Bevangel said: you agree to pay him a fixed builder fee to manage the project while you buy the materials and pay subcontractors directly without any of that money flowing through the GC's hands. In other words, you manage the money while the GC manages the work and you pay him a fixed amount - agreed to in advance - for his efforts.

I've described that as a management contract and have indeed built homes under that agreement for what effectively works out to about $10K a month. However, this would not work for the OP, as the manager would be expected to be on his (entirely theoretical) site all day and do no other work. No experienced luxury home builder would submit to such a nonsensical arrangement.

Ironically, though, I have walked away from "spec" properties $35,000-$300,000 in the hole. Yep, homebuilding is sure an easy money business of neverending riches!

This post was edited by worthy on Fri, Apr 12, 13 at 16:55

@cleanfreak0419

Another greedy builder pushing his agenda.

You wrote:
" methinks munzer needs to install some of this cheap ceramic tile flooring and then install some of this expensive marble flooring for himself."

I did not compare labor cost of cheap tile with expensive marble.

I compared labor cost for $5.00/sq. ft. marble to $10.00/sq. ft. marble.

Your dishonesty distorted my argument. You will do the same in building my house. Builder like you would prefer to get a percentage of my entire net worth to build a custom home if you could get away with that. You greedy custom home builders. You are a dishonest person. I would not hire you.

You wrote:
"I also remember this is the same person who posted a thread about trying to get a builder to "drop" everything and do nothing but build their home....."

Why not?
Why can't I hire a builder butt?
Do not some builders work full time for companies?
They simply work for that company.
Same way, why can't I hire a builder for the entire year on my pay roll.

We the public are now getting smarter. We are learning in this website and other places. Your days ripping us off is about to be over.

In the future you will get paid only for your expertise, time and small risk you take. Nothing more. We the consumer will educate each other in this website and other places.

We will expose you and other builder, architect and subs who are pushing their agenda at this website.

We are also learning about the unfair contracts written by National and Local Home Builder Association to protect builders' interest more than the home owner.

Internet will eat up your free lunch. Through the power of internet all home owner units. We will expose your dirty little secrets.

Your unfair business practice time is about to be over.

This post was edited by munzer1 on Sat, Apr 13, 13 at 0:41

Doth protest too much. I suspect you work the system for your own income - personal injury attorney, some type of healthcare that depends on Medicare reimbursement or other third party profiteering.

I'll leave it at that.

What's the point of arguing here about whether or not builders are overpaid?

Munzer is free to go solicit builders to work on his terms, and then he can see how that works out. I'm not sure what the logic is of trying to sell someone on taking lower wage than they would likely be able to receive elsewhere, but he's apparently put a lot of thought into this...

My brother is a dishonest person. He tells small lies to get discounts (such as lying about his son's age so he pays lower ticket prices). He bends rules (and laws) when it suits him.

He assumes that everyone else acts the same way that he does. He is suspicious, and always feels like he's getting ripped off. He doesn't trust people, and thinks he is always right (no matter how well others may present a very valid argument).

I think he and Munzer would get along great.

@ all custom home builders

You folks are doing price fixing. What we, the home owner need to do is to empower NHOA (National Home Owner Association) to counter National Association of Home Builder organization (NAHB), educate each other and lobby.

Builder price fixing need to stop. Support the consumer.

Ok heres the deal, You clearly have no faith in the building industry. Thats fine, somewhat foolhardy to enter into said industry with such a large budget, but be that as it may. If you want a semi successfull/happy experience in the process you need to sit down and do some serious research. You not even seeming to know how escrow works when you come here soliciting advise bothers me greatly. Google is your friend and a seemingly more reliable source than all these evil 'demon builders'. I've provided a very helpful link for you on this, modify its method as needed.

Now my next and most sincere advice to you is this, if you want to step out of the norm on the build financing then do your homework first and realize what your risks are by doing so. Some folks have pointed a few of them out here but I guarantee you there is more and it may require a whole heck of a lot more interaction/oversight than you think you might have to or want to take on. Then we'll hear you back here crying 'why didn't anyone tell me this!!!'.

