Answer: We select the products that provide the best cost/benefit to the client and then use our extensive cost database to price each item.
3) Question: Do you know the cost of every option?
Answer: Almost, but no. We do have to make a phone call every now and then to get pricing on something we haven’t ever used. There are always new products on the market, and we have to research the brand new ones. There aren’t many, however, just because we have been doing this for over 20 years.
4) Question: Why are there so many different options and variables in residential construction versus commercial?
Answer: Primarily because clients in the high end are willing to consider the cost-benefit of better products. When price is all that matters, the less expensive option will always be chosen. However, high-end clients are willing to consider the ongoing maintenance costs of the home, energy costs, and what we call “lifestyle upgrades” such as whole house automation.
5) Question: If there is so much variation in the pricing, how can bids be compared from one builder to the next?
Answer: It’s tough. The best way is to ask for as much detail as you can possibly get. Then, ask more questions about the products chosen and methodologies being employed for each discipline. For example, where concrete is concerned, ask about the type of slab (slab on grade or post tension, for example), PSI of the concrete being used, soil testing, engineering of the slab (how much rebar, etc,) and keep asking questions until you feel confident in the answers you are getting. At some point, you should get a feeling for who is being the most honest and forthright. That’s who you want as your builder.
6) Question: If I find a builder who has less experience and has forgotten to price everything in, haven’t I just found a bargain?
Answer: You would think so, but the answer is a resounding no. The reason is simple. An inexperienced builder will leave things out, ask you for more money throughout the project, and make lots of mistakes that could end up costing you more later. If you don’t agree, read about the Sandra Bullock lawsuit against her home builder in Austin. She sued her builder and actually won. Many others who aren’t able to sue or who didn’t win have similar stories to tell. Building a home is complex. If done properly, it will be a huge blessing for many years to come. If not, it will be a curse. It’s as simple as that.
7) Question: Is there a big profit margin in the custom home industry?
Answer: No, and this is probably the area of the most confusion. People think about retail markets such as jewelry where markups can be 50% – 100% and assume our market is similar. Unfortunately for us, the margins are paper thin in the custom home industry. For instance, the common cost plus markup in our area is cost plus 18%. In this industry we deal with REALLY BIG numbers and REALLY BIG risks and little bitty margins. That’s just the nature of the business.
8. Question: Why is there so much variation in cost from builder to builder if the margins are so small?
Answer: Because of the many variations in products that can go into the home. This goes back to the answer in #1. Also, there is a difference in labor costs, sometimes rather significant. That’s another area where an experienced builder can really save you money. Good relationships with trade partners yield the best results and pricing.
What are your questions? If these questions have led you to more questions, bring them on. I will be glad to do my best to answer them.