Today’s episode is for those of you who want to build your house YOURSELF, but not ALL BY YOURSELF. Yes, you could hire a general contractor to build your home, but there are other ways to get help with the building process WITHOUT hiring a builder to manage the entire project.
We’ll talk about that in a moment, but let’s start with today’s Pro Term…
PRO TERM: TAKE OFF – An estimate of all the materials needed to complete each part of a construction job. It’s a detailed list of every component and piece of equipment necessary for a project.
A Materials take off or Materials take off list, not only includes the list of materials, but it also specifies the quantities and types of materials—it doesn't just list the AMOUNT of steel needed, for example, but also the GRADE of steel needed. This list is generated by analysis of the home’s blueprint or other design document.
The take off answers questions like “How many 2 x 4s are needed for the wall studs?” or “How much plywood does my roof require?” Having the count of all your building materials allows you to know just how much you are really going to spend for your home.
If you use a builder, he will obtain the take off to estimate the cost of the project. If YOU act as the builder, though, it will be your responsibility to get the take off. Some suppliers, such as lumber companies, will give you a complimentary take off in hopes of getting your business.
There are also companies that will do the take off for your entire project for a fee. Just Google “residential construction take off” or something similar and compare the fees and experience of those companies.
Now, let’s get to today’s mini lesson…
Most people think there are two main ways to have a house built:1) by using a General Contractor or 2) by managing the entire project themselves.
Now there’s nothing wrong with hiring a builder or general contractor if you want a custom built home, but have absolutely no interest in managing any of the construction. General contractors assume responsibility for the entire project.
They handle everything from the permitting process to the landscaping and everything in between. The owner simply secures the financing and pays the contractor at regular intervals. There is very little stress since the owner is not involved in day-to-day operations.
However, hiring a builder leaves the owner with significantly decreased control of the project and with less money to put toward the new home, since builders typically charge 10-25% of the cost of construction. But if you can afford it and don’t want to be actively involved in building your home, hiring a general contractor is a good choice for you.
And if you have enough time, knowledge and courage, you can manage the entire construction process yourself.
But, what I’ve learned in my research is that there are hybrid approaches where you as owner can act as general contractor AND get help from people with experience in residential construction. The two hybrid approaches are 1) hiring a project or construction manager, or 2) using a construction management company.
If you want to save money and exercise considerable control during the construction of your home, BUT you are limited by the time you have available to manage the project and/or limited by your construction knowledge and experience, hiring a project manager or construction management company are good alternatives to hiring a general contractor.
One key difference between hiring a GC and a construction manager or construction management company is financial. In a traditional homeowner-GC arrangement, the contractor calculates his fees by getting estimates from suppliers and subcontractors, then marking up the supplies and labor. That’s the price he charges you.
In contrast, if you work with a construction manager or construction management company, you will see the breakdown of all the prices. YOU, the owner-builder, will hire all the subcontractors and there will be no middle-man to mark up costs. You will pay the construction manager or management company a fee, but it is almost always less than the GC’s fee and his markups. These alternatives will help YOU act as the general contractor, without you having to run the entire process.
In some instances, banks will require owner builders have a third party work on the project as a condition of getting financing. Construction mangers and management companies can help you achieve this goal.
Now let’s talk about a little more in depth about the Construction management company option. Construction management companies offer some or all the following: financing for owner-builders, construction support and advice, take off services, vendor recommendations and material purchasing options.
They are usually national companies with large customer bases. In some instances, they may have local offices that offer on-site supervision and assistance. Their fees range from several thousand dollars to tens of thousands of dollars.
While some management companies offer many services for owner builders, others offer little to no service, so it is important to investigate them before signing on the dotted line.
These companies act as consultants for owner builders, but they are usually NOT on site during construction, unless they have a local presence and you arrange site supervision.
If you are someone who wants to act as GC and you have great organizational skills and a job that allows you to sneak away to the construction site whenever needed, a construction management company may be the best option for you.
But since these management companies usually conduct business over the phone, they may be too “remote” for your needs.
If you like the idea of a construction management company but need more help on the construction SITE to supervise subcontractors, hiring a construction manager might be better for you.
The job of a construction manager was originally developed for use on large commercial projects, but construction managers are now used on single-family residential projects. There are a number of variations, but on residential jobs, the project manager acts as supervisor overseeing the project for the owner and is paid an hourly or flat fee to make sure things go as planned on the job site.
The construction manager is the owner’s representative and looks out for the owner’s best interest. He oversees the subcontractors, makes sure that the work is done properly, and help keep the project on schedule.
The construction manager can perform as many or as few services that the owner would like. He can handle construction documents and administrative duties. He might help evaluate house plans, get bids from subcontractors, help negotiate terms with subcontractors, schedule subs and monitor their work, handle permits and inspections, order materials and negotiate materials discounts, and make payments.
The construction manager is an advisor, with you, the owner, making the final decisions. The more tasks assigned to the construction manager, the more his fee will be. Although you could give the project manager most of the day to day tasks, at minimum, you as the owner would see the subcontractors’ bids, make the final choice of who to hire, and contract directly with the subs.
So, who could you hire to be your construction manager? If you had an architect to design your house, for an extra fee, the architect might assume the role of construction manager. Architects often feel a personal connection to their design, and want their design executed with excellence. So architects are often very diligent about making sure the home is built well.
Other people who could act as construction managers are retired or working general contractors, framing carpenters, or other major subcontractors. You may be able to find such a person through building supply companies or through you home builders association.
If you decide to hire a construction manager, find someone you can easily communicate with and clearly define in a contract what duties and compensation you two have agreed upon.
Hiring a construction manager is a good way for the homeowner who has no building experience to get some of the benefits of being his or her own contractor but, at the same time, have a pro at hand to lend confidence and guidance. If an inexperienced or overly busy owner-builder wants some level of control in building his/her new house, hiring a construction manager to manage the project is a good solution. A good construction manager can be your eyes and ears on the job site, troubleshoot job-site issues, and keep everyone honest.
Here are a couple of warnings though …since many construction managers are also GCs and have relationships with subcontractors, a shady construction manager may still be getting some mark-up on the subcontractors work. Before settling on a sub that is recommended by your CM, get several bids on your own too to make sure you are getting a fair price.
The construction manager is taking on very little risk and is generally not liable if things go wrong. Since YOU, the owner, are contracting directly with the subs and suppliers, YOU, not the construction manager, end up owning all problems with scheduling, workmanship, conflicts between subs, change orders and cost overruns. Therefore, you should pay a construction manager substantially less than you would a general contractor, because construction manager is earning a guaranteed rate and is taking on little or no risk.
Fees vary and you should negotiate a price that is acceptable for you both, but you should be able to save half to two-thirds of the typical general contractor’s fee. So instead of paying a builder 10-25% of construction costs, you would be paying a project manager 5%-17.5% OR LESS for their services. I’ve seen some fees as low as 3%.
Personally, I think its a good idea negotiate a flat fee at the beginning of the project based on the ESTIMATED cost of construction, and not based on the ACTUAL final construction cost. Otherwise, if the project manager’s fee is based on a percentage of the final cost of the home, there may be some temptation for the manager to recommend more expensive products and services.
For an even greater degree of independence, instead of hiring a construction manager to oversee the entire project, you can hire a construction manager as a consultant, on an “ as needed” basis. There are qualified, experienced managers who will work for an hourly fee. The cost should run between $35.00 to $100.00 an hour depending on your particular market. In addition, the manager may give you a minimum fee for a job site visit or for an inspection, a $100 minimum for example, for a site visit.
By the same token, you can impose a site visit maximum, to ensure that fees don’t get out of hand. For example, you can say you will pay the construction manager $50/hour for a site visit and say there is 5 hour maximum.
Paying a construction manager per hour or per site visit is ok, but say NO if the CM hired on an “as needed” basis asks for a percentage of your construction expenses.
The construction manager has limited responsibility when working on an “as needed basis” and that level of responsibility does not warrant a fee based on a percent of construction expenses.
Hiring the a project manager as a consultant allows for lots of flexibility. You can call for consultations periodically. If a problem arises, an experienced construction manager can help you find solutions, as needed. And you can use the managers more often during the construction of the structural elements of the home and less often for the interior finishes. You can call for more consultations if your work schedule gets really busy and less often if you have more time to put into the project.
By analyzing your needs and comparing them to the strengths and weaknesses of each entity, you can come to an option that best fits your project.
Hiring a qualified general contractor is the easiest option, but also the most expensive. With the hybrid approaches of hiring a project manager or a construction management company, you could get the best of both worlds— control of your project and input from experienced construction professionals (not to mention money saved).
Look for an experienced construction manager or construction management company with good references and negotiate a thorough and fair contract and chances are good you won’t have major problems.
Now, Let’s see how well you do on this week’s quiz.
1. Who are some professionals that you can hire as a construction manager?
Architects, retired or working general contractors, framing carpenters or other major subcontractors.
2. A construction manager and construction management company typically charges how much less than a general contractor?
They charge one half to two thirds less than a general contractor
Ok, that’s it for this week.
Remember, the purpose of this podcast is to educate and inform. It is not a substitute for professional advice. The information that you hear is based the only on the opinions, research and experiences of my guests and myself. That information might be incomplete and it is subject to change, so it may not apply to your specific project. Always consult a professional about specific recommendations for your home.
Thank you for joining me. Come back next week for the next edition of BYHYU.