Are you thinking of hiring a builder for your project but are not sure what is the best way to go about it? Should you hire by the hour or ask for a guaranteed fixed price for the whole job? Let’s look into it.
So, you are at the very beginning of planning your building project, you have some ideas on paper and have reached out to a builder of your choice.
No doubt, you want to stay on budget during the construction of your dream home or an addition. The bigger the project, the more costly the mistakes are.
If you don’t plan to succeed, you are planning to fail, as the saying goes.
If you don’t plan ahead, you may end up spending a lot more on your build than what you thought you would – and may even run out of money during the project. Families have been destroyed by building their dream home and having arguments about the details, under huge pressure – and sometimes even loosing all their savings in the process. Don’t let one of the largest investments you may ever make break up your family.
So, what is the best arrangement to have with your builder so you can be certain that your custom home is built on budget?
There are two main approaches to hiring a builder: You can hire them by the hour or on a fixed price.
Let’s look at the by-the-hour arrangement.
A lot of people prefer the by-the-hour arrangement because they think it is the best deal for them. It is also very easy to understand. You worked for 8 hours, you get paid for 8 hours. This is a mind set of an employee, not of a professional builder.
Reasons To Hire A Builder
When you hire your builder by the hour, you pay for every hour they’ve spent on site, simple. Whether they were working hard or hardly working does not really matter. If they’ve been running in circles on site for 8 hours, you pay them for 8 hours. Can you see the problems that you can run into here?
If you hire someone by the hour, six main issues can arise:
1) Chances are your plans are not complete, and the entire scope of work is unknown. If it was known, the builder should be able to tell you exactly how much it is going to cost to produce this work.
2) If the scope of work is not known, the schedule cannot be known. The least expensive way to determine the cost of a construction project is before the work begins. Construction projects don’t get cheaper with time. They only get more expensive.
3) The longer they take, the more money they make. This is a classic conflict of interest.
4) The risk shifts from builder to owner. A lot can go wrong during the construction of a custom home, and under the by-the-hour arrangement, the builder is taking almost no risks – because you, the Owner, are taking them, whether you realize it or not. Did the strong winds flatten out the half-built frame over the weekend? Ups, gotta build it again – on your dollar. Did the concrete get poured but it is of a wrong grade that is not adequate for the footing? Oops, gotta chip it out, and order another truck in – on your dollar. You, the Owner, are very likely not an expert in construction, and cannot be expected to foresee and prevent these risks. This is the job of a construction professional.
5) Of course, mistakes happen. Cutting a 2×4 an inch too short, framing a window opening an inch too narrow, running to the store to get supplies that you forgot you needed? Who pays for these and other gazillion mistakes and inefficiencies under a “by-the-hour” agreement? You, the Owner.
6) With the “by-the-hour” approach, the work often happens without a written contract. This is, frankly, a recipe for misunderstanding. Without a detailed contract that specifies exactly what each parties’ responsibilities are, a disappointment is almost certain to arise at some point.
In rare cases when a by-the-hour arrangement is actually a good way to price a job, the unknowns pose a huge risk to you. For example, gutting a century-old home. It that can house a thousand surprises that are very difficult to quote on before opening up the walls. In this case, you better be prepared to increase your budget and your timeline on the fly.
Why You Should Think Twice Before Hiring A Builder?
When you hire your builder on a fixed price, it is a very different situation. Your builder is now under pressure to deliver exactly what they promised they would, and on schedule. Because if they don’t, you, the Owner, have full right to take legal action against them. They now have absolutely no incentive to make the job last longer. If the job lasts longer for any reason, you do not pay more – they do. If they make a mistake, they pay for it, not you, it is really clear cut with a fixed-price approach.
Most importantly though, with a fixed-price approach, you should always, always have a comprehensive contract in place. Not a quote – a legally binding contract. It should spell out exactly what will happen, when it will happen, and how much it is going to cost.
So next time you are talking to a builder about building a new custom home or an addition, and they propose a “by-the-hour” arrangement for the entire project, ask them these three questions:
- What is preventing you from determining a fixed price for this project?
- When will the project be complete?
- Who pays for mistakes?
See what they say, and make your decision.
To summarize, a by-the-hour approach is not in your best interest if you are planning a custom home build. It transfers a lot of the risk onto you, it takes pressure off your builder to work efficiently, and, most importantly, you have no way of knowing how much the build is going to cost in the end. It is also often done on a handshake, which can really leave you high and dry without any legal recourse. The best builders will be open to fixed-price contracts. Period.
When you hire a builder to construct your custom home, demand a fixed price contract, with warranties, delivery dates, and a construction schedule.
If you want to discuss your building project, click on the link to book a no-obligation 30-minute consultation with me. I will be happy to answer any questions you may have about planning your build so it stays on time and on budget.