Have you ever wondered how builders charge? Is it different per builder? Is it subjective? Does it make sense? Let’s explore the different approaches that builders use for compensation.
One popular method is using a price per square foot, where the builder quotes a set fee for every square foot of the construction area. This can be a straightforward and easy-to-understand approach for the customer and the builder. It provides the customer with clear and consistent pricing while also allowing the builder to consider market conditions and cost efficiency.
A second method is the use of a cost-plus flat fee. In this approach, the builder adds a fixed amount to the cost of materials and labor to determine the final cost of a project. This approach can be advantageous for a builder as it enables them to cover their expenses while also earning a profit on the project. Additionally, this method can provide a customer with stability in terms of builder fees despite potential fluctuations in material and labor costs throughout the course of the project.
The final method to explore in builder compensation is the cost-plus percentage method. Under this method, the builder will add a percentage markup to the cost of materials and labor to arrive at the final price for a project. This approach can provide the builder with a higher profit margin on a project, but it also means the customer may experience a higher builder fee if the cost of materials and labor increases. Conversely, if the cost of materials and labor decreases, the builder fee will also decrease.
Cliff Black of Black Construction and Brock Posey of Southern Brothers Construction discussed their approach to pricing for new construction homes. Both builders stated that they charge a set price per square foot for their homes. According to Black, this method is based on market conditions and what is financially feasible for both the builder and the customer. Posey echoed this sentiment, stating that charging per square foot is a more efficient pricing method. Both builders emphasized the importance of being transparent and fair in their pricing practices.
Ultimately, the choice between price per square foot, cost-plus flat fee, and cost-plus percentage pricing methods will depend on your specific needs and financial goals. It’s essential to understand the pros and cons of each method fully and to work closely with your builder to find the pricing approach that is right for you.