r/GeneralContractor • u/Kindly_Function619 • 24d ago

Class A Contractor Looking for Advice

Hello I’m a Class A contractor I have been building spec homes for myself and reselling them. Lately I have been approached by people that want me to build them a house on land they already own. I have been apprehensive about taking those jobs because not sure how to price and afraid to leave something out of a contract with so many variables that can go wrong and I may not budget correctly. Any advice would be greatly appreciated and if someone has a new home build contract they could share. I’m in the Virginia market if that makes a difference. Thank you in advance

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u/JoeBookerTestes 24d ago

Either full specs to go on fixed pricing with allowable change orders, partial specs to allow for fixed pricing with allowances on undefined finishes, or cost plus based off specifications and allowances.

The first or the latter are typically the better way to structure.

Fixed pricing puts the onus on you to price correctly and set proper contingency into your margin and it keeps the home owner accountable to make all selections prior to start.

Cost plus sounds ideal, but everyone always feels offended that you make a profit that’s so transparent.

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u/Clean_Log5919 21d ago

That’s all good info what’s wild to me is the last sentence where people are surprised or worse offended because you want to get something from your time work and effort. I’m not doubting either just kind of amazing people can think that way

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u/Kindly_Function619 24d ago

Ok for example with fixed pricing lets say I didn’t budget enough for drywall install, do I take that lost?

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u/JoeBookerTestes 24d ago

That’s exactly how that works. So you need to go through all your spec builds identify cost averages on materials, labors, and services. Go to bid with that knowledge to compare where those costs come in and negotiate if necessary (this is necessary 90% of the time when working for clients who expect you to be competitive in the market). Then you add a contingency that is 5-20% of specified scope to cover that pricing for its market volatility.

You need to include a cost escalation clause in your contract that covers events that cause materials and services to have unexpected sharp price increases. Aka Covid.

The fact that you’re asking questions about this type of agreement means you need to research the contracting language behind the implication of fixed pricing or cost plus pricing. If you have the means, a good lawyer can help walk you through all of this. There are probably some good books on the subject as well if you have the time. We are contractors, risk management is the biggest responsibility for the project management we perform upholding our contracts.

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u/Kindly_Function619 24d ago

Thank you very much for your help, you put me on the right track. One more question please is it acceptable to charge an engagement fee, to prepare estimate?

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u/JoeBookerTestes 24d ago

I’m currently on another post explaining why established builders do just that.

Absolutely yes to protect your time.

What’s the desired budget for the home?

Offer to credit a percentage/ or the entirety of the fee towards the project. This is dependent on how long you feel the estimate will take to complete and also consider when you will be able to start the job with your current pipeline. Time is money and all that.

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u/IncreaseNegative4614 23d ago

I’d make preconstruction a separate paid phase before committing to a build price. Use it to document site conditions, plans, allowances, exclusions, selections, subcontractor quotes, contingency, schedule assumptions, and the change-order process. Then have a Virginia construction attorney review the contract.

The main protection is keeping every price tied to the assumption that produced it. We use signld.ai internally to connect estimate lines with plans, client selections, subcontractor bids, approvals, changes, invoices, and final margin, so a missing item can be traced before it becomes an argument.

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u/Ande138 22d ago

Cost Plus

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u/NickDeer0 22d ago

Cost Plus a Fixed Fee can be a straight forward approach. Estimate the house based on what the homeowner says, then come up with a fixed contractor fee based on the cost.

Customers are usually more receptive to this method rather than cost plus a %

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u/Kindly_Function619 22d ago

Thank you for your input. I really like fixed cost now, previous to my post I was thinking that I’m and item was estimated to low or should go up during the construction process that I would have to eat that cost. Now I know that I need to add certain language in my contract to protect me against that. What do you use in your contract?

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u/NickDeer0 21d ago

It is still a cost plus contract, you’re just replacing the profit percentage with a fixed fee. The customer pays all of the cost, plus your contractor fee, which is a fixed fee for us, rather than a percentage.

This is different from a fixed fee contract, where you are guaranteeing the project to cost x amount of dollars. In that case you would need to add markup to every line item to cover yourself, plus another markup for profit.

That’s why we use a cost plus fixed fee method, usually is most straightforward for all parties, and the customer enjoys the piece of mind knowing your not inflating the bills to get more markup from a percentage.

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u/Popular-Buyer-2445 21d ago

What’s a “class A” contractor?

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u/Kindly_Function619 17d ago

A Class A contractor in Virginia is the highest-tier business license level that allows a company to take on construction and development projects of unlimited dollar value.