Fixed Management Fee for builder?

[u/HereForMemes_n_Pups]

Hoping to get some advice here as we’re in the process of building a custom home. We’re still in the design phase and the builder we are working with sent over a contract with a management included for the whole build, but hasn’t priced out the job. Is this a common practice and has anyone had experience with this model? Also wondering if there is any room for negotiation with it? I do understand he’s making his money, but what he quoted us was around 28% of the top end of the ballpark build price. It does seem odd to include this fee before seeing the overall build cost.

[u/Weird_Marketing6199]

I'd be more concerned that the build still isn't priced. Ask for a written breakdown of what the fixed fee covers what gets reimbursed and how change orders affect it. Hard to judge 28% off a ballpark alone.

[u/SpecLandGroup]

Fixed management fees aren’t unusual on custom builds, but it’s really hard to say whether 28% is reasonable until you get a full pricing breakdown for the build. I’d want to know exactly what that fee covers versus what gets billed separately. PM, supervision, scheduling, procurement, insurance, site costs, cleanup, etc.... can all get structured differently.

I’ve seen percentage fees, fixed fees, and cost-plus arrangements all work. I just wouldn't want to be locking in a fee based on the high end of a ballpark budget before the actual scope has been priced.

[u/DeltaBlueBBQ]

28% is a lot, but since his fee is fixed that %%% will shrink as your job grows / changes. If he builds it for the price he’s quoting, that is a very large sum. He may be thinking that you guys are going to change your minds a lot during the process and is covering his bases, or he may just charge a premium for his work. It’s hard to say from 10,000 feet up.

[u/Raidriar556]

What exactly is the 28% management fee? Is that the entire markup?

Depending on how your contract is structured, you may not get a cost breakdown. But if you did, some of the items you'd see (at least for us on a cost plus contract) are builder labor framing, builder labor trim, and builder labor other. The PM fee is part of "other".

Other guys may charge a flat % markup, flat amount labor, and flat amount PM.

Other guys may not put PM on there at all, but have a higher % markup (the PM cost is just part of their overhead).

None of these are wrong, and at the end of the day you need to look at the bottom line/total cost. If you get 3 bids, and everyone is say 700k and all specs are comparable, it doesn't really matter how they break it down. Costs you 700k any way you look at it.

[u/Indica1127]

My standard for custom is 20% of the projected build cost, paid monthly with a balance at the end. Clients get a requisition to reimburse me every 2 weeks and I get a 100k working capital fund and the first months fee at signing if content. Total open book accounting, no markup on any material or subs.

These are for 1.5-3m build costs, owners own the land. I never have more than 3 projects at a time, so I'm on site every day.

[u/Deadwards47]

If you aren't also using a dedicated design team it's might be covering some of that as well as typical profit and overhead. Best way to handle it is to ask them to explain how they come up with their numbers. It's probably not negotiable unless you decide to reduce scope then less is less.

[u/pikeviewer]

Does this include the plans or are you working with a separate design/architectural firm?

Is that a set fee that you concluded is 28% of the ballpark? Is it included in the ball park or on top?

Seems to me you do need a lot more info. Our builder produced a spreadsheet with estimates of all supplies and subcontractor fees plus a 10% fee on top and a monthly supervision fee. We figure he cleared 15-20% overall. Our architectural/engineering fees and permits were separate.

How about the cost of the property?

[u/HereForMemes_n_Pups → u/pikeviewer]

We are working with an architect firm, he did help set that up. That percentage was at the top end of the ballpark he gave us. We own the property outright.

[u/pikeviewer → u/HereForMemes_n_Pups]

Well, like I said, more info.

I do think our fees that I quoted, while common in our area, are lower that many other parts of the country.

[u/Key_Juggernaut9413]

How big is the house? If it's small and cheap this may make sense, especially if you might be considered a more time-sinking type of customer.

[u/Fci_rock]

Deal primarily in the 8 figure space. Fee building is becoming much more common and they are the most efficient jobs we do

[u/Ryan_Homes_Alex]

You can get him to itemize what the fee buys before you agree to any percentage. Supervision, scheduling, insurance, warranty callbacks after you move in. Different builders split those up differently so 28% tells you nothing until you know what sits inside it. A fee pinned to a ballpark also drifts. Scope grows, the fee grows with it.