Here is a link that might be useful: How escrow works

I'm thinking that you might be happier selling your current lot and buying one that doesn't have builder restrictions on it.

That way you can be your own GC and avoid dealing with custom home builders altogether.

We chose the gc way because we are putting in too much money to make costly mistakes, what I fear we'd do.

Good luck.

@still_waters - I can already see the next thread.... "Evil/Greedy Subcontractors...."

@stasek,

Not subcontractors but mainly the Custom Home Builders (CHB). CHB do price fixing. - not fair.

munz.....so ya saying that ALL GC's in your area get together and collude whenever someone gives them a plan to bid on and they ALL bid exactly the same price?????????????????????????????? Where do you come up with this @HIIT....just in your head!!!!!!!!!!!!!!!!!!!! You need to see a shrink if you are EVER going to build a house. I was going to agree with 'still waters' but with your attitude, you're gonna come up with this same thinking that the sub contractors(once you start) are making TOO much money and run them off. They will tell the other subs and you will NEVER get a house built!!!!!!!!!!!

Curious as to everyone's thoughts about the following:

Do you believe a home builder should make the same percentage profit on a custom home as he does on a spec home?

@ john_wc,

No.
Custom Home Builder should make smaller percentage because his money is not at risk. He plays with home owner money.
Whereas, spec builder uses his money, pays the interest in the borrowed money and has no guarantee when his house will be sold.

However, you will not get a straight answer here at this web site from any custom home builder. This website has become a hub for promoting builders, subs, architect to the gullible home owner.

@ robin0919,

No. All GC do not have to get together. It is the way the market has evolved to price fixing because they are able to get away with it so far. Things will gradually change now as home owner educate themselves using internet.

I am the shrink. Make an appointment with me. I can check you out. But no, you do need a shrink if you are a custom home builder. If you are a custom home builder then you know exactly what you folks do to the home owner. You folks are very smart and cunning.

There are too many subs are out there. I am talking criticizing Custom Home Builder price fixing practice.

As I have said, this unfair practice is similar to that of mutual fund money managers. They also make percentage of investor investment regardless of if the market goes up or down. They also play with their clients money. That is not fair.

Munzer, I think we are all well aware of how you feel about how builders are paid for spec vs. custom homes, and your general paranoia about the industry in general. Can't say I understand why you even want to embark on building a home, and I tend to doubt you can even find anybody decent who will make a deal with you on terms with which you will agree.

john_wc - As long as the builder gives me what I spec at a price I find acceptable and does a good job in the process, I really don't care what he's making. My father is fond of a saying - "you can have it well done, cheap, and on time, but you can only have two of those three things." If I'm taking the time, money and energy to build a custom home, I'm choosing well done and on time.

Don't feed him!

Here is a link that might be useful: Living under a bridge because he can't get a home built

Very well stated MrsPete.

Why don't you put your 1.5 million dollars in the bank and build a home you can afford with YOUR income and retire early?

@MrsPete,

Although I disagree with you in many points but I want to thank you for taking the time to write a long response.

Escrow account:
I know exactly how the escrow account work.
When i hire a subcontractor to get a $50,000 home improvement job done then they do not ask for escrow account. Why should a custom home builder? At no time builder's $1.5 million will be at risk. They will do the job in installment. And yes, tens of millions of people routine work for a new employer for at least two weeks before getting paid.

Track Builder versus Custom Home Builder:
I am willing to pay slightly higher to Custom Hoe builder for their better expertise but not as a percentage of the total value of the house. The biggest factor for forming my opinion is Track home builder play with their own money but custom home builder play with home owner money. Money risk is a big factor in business.

Higher price for higher quality items:
Devil is in the detail. of course, I am willing to pay higher price (material only) for the higher quality of marble for the floor. But I do not believe a Custom Home Builder should charge me twice as much for the labor cost to install a $10/sq. ft. marble than $5.00/sq. ft. marble.

Again thanks for your response.

I believe you think you understand the concept of escrow, but your replies show otherwise. Escrow accounts aren't unique to the world of building, and they aren't new.

