Any Residential Builders in the US on the Board?

[Orion21]

The reason I ask is that my wife and I are remodeling our home and we have chosen a builder. He is extremely talented and my wife loves him. He is a designer/builder so not only does he do the plans, but he picks the finishes for the interior of the home. His design aesthetic is exactly what my wife wants, so we are finalizing our working relationship tomorrow after a few weeks of delay. However:

He is a fee based builder. He does not hire the subs and pay them. He is charging us a 15% based on our budget. He vets the subs, basically bidding out to a pool of subs he uses on a regular basis, and I will be the one hiring them. That means I have a contract with each subs individually and pay them directly. I am basically hiring the GC as an employee to manage the project and make sure things get done. This all seemed pretty straight forward until a client called this into question. Should I be concerned or is this normal for remodelers? Any advice would be helpful.

[stogieluver]

Hi Orion. I'm not a builder but I have done a ton of construction and remodeling loans for my customers over the years and this is not unusual. If you don't have previous experience with the GC or don't know someone who has, the two things I would recommend you check are his references (particularly a reference from his banker), and how and when the sub's expect to be paid. DO NOT, under any circumstances, pay the sub's prior to them completing their work. They may require a small downpayment to get started (buy materials, etc) which means they are underfunded, but this is fairly common. One alternative is for you to purchase the materials and just pay them for the labor. This may complicate things with your funding source, if you're using one. I just wouldn't pay anyone for work up front. If they want you to do that, run the other way. If you are financing this project through your bank, check with your banker to make sure they don't mind making small weekly draws so that you can pay the sub's. They 'll want to be paid at least weekly, depending on the duration of the job. If you are using a bank, the bank may require progress inspections prior to releasing each draw, and they are probably charging a fee for this, so you want to keep your draw requests to a minimum. Usually, a contractor will deal with all of this and you would either pay him in full upon completion or you would pay him as the work progresses. Bottom line...don't pay up front.

Email or PM me if you need to.

[Carpenter69]

I am a builder of residential homes. Normally, when someone of your designer/builder enters the scene 15% is normal. However, after plans are approved and contracts signed the only reason you should hear from any subs is when they say,"have a nice weekend." The designer/builder should handle any and all payments,problems,changes and the like. Hope this helps you out. Hope all goes smooth as silk on your remodel.

[Squarehead]

Aaron,if a contractor asks you for a downpayment to purchase material that would raise a red flag.He should have enough a line of credit and I would pay him as work progresses.Also withold about 10% for 90 days for eventuall shortcomings after completing the job.

[stogieluver]

Aaron,if a contractor asks you for a downpayment to purchase material that would raise a red flag.He should have enough a line of credit and I would pay him as work progresses.Also withold about 10% for 90 days for eventuall shortcomings after completing the job.

True. In my part of the world, only a few select remodeling type sub's have a line of credit. Most won't even qualify for a credit card, especially with the obama economy of the last few years.

[Isotonic]

I am not from the states but work in building insurance. Your builder is operating essentially as a project manager. He runs the job and gets paid a fee, you pay the bills. It's not an unusual set up in Australia however it's not common either. If you are prepared to be very hands on it may be an option for you however be wary as it can be a full on process.

[Orion21]

Thank you Iso. That is the picture that has come into focus for me over the last 24 hours. I have talked to a couple of his past clients today who assured me he handles everything and structures everything this way to lower insurance costs on his end. It helps lower the total cost 5-7% because he does not have to purchase workers comp insurance on everyone. They do it themselves and its much less expensive. It's similar to Cuban cigars in that if you trust your source you're good. In this project I need to trust my designer/builder like I trust Rob to get us the best cigars. I may pay a little premium for the service, but in the end it's worth it.

[CUBANO]

You need to make sure that the subs he hires have General Liability and Workers Comp, because if someone gets hurt you are the one on the hook.

[stogieluver]

You need to make sure that the subs he hires have General Liability and Workers Comp, because if someone gets hurt you are the one on the hook.

Very good point. Also, who's pulling the permit? Usually the GC will do that, but just ask.

[PaulP]

I have been in the construction industry for over 30 years and have several concerns. I personally would never hire a GC or CM without getting multiple bids. Only getting multiple sub bids is not sufficient. Bidding only to the CM's subs raises a red flag. Those subs are his friends and may be kicking back money to the CM for using them. They could add $2,000 to their bid and split it with the CM. You have no way of knowing. Is the CM writing all of the contracts and processing the billings with you just signing the contracts and paying the sub invoices? If not, 15% sounds high for a no risk CM project. Will you be getting a construction loan? Will you be using fund control? Be sure all subs are properly licensed and insured. The CM has no liability, you have it all. What form of contract will you be using with the CM and the subs? Look at the AIA documents. What do you know about lien law? Be sure to get lien releases from every sub for every invoice...If it were me, for the 15% fee, I would bid the project out to several GCs and let them have the headaches and liability. Best of luck with your project.

