 parts of stair framing.
NEXT time I build one I'll know everything..............(-:What's doing, Norm?Well, science is seeking a cure for thirst. I happen to be the guinea pig.
3 parts of stair framing ?.... uh, oh.... i'd better reread that chapterMike Smith Rhode Island : Design / Build / Repair / Restore
By the 3 parts of a stair, I meant treads, risers, and stringers.
I'll bet most kids don't know what they are.What's up, Normie?My nipples, it's freezing out there.
Here's some adivce (since you asked!).
Do it!
It will consume yours and your family's life. Likely you're prepared, but make sure they are too. Very important.
It's a roller coaster ride. The emotional up and down is very real, and it's very stressfull.
If you can be there during the daytime (a lot of the time), it makes a huge difference. Sometimes you're being there will slow progress, but being able to be there when you're needed is invaluable. Really invaluable.
Eight to ten percent is realistic. Don't think that you can do it better or cheaper than someone who does it for a living. And likely, you'll put the 8 to 10 back in as upgrades. It's not about the money. It's about the end result. If you do it for the money, forget it.
Plan all the details before you start. Know the materias you want, the placement of everything, and the type of installation you want. Once you start, you won't have time to plan, and you need the plan to make things fit. The more you plan (down to the vanity sizes, colors, floor choices, hose bib location, oil tank placement, space for molding next to doors and windows, EVERYTHING, etc,) the more time you'll have to make sure things are getting done the way you planned (ironic, but true).
Hiring takes a huge amount of your time. Again...hiring takes a huge...
Buy very little (if anything) at the box stores. A good yard that has survived the box store onset is likely very competitively priced. Service (fast delivery) and quality are very, very important.
One thing that you can't plan for is a bad contracter. Say the guy is doing okay, but it's not exactly how you want it. Are you prepared to fire him and start over? Or even maybe you can't fire him because you have a contract and he's doing it to code. The only advise here is either tie yourself up in lengthy contracts, or, and this is a biggy, listen to your gut! When the pressure is on to make things happen, listen, listen, listen to that voice inside that says "I am not so sure about this guy", or maybe "he's more expensive, but I think he's the right guy".
Plan, plan, plan....and then do it!
Woodside.
I (and I am sure a lot of the other pros here) built my house for less than half of what it would have cost for a paying customer. I subbed as little as I possibly could, and saved in building doors, windows and cabinets that I would have purchased complete on a regular job. I learned a lot about wiring, plumbing and masonry that I didn't know before I started. The house has many unique features and also has a few shortcuts that didn't quite work out.
Hopefully you will have as much fun as I had, especially involving interested friends in several great work parties. If you save any money, it will be because you earned it.
If you are looking to save money, don't even think about it because after you figure in the value of your time you put into this, the costs can skyrocket. It may not be money out of your pocket, but it is money. Then the time/days off of work to meet with subs, supervise, etc. you will not save a dime.
If you think you will have fun doing this and you have a patient, understanding and tolerant family (put the word very in front of all of those) then jump in and have a great time.
The unusually long time that it takes most owner/builders to finish is another reason that you won't save much. If you are realistic about the time cost of money, that is.
I worked in the trades for most of twenty years, but now I'm in the real estate biz in a rural area. I see lots of owner builders lose big and only a very few come out ok. Why? Unless you have a background in the trades you probably don't own the tools or even know which tools you'll need or how to properly use them. And that's just the beginning.
It's dumb mistakes in sequencing and siting that hit lots of owner builders hardest. Things that experience teaches. I hate to have to say it, but you're better off spending your time researching who to hire as a builder and researching all the things that will impact the costs of building and then living in your home. Few people realize the work involved in just choosing finishes and fixtures!
After spending most of my life in either the building or real estate biz I'm still here learning at BT daily and pestering the knowledgeable and gracious folks who offer their experience here. I'm building a new home right now and it will be a much better place because of the folks here at BT.
If you are determined: Spend at least one year visiting your building site in all seasons and at all times of day before you site the home. Spend every other minute of that year reading here at BT and everything else you can find.
A home is much much more than a bunch of boards and some concrete!
Something is what it does.
I contracted to build a house......I subbed the mechanicals and did the rest myself..........got paid for my labor and added 15% at the end for overhead and profit.
I made plenty of money with not too many headaches.....for me or my client. If a builder wears a suit, has a fancy office and three tiers of secretaries you will be paying for all that nonproductive crap.
The best way in the world to get a quality built house is to hire a guy like me. I do one at a time.......and hold your hand through the process...........
Do it yourself.....THINK your friends will show up.......deal in unknowns......you will be pulling your hair out. If you have to be involved hire a guy to act as foreman who knows his ####....................cause subs know if you know and if you don't know they will sometime jerk you off.
<You'd have been better off and gotten different responses if you'd posted the longer explanation first!
Go for it! Plan on getting it almost right on the fourth of fifth try. But, if you live in each of the first ones at least two years, you can build the best one out of pocket.>
Hasbeen,
That is pretty much my plan, provided this first one works out and I like the experience enough to continue. I hadn't posted the long explanation because i did previously have a discussion thread on the overall merits of doing this. But I DO appreciate the input anyway. One thing I'm finding is that I can NEVER get too much thoughtful, knowledgeable info on this subject. The difficulty however, is that i have so much information, I'm having a hard time organizing everything.
SamT
<Buy, beg, or borrow a good used truck and heavy trailor, 'cuz you will be forced to make some deliveries yourself.>
Funny you bring this up. The interior design women i hired, her husband is a sales manager for an auto dealer. Prior to contracting her services, i told her outright one of the reasons why i calling you back, or that gives you an edge over the many other very good designers, (tried to use some tact) is because your husband can get me a used truck wholesale at the dealer auction. So, in exchange for busting an entrance way in her wall, i get to purchase the truck at the dealer auction.
-David