Consumer Homes.

Question:

The way to do this is have an experiemced attorney look over everything INCLUDING all loan documents. You need to be sure that everything is done correctly or you will be short of cash OR you will owe excess taxes because of improper finacing. You need a pro to triple check everything. You should also have some extra cash and or a line of credit set up so that if something is horribly more costly you can stilll finish the job. This can be a profitable way to fix up a house BUT you have to be super careful that you don’t overimprove or "miss the market" and end up with an unsaleble house. There is a very real downside to fixing up houses and lots of people get burned! Odds are that this 50+ year old home is in pretty good shape. Most Chicago suburbs have "high code" construction and where people lose there shirts is when they sink $100K into "extras" that are more suited for a very "mcmansion" than a smallish bungalow. Even in really nice suburbs it is hard to get money out of property that is over improved… Good Luck! – Hide quoted text — Show quoted text -> I am waiting on a final quote from my GC and hope to have a > contract next week for a substantial remodel of a 1940’s > bungalow in the Chicago area.  My problem is that I am not sure > what the correct way is to structure the contract.  Since this > is a remodel of a 60 year old house I am sure that there will be > lots of surprises. > A good example is the siding.  The house currently has > aluminum.  We want to replace this with fiber cement.  The sub- > con who is quoting the job told me that he will probably be able > to reuse the sheathing but he won’t know until he gets the > aluminum down.  He is quoting based on having to replace it and > will discount if he doesn’t have to.  How should this be handled > in the contract? > This also applies to the roof and subfloor. > To further complicate things, we are using a single closing > construction to permanent loan.  In this type of loan we can not > increase the contract ammount.  If unexpected upsides occur such > as sheathing replacement then we have to pay cash for them.  We > have told the GC to quote based on having to do every possible > upside and then to reduce the contract if the work is not > needed.  What is the best type of contract to use for this > situation? > Thanks > Drew > * Sent from RemarQ http://www.remarq.com The Internet’s Discussion Network * > The fastest and easiest way to search and participate in Usenet – Free!

Before you buy.

Response:

>The way to do this is have an experiemced attorney look over >everything

Indeed!  (I am an attorney).  When binding oneself to spending tens or hundreds of thousands it always amazes me how many people will not think it worthwhile to spend a few hundred on a lawyer, until AFTER the thing is signed, and THEN something goes wrong. Example on my house contract:  Builder’s "standard" contract said if THEY sue ME and win, I pay their legal fees.  Bafore signing,  I quietly pointed out to them that they had forgotten to include that if I sue them and win, they pay my fees.  Less than five minutes later a new standard contract was out of the printer, without any mention of anyone paying anyone else’s legal fees. regards, -v.

Response:

I am waiting on a final quote from my GC and hope to have a contract next week for a substantial remodel of a 1940’s bungalow in the Chicago area.  My problem is that I am not sure what the correct way is to structure the contract.  Since this is a remodel of a 60 year old house I am sure that there will be lots of surprises. A good example is the siding.  The house currently has aluminum.  We want to replace this with fiber cement.  The sub- con who is quoting the job told me that he will probably be able to reuse the sheathing but he won’t know until he gets the aluminum down.  He is quoting based on having to replace it and will discount if he doesn’t have to.  How should this be handled in the contract? This also applies to the roof and subfloor. To further complicate things, we are using a single closing construction to permanent loan.  In this type of loan we can not increase the contract ammount.  If unexpected upsides occur such as sheathing replacement then we have to pay cash for them.  We have told the GC to quote based on having to do every possible upside and then to reduce the contract if the work is not needed.  What is the best type of contract to use for this situation? Thanks Drew * Sent from RemarQ http://www.remarq.com The Internet’s Discussion Network * The fastest and easiest way to search and participate in Usenet – Free!

Response:

Rick’s comments are pretty accurate, but overlooks the real question with any such contract — how honest is the general contractor going to be?  If I am the GC I have to get the subs lined up and PAID. I can give all the documentation you want, but if it is bogus it doesn’t matter what percentage over I charge. Suppose I sub out $5k worth of plumbing, at 20% I "add on" $1K. If I wanted to collect $1500 I could ether charge a 30% overage OR just tell you that there the plumbing was $5495. If I am getting all the invoices and cutting all the checks it would be real hard to see anything out of the ordinary. Every builder can "play" with prices to try to make up their overhead /mangement/time costs. If the builder is also a carpenter, roofer or some similar trade they can really bury you with multiple invoices — oh, that is the cost for the framing, that is the finishing, that is total charge w/o 20%, and this is grand total… You need clarifaction on this ahead of time. For me, I can "line item" the hourly I pay to framers/trim carpenters/roofers as "independant contractors" then legitmately charge 30% for supervision by me or my employees. Even though I conisder the hammer swinging guys my "crews" I only have the supervisor on payroll, the others are "laborers at will" and if/when I am slow they can/do work for other people. My supervisors get benefits too. In most cases I like to aim for 30% overall overhead charges. If the house (without land) sells for $300K I like to see $90K worth of fees. From this I have to pay for my trucks, office space, mailing/filing/phones, various insurance/bond fees, benefits and wages for me and my employees, and advertising/prospecting costs. I also have to live with some "risk" that I will have to cover shortchanges from either the client or subs (who I sometimes have to extend credit to…). Anything left over is technically "equity" for the business, but most times it isn’t much. It is damned near impossible to do more than than a handful of houses a year. The ‘typical’ new home, from signing contract to release of lien is around 20 weeks and requires about 500 hrs. of my time. Often times more costly homes require no more time, just "fancier" materials — it is therefore a simple means to ‘pad’ my overhead by ‘goldplating’, as I still get the same percentage of "overhead".  In truth, on homes that sell for over $600K (without land) I could cut my overhead, but most people in this range don’t seem to care about saving as much as quality. At the other extreme, I could not really cover expenses on a home that sold for less than about $120K (without land). I would still have similar amounts of time requirements and my "fixed costs" have to be covered.  While I can and do use phone/fax and computer to work on multiple houses at the same time there is still ALOT of stuff that needs to get done in person, from  design meetings to permits/variances, to supervision/inspection. Building more than a dozen houses in a year means that I do nearly no remodels and work 80 hour weeks in the busiest season. I like doing remodels for a couple of reasons. They are more of challenge than new construction, because almost always part of the job is "fixing" problems. Remodels go alot quicker. I have multiple sub contractors in and and out in days, not weeks. Generally people who want remodeling have a bit clearer sense of what they want and what standards they will hold you to, so it builds quality. Finally a good remodel, with high end materials, is a good way to build the business. People who see the quality jobs that I have done for their neighbors often call me back for a remodel or to build a new house. If a builder can do a good remodel they can probably do great new construction. ALWAYS go by references/past work. Price is the WORST way to evaluate contractors… Good Luck! – Hide quoted text — Show quoted text ->My builder recently faxed me the proposed >construction contract for >the house I want him to build for me. It is a "cost >plus" contract, >specifically, "payments shall be based upon >Contractor’s costs as to >time and materials plus a twenty percent fee to >Contractor." I do >plan to talk both to a lawyer and to other area >builders before I >sign this contract, but I was curious to know if >cost+20% was a >common percentage. And exactly what does it mean to >add 20% to >"time"? Does that mean whatever it costs him for >labor, including >his own, gets 20% added on to it? > Regardless of the percentage, this type of contract actually provided > an incentive for a contactor to drive up costs.   At the very least, > it puts all risk on the client, and none on the contractor.  It’s a > contractor’s dream.  On the other hand, if you are one of those "top > of the line work regardless of cost" people, it will eliminate > conflicts with the contractor.  I would not recommend for a client who > is not an experienced construction manager. > Another is a "cost plus fixed fee" contract.  In this type, the > contractor has some incentive to keep costs down, especially time, > since the result is that he gets his profit quicker and can move on to > another contract to make additional profits.  It shares the risk > somewhat, in that if materials and labor prices go up, it costs the > client, but if they go down, the client reaps the benefits. > Residential housing is normally constructed on a straight fixed price > contract.  In this type, the contractor assumes all risk, in that only > his profit is affected by changes in materials prices and/or labor > costs.  There is some incentive for a contractor to cut corners with > this type of contract, however. > Rick Marinelli > http://www.erols.com/rickandlisa

Before you buy.

Response:

>I do >plan to talk both to a lawyer and to other area >builders before I >sign this contract, but I was curious to know if >cost+20% was a >common percentage. And exactly what does it mean to >add 20% to >"time"? Does that mean whatever it costs him for >labor, including >his own, gets 20% added on to it?

Sounds like something you’d better get straightened out. FWIW, 20% seems steep.  But maybe it’s me. — ALL programs are poems, it’s just that not all programmers are poets.     — Jonathan Guthrie in the scary.devil.monastery

Response:

- Hide quoted text — Show quoted text – >My builder recently faxed me the proposed >construction contract for >the house I want him to build for me. It is a "cost >plus" contract, >specifically, "payments shall be based upon >Contractor’s costs as to >time and materials plus a twenty percent fee to >Contractor." I do >plan to talk both to a lawyer and to other area >builders before I >sign this contract, but I was curious to know if >cost+20% was a >common percentage. And exactly what does it mean to >add 20% to >"time"? Does that mean whatever it costs him for >labor, including >his own, gets 20% added on to it?

Regardless of the percentage, this type of contract actually provided an incentive for a contactor to drive up costs.   At the very least, it puts all risk on the client, and none on the contractor.  It’s a contractor’s dream.  On the other hand, if you are one of those "top of the line work regardless of cost" people, it will eliminate conflicts with the contractor.  I would not recommend for a client who is not an experienced construction manager. Another is a "cost plus fixed fee" contract.  In this type, the contractor has some incentive to keep costs down, especially time, since the result is that he gets his profit quicker and can move on to another contract to make additional profits.  It shares the risk somewhat, in that if materials and labor prices go up, it costs the client, but if they go down, the client reaps the benefits. Residential housing is normally constructed on a straight fixed price contract.  In this type, the contractor assumes all risk, in that only his profit is affected by changes in materials prices and/or labor costs.  There is some incentive for a contractor to cut corners with this type of contract, however. Rick Marinelli http://www.erols.com/rickandlisa

Response:

My builder recently faxed me the proposed construction contract for the house I want him to build for me. It is a "cost plus" contract, specifically, "payments shall be based upon Contractor’s costs as to time and materials plus a twenty percent fee to Contractor." I do plan to talk both to a lawyer and to other area builders before I sign this contract, but I was curious to know if cost+20% was a common percentage. And exactly what does it mean to add 20% to "time"? Does that mean whatever it costs him for labor, including his own, gets 20% added on to it? David Cox King George, Virginia Before you buy.

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