[bigharpoon]

I've been a contractor for a long time and while his fee of 15% for running the show is normal and using subs is also normal the way he expects you to have contracts with all the subs and pay them directly while leaving him out of the equation is definitely NOT NORMAL.

He may very well have plenty of good references, perhaps these are jobs that all went well. Well, what if your job doesn't go well? Normally when a problem arises you have one number to call, the General Contractor. He gets your call and then he does the leg work to get the appropriate sub in there to fix their mistake or make other arrangements. Why? Because that's his job and he is still contracted to your project and is still expecting money from you for the work that is continuing to be done while solving this other problem. He needs to fix problems and keep the job going or he won't get your money.

If you have contracts with every sub than it will land in YOUR LAP to hunt them down and try to get them to fix the mistake, if you can even figure out who did the exact work. Good luck with that one. They have very little to lose if you aren't satisfied with their work and will most likely blame someone else for it, unlike if a General is on their case. A General is going to be hiring these guys over and over and the subs aren't going to be so likely to burn that bridge or risk having their reputation bad mouthed in all the right circles so a General has much, much more recourse than you ever will.

Being a General is a lot of responsibility and a lot of liability, they earn their money. This guy wants a General's job and the money without taking on the liability. I wouldn't hire him in this arrangement, you are accepting a lot of potential headaches.

[TM-US]

F that. That's a bad arrangement. I'm not a builder, so I'm not talking from a lot of experience but I do know that if you're directly hiring the subs, you're on the hoik for liability and workers comp. Get a real GC that has insurance and do not go down the road you're on now.

[LGC]

If from the start, you need to ask others if this is a good idea, I think you know the answer. Skimping on costs is never a good idea when dealing with people that don't have much vested. You get what you pay for...

[PaulP]

If from the start, you need to ask others if this is a good idea, I think you know the answer. Skimping on costs is never a good idea when dealing with people that don't have much vested. You get what you pay for...

Orion is not skimping on costs. He is paying the full 15% he would pay a GC to a CM and Orion is personally accepting all of the liability for the project. Bad idea.

[Orion21]

I really appreciate everyone's feedback. I am definitely not skimping on costs. The reason I have decided to hire this GC is because of the quality of his work. I have now talked to 3 of his clients, of which two are builders who brought him in because they can't reproduce his style and eye for design. The third is a prominent real estate attorney who has worked with him on three of his own projects. They told me a lot of the same things you all have mentioned here about the liability being on my shoulders if something happens. I feel comfortable to move forward because I have been provided proof of license, bonding and up to date insurance, including workers comp. At every stage I pay a bill there will be lien releases provided. If any things come up that will increases the bid on any stage of the project more than 5% a change order will be required. He drafts his own plans, but employs an architect if the need arises, and there is a structural engineer involved as well.

Additionally, I brought in two other "big" residential builder/remodel companies a couple of months ago when my wife and I first started planning for this project. My main issue with them was that they just were too mechanical. Everything was cookie cutter and uninteresting when it came to the design. They were efficient and detailed, but lacked any vision what-so-ever. One of their proposals was just plain ugly. The GC I hired just happens to be one of those talented people who has the "eye" you can't teach. In the end I am comfortable with how the process is being designed, especially since he has worked on over a dozen home exactly like mine in my area. Anyway, thank you all for the advice and I will update the thread with pictures and progress reports as the project progresses. I won't filter my content if things happen. Cheers!

[Isotonic]

would love you to post picks of your progress. I am fascinated by the differences in the construction process from country to country.

It's weird how in some countries being a builder as treated as a basic working class job/trade with little prestige. Australia pays it's construction industry very very well. With that comes the red tape, OH&S and regulation but if you can do it right it's a trade that can be very profitable.

[guideright]

Orion -

We just went through a major remodel and this was one of two models I looked at. The only reason we considered it was the quality of the GC as a person the risks have all been mentioned except for one - continuity of work - we didn't want to have a discussion about which sub was responsible for what where project went form one trade to another - ultimately we went with a GC we had used in the past who had his own crew that could do 90% of the work - yes we ran into issues (water drain line leak under slab, repipe of copper, etc., modifying electrical) - it made working through those issues much easier since coordinating subs wasn't required.

I believe either way can work - but glad we went this route -

I wish you the best for results you can enjoy!