We are looking at getting some work done on the house [200 sq ft build out, with 2 bathrooms and a kitchen being re-done]. My wife's good friend since highschool is a builder and put together a design and a very detailed project cost as a favor.

I have a lot of questions before I go much farther but my main question is what should I expect to see [ballpark] for a builder fee % on a reno project...and is that fee on the total [labor, materials, add'l costs] or typically just on specific categories? Currently as quoted, it's a 30% add-on to total project cost...which seems out of control to me, but I really have no basis for that opinion.

[This message has been edited by RK (edited 2/19/2012 5:45p).]

30 is pretty high. Sassapis is about right. There are some overhead costs but for a smaller builder they aren't major. I'd go 5% overhead, 10% profit. 10 is reasonable margin.

I am building a house right now and the builder is doing it on cost-plus. He is charging me 11% mark-up which is what he calls "profit" and he charges another 3% for his superintendent so it is a total of 14%. Keep in mind though, this is new construction which is a bit easier than remodel and there are much larger dollar amounts involved.

Personally, I like this arrangement because the builder has no/less incentive to short cut. He charges everything to me so he uses the best materials. My only complaint is that when we started the job, he claimed that he would go out and get 2-3 quotes for every major portion of the project and then we'd decide together which sub-contractor to use. In reality though, he used the same sub-contractors as he does for every other house. I don't really hold it against him though because I didn't enforce it and I want him to use the subs he is comfortable with anyway.

Good luck with the project. Speaking from somebody who is in month 14 of construction with at least one more to go, I don't envy your position. It is more nerve racking than any Aggie football season!

thanks for the info, guys.

10% is reasonable profit?

Hilarity. Says who? You? What do you do for a living? Do you have a clue?

Also, there is a difference between marking up something 10% and making 10% margin.

I'm in construction. Most jobs make about 2-3% profit on the larger, more complex projects. A small project like this the margin goes up. In the o&g industry the profit is about 15-20% for construction jobs.

Why don't you give us your opinion of profit margin since you seem to know it all.

In reference to the OP's original post, 200 square feet at let's say, $150 per square foot (bathrooms are relatively expensive) would be $30K for the entire project. 10% percent mark up would be $3K for a more than likely a minimum 60 day project (from drawings through permitting through build to move in). 5% OH on a $30K cost to produce valuation job is $1,500.00.

GL if based on gross sales at say 2% OF gross sales = $690.00($30K cost to produce + $3K profit + $1.5K OH = $34.5K....$34.5K less 2% GL = $690.00)

That leaves contractor with $3K profit + $1.5K OH less $690.00 to GL coverage = $3,810.00) That's a total mark up of construction costs of 12.7% realized.

$1,905.00 per month? Really? Owner and / or bank holds retainage? Now the contractor is doing the work for free through retainage pay out.

How many of these jobs would a contractor have to do to make a decent living? Warranty obligations? Collection costs? Legal fees? The picture gets more grim by the moment at the proposed 10% / 5% pay out.

Would not touch a re-model that size for less than 20% mark up plus 10% OH (assume legit supervision...no fly bys).

New home, ground up construction percentages can be modified depending on the total construction value. But at a minimum the contractor needs to be paid more percentage profit than the 10% retainage amount otherwise contractor becomes the de facto no interest bank.

For the record, in the case of margin, a 10% percent margin would be construction cost divided by 1.00 - .10 (or 90%). In this case $30K divided by .90 = $33,333.33.

I know, I know commerical contractors are a LOT different and their profit mark up / margin is a lot lower. Residential construction is different. Been doing it for 24 years.

Maybe we just have different views of the same object. It just rubbed me the wrong way after having been questioned by people that want to set "profit" standards according to what they think I should be paid while they would never EVER tolerate having someone question what they make for a living.

<sigh>
It's even worse when I'm asked/insisted/raved at that I ought not charge for labor, but just "pau it out of my pocket."
Or, when they only are willing to pay the net pay rate, not my actual gross rate (runs me $12.50-15 to pay $10).
Don't even get me started on having to explain how I pay my 1099 people, either.

Shoot, I've had customer tell me I ought not bill them more than FMW for my labor hours.

Most of those folk not only "just don't get it," but most never will, even when explained in calm, simple words of less than one syllable. The same cohort simply will not believe that making $70/hr and only working 4 hours a week is less than minimum wage.

Poor math skills are poor.

for the sake of transparency, this is a ~75K job [material/labor] so the builder tag is about 23K. just trying to make sure nothing is too far out of line...

i'll now leave y'all to continue arguing amongst yourselves.

Wow! Residential is much different than commercial. I build pipelines, plants, and other big projects. Most of my jobs are in the $50- 100 million range

Why don't you get two other estimates and see where they come in? If you choose not use your wife's friend you could still pay them for their time. 30% is on the higher end under the current economic conditions but other factors come into play such as location and time of year.

i will do that; this is just an easy first step.

i expect it will be a little longer; 60-75 days based off some very preliminary spit-balling that has been done.

there is a reasonable chance we will just do the bathrooms/build-out now and not worry about kitchen and the other stuff until next year...so if we end up cutting the job i would think that further validates a higher %.

I work in the commercial side and I can tell you for my small project which is less than 1 million (very small for our industry) the daily operating cost is around $850 a day. Like others said get at least 2 other quotes. Remember just because someone is slightly lower in their bid doesn't mean you won't end up spending more in the long run.

quote:

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$1,905.00 per month? Really? Owner and / or bank holds retainage? Now the contractor is doing the work for free through retainage pay out.

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$1905/month and the GC likely has more than one job going at a time...which means he's not getting $1905/mo to just be at your property. If he's only doing my house, why is that my fault? In fact, I'm wondering why I'm hiring a guy who doesn't seem to get a lot of work?

Most homeowners don't put retainage in a contract, nor ask for it b/c they don't know better. In fact, most people I know who do home remodel the GC asks for half up front and then progress payments...this is before he's done or bought anything.

I realize homeowners don't understand contracting, but lets not pretent you work for free. You'd be out of business.


[This message has been edited by agracer (edited 2/22/2012 7:29a).]

There is way too much competition out there to settle for one bid and start out unsure about the fee. There is no harm in getting multiple bids, the friend doesn't even need to know.

On top of that, 30% is not much of a friendly discount. On T&M work (time and material...what you are doing) it's pretty standard to have 15% overhead, 10% profit.

my .02