You're set on reinventing the wheel, and -- certain that people are out to get you -- you refuse to hear about industry standards. This isn't a spot where you can make demands wild-west style. You're uber-concerned about keeping your contractors honest; competition does that -- you need only be vigilant enough to make comparisons. But you need real information, not just strong opinions.

You keep saying that builders don't demand money-down. This is blantantly false. A contractor did a number of jobs around my house a few months ago. he came over, gave me a price, and he asked for a 50% downpayment. I paid the second 50% when he completed the work. Similarly, when I had a new heat pump installed, they took my credit card number before ordering the equipment -- they didn't "run it through" 'til the next week when they installed it, but they had assurance that I'd pay. This is the industry standard.

I'm not sure why you're so stuck on tile, but your facts are dead wrong. A simple porcelain tile is easy to lay because it comes on a mesh backing, and a relatively inexperienced installer can lay it a foot at a time. If you pay that same guy to install expensive marble, you're going to be disappointed: Marble has a "right and wrong" to the pattern, and more expertise is required to lay it. Also, marble tiles tend to have bevels and "fit togethers". These things take more expertise, and that expertise costs money. I do not believe you're going to find, however, that $5 marble tile will cost more to lay than $10 tile with the same attributes.

You're disagreeing with facts, not opinions.

@john_wc - spec vs custom -> commodity vs service industry. Here's how I look at it - when I build and sell a spec home, I provide a commodity. Depending on market, I'm either going to make good money on it or lose my a$$ (needless to say, we've been on both ends of the spectrum). When I build a custom home, I provide a service. The more complex project or customer, the more I would like to make to cover for the extra time and headache.

Regarding the stigma of spec homes - not all of them (at least not the ones we build) are cheap, no frill, run of the mill. Maybe that's part of the reason we've survived the recent events whereas a LOT of smaller guys went under losing everything in the process.

Now onto signing a contract to build a custom home. But wait... It's on OUR lot being financed with OUR money.... Is it really custom? Damn, how can I make as much money as possible in this scenario? Decisions, decisions, decision....

@stasek,

you wrote:
"Now onto signing a contract to build a custom home. But wait... It's on OUR lot being financed with OUR money.... Is it really custom? Damn, how can I make as much money as possible in this scenario? Decisions, decisions, decision...."

".....OUR lot, OUR money...."
Did you mean
1) Builder Lot/Builder Money?
or
2)Home Owner Lot/Home Owner money?

If it is 2 then what you meant by "Damn, how can I make as much money as possible in this scenario?"
If you meant 1 then you are wrong my my case/situation.
It is my lot my money and not even of bank money. It is all cash sitting there.

Munzer

Me thinks, the op just likes to hear himself argue and is trying to convince himself that he is correct. i have been following along as I find it quite humorous. And as the saying goes "you can't fix..............."

@millworkman,

Are you in the 1% or the other 99%?

The housing market is picking up munz, I suggest you spend less time arguing with people on gardenweb over your notions versus theirs and more time out trying to find a builder to agree to this nonsense. You might actually find one (tho you would have had better luck in 2007) but the longer you delay the less likely you will. There are plenty of other folks with money to throw around looking to build at the bottom of the hump. That time is now and those folks have no problems with the rationality behind an escrow account.

Hmmm the numbers don't add up to me. You don't mind paying 12k a month for a build that is likely to take longer than a year, but you don't want to pay 10% which is 150k. Seems to me the 10% is the bargain as 150k divided by 12k is 12.5 months. Even if it took just a year to build it is still a very small difference. However since a build can often take longer than estimated it would actually be cheaper once you go past the 12.5 months.

Guess OP just likes to argue.

lyfia,

I would love to pay 10% if I could find a custom home builder who is wiling to work for that much only. But so far all builders are asking for 20%.

The moment they see a house is over a million dollar their eyes pops out, ear get alert, saliva started to drop from their tongue. They started to think, here comes my fortune, a guy with money, we can ask big fee and he will give it to us because we have price fixing in this business. All custom home builders know about it.

The extra 10% is the PITA tax. And I'm surprised it's that low.

@hollysprings,

No it is not tax. 20% is the builder commission.
Sales tax is the part of cost of the house.
What is PITA? In texas we have only 8.25% sales tax

Munz,

No question you're in a bracket requiring you to pay that PITA tax in Texas. Ohio also has it.

