Hiring an Experienced Builder vs. Acting as Your Own General Contractor

Grand Junction Real Estate Advice

Dear Dave,

I’d really like to build a house, but I’m not sure where to begin. I’ve looked into hiring a contractor to build it for me but, by my estimates, I think we could save about 30% if I hire all of the subcontractors myself. Do you think that is accurate? And would you recommend it? I would appreciate any advice you can provide.

Ron and Cindy - Grand Junction, CO

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Ron and Cindy,

I understand the lure of acting as the general contractor on your own job, however, I believe your estimates of a 30% savings are significantly over estimated, unless you plan on doing A LOT of the work yourself. Everyone would like to save a few bucks on a new home build, but consider that most general contractors operate on 10-15% margins. 10% would be typical and 15% would be a best case scenario.

If a build goes near perfect with few mistakes and no big surprises then 15% might be achievable however, most jobs I have been around have problems that were not predicted and many times those problems are expensive. The National Home Builders Association reported in February of 2014 that the average gross profit margin of home builders was 17.4% and after all expenses were paid the average net profit was 4.9%. Listen, in my opinion your best savings would be 17% and that is if their expertise in running a construction job site was worthless and saved you no money at all.

To obtain this number you would also have to assume that the subcontractors would give you the same or better price than the prices they give the builders. I don’t believe that in most cases that would prove to be true. One of the advantages of hiring a builder is not only their expertise in building, their knowledge and ability to manage a construction site, their vision and input, but also the pricing they get from their subcontractors. Your builder should get great pricing from his/her subcontractors because he keeps them busy and in turn can pass these cost savings on to their customers. All of this, does not take into account the time, energy, headache and heartache of you acting as the general contractor on your own job site.

“Here is my advice, if you do not have experience in acting as a general contractor on a construction site - don’t do it! Everything that goes into making a job run smooth, run on budget, run on time and ensuring that corners are not cut is worth 10-15%!”

Here is my advice, if you do not have experience in acting as a general contractor on a construction site - don’t do it! Everything that goes into making a job run smooth, run on budget, run on time and ensuring that corners are not cut is worth 10-15%! I can also tell you that most of the time when I see a home where the home owner was the general contractor it shows! Listen, I say this to my kids all the time, little things add up to big things. When the little details are overlooked or not given the constant attention they deserve, the end product will suffer and not be nearly as good as it could be! An experienced home builder is a master in managing the details and making sure your finished product is the best that it can be.

When it comes down to it, building a new home is a huge project. Put it in the hands of a professional. If I need heart surgery I am not going to my family doc and handing him/her a knife - not because they could not do it, but because it is not what they do every day! The hiring of the right builder will be worth the money and the proof will be in your finished product!

Dave Kimbrough
The Kimbrough Team

How do we find the best builder for our house?

Dave,

We have been planning to build our new home, which has already been designed. We have already purchased our property and have been talking to people and getting the names of reputable builders with the intent to interview them and hopefully get started sometime this summer. We have been saving towards this goal, but we are nervous that we may have not saved enough. A friend of ours went through this process a few years back and the builder he used was nearly 60 days late in completing the job and 10-15 % over budget. How can we protect ourselves from falling victim to the same problem? Obviously we will not use the same builder our friend did.

Best regards,

Bill, Grand Junction

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Bill,

As always the solution is really quite simple, but easily overlooked. I too have fallen victim to the promise of a 8 month job that turned into 18 months and escalated to 20% over budget. When it happened to us it was one of the most stressful and frustrating experiences of my life.  The stress of when will the job end and how in the world will we pay for the overages, was constantly stressing us out. The best way not to fall victim is to get everything in writing prior to the start of your job.  Make sure the contract you sign spells everything out, in detail. If you do not have a detailed contract, bid and schedule then I would move on to the next builder. If you feel more comfortable have an attorney look the contract over to make sure all your bases are covered.

I am one of those who has an innate trust of people, call me naive if you wish, but it is one of my short comings to believe what someone tells me. I have learned, or should I say am still learning, to trust what is in writing and ask the hard questions up front. If you have already had your home designed and have building plans then you should be able to have a couple of builders put your job out for bid to their subs and get a number back that is fairly tight. In their bid number you should have allowances for lighting, flooring, fixtures etc. When you look over those numbers you will need to go out to the stores and see if the allowances are going to cover your tastes. In my experience where you see the numbers really start to escalate are in the finishes. If the builder only budgeted Granite tile for the counter tops and you wanted Slab Granite, you can easily do some serious budget damage with that one upgrade. Like lighting for instance, when we recently did a remodel our builder budgeted X for lighting, but when we looked it over we told him to double it. What he did not know was, we are lighting freaks! He could have never known that, but luckily we knew it about ourselves and thus averted blowing our lighting budget. Check the numbers up and down and make sure that you can live with the allowances the builder has set forth in the bid for your job on all your finishes.

If I were to do it again, which I may never do, I would make sure that the builder provided a detailed building schedule and I would build in incentives to make sure that the schedule is met. Let’s face it, one way to get what you want is to provide incentives and bonuses for goals that are met. I would easily pay my builder 3% more to come in on budget and on time than save the 3% and suffer through 2 months of inconvenience and coming in over budget. Set it up as a win/win for everyone involved.

“Lastly, check references and ask the builder what happens when he comes in over budget? What percentage of jobs has he had that are on time and on budget? When your previous jobs have gone over schedule, what were the delays caused by?”

Lastly, check references and ask the builder what happens when he comes in over budget? What percentage of jobs has he had that are on time and on budget? When your previous jobs have gone over schedule, what were the delays caused by? Do you have 5 references?  When you call the references, drill them with questions about the experience. Would they use the builder again? Would they refer them to their own family? If they could change 3 things, what would they have been? These are all questions that will lead you down the path of if they are the right builder. The more homework you do, the better you will generally do on the test! : )

Dave Kimbrough
The Kimbrough Team