*wipes coffee off screen*
I'm pretty sure every state has PITA tax. Varies by individual.

Munzer look up what PITA means. Something difficult to work with people tends to get charged because the person knows they'll have to spend much more time on their project.

Is the GCs telling you how long they expect the build to take?

This thread has been quite entertaining to say the least. I'm interested in the details of the build to know if it would even be feasible for a 12 month build. 1.5mil doesn't go very far in some parts of Dallas, whereas other areas of Dallas it can buy quite a bit. Offering up details of the build will help those more experienced in various finish levels explain what differences may exist for the builder to justify the price. This may provide for more valuable feedback because if extreme high end finishes aren't being considered, perhaps there isn't sufficient justification for a higher fee, which might satisfy munzer in revealing some level of his "price fixing" conspiracist theory.

I suspect hollysprings hit the nail on the head. If munzer comes across in real life even a fraction of the way he's presented himself here, no builder in his/her right mind would even consider taking on such a nightmare of a project without a little extra compensation.

Above all else, the most ironic thing about his entire argument is that it isn't even munzer's money. He's borrowing from a relative! Despite arrangements to pay back the loan (with a low interest rate), munzer is still in essence gambling with someone else's money too! Did munzer see the opportunity to swindle a relative with a pitiful 2% return with the promise it's a risk free investment. His eyes dilated and began to salivate at the opportunity that presented itself. If that relative only knew how much "risk" is actually in play since munzer is so set on his point of view and absolutely unwilling to even consider reasonable explanations, that relative could've invested elsewhere for a better return.

Munzer, it frightens me to think it's possible you actually practice psychiatry with such unwillingness to listen once you have made a decision regarding your opinion on a specific matter. Do you stop listening to your patient once your mind is made up regarding that patient's diagnosis? Oh, wait, I bet since you know everything, you couldn't possibly benefit from wasting additional precious minutes actually listening. Even if you have things figured out in 10 minutes, I bet you charge for the entire session regardless. ;)

Before I'm accused of being gangster, I'm not a builder. I built my own since I would be hit with the PITA fee too with the level of detail I require. ;)

@lyfia,

I tried to look PITA up. None of the meaning made sense. none of the builder told me anything about PITA either. Obviously, whatever you have in mind about PITA can't take the builder fee from 10% to 20% of $1.5 million. PITA is irrelevant in this regard.

Builder said, it will take them 11 moth to 13 months to finish the house.

@dannie_gal,
Her is the detail,
11,000 sq. ft. house, yes, better than average finish with some special items, in the City of Parker, that is north east of Dallas,. $1.5 million is excluding the cost of the 2 acre lot, swimming pool, landscape, tennis court and outdoor sculptures.

I wanted to spend $1.5 million but builder giving me bid for $1.75 million with 18% to 20% their fee.

You wrote: "price fixing" conspiracist theory.
No conspiracy but yes, price fixing.

My relative is keeping my $3 million retirement mutual fund as collateral. So, don’t you worry, they already have their risk taken care off.

Now, back to the 20% builder fee.
Yes, custom home builder salivate with greed the moment they hear over a million dollar home.

I do not know what PITA is but no builder told me anything about PITA fee. Whatever it is, it can’t take the fee from 10% that I am willing to pay to 20% that they want.

Oh yes, the PITA tax can certainly be well over 10% in the right circumstances. You have the exact right set of circumstances for that to happen. You may end up with a 30-40% builder's fee because of it. Just because of the PITA tax. As far as the builder discussing it with you, no that won't happen. None will be really open with you about it. (Do you tell people the amount of taxes YOU pay?) The tax is assessed on his end and HAS to be passed along to you together with his usual percentage fee for the build. You might be a little more sympathetic to the builders who have to deal with this additional inconvenience. They aren't happy about it either, but they endure it.

This post was edited by GreenDesigns on Sat, Apr 20, 13 at 15:03

@GreenDesigns,

What does PITA stands for?
Where can I find more info about it?

Pain In The A$$ is what it stands for.

I can't say I agree with making fun of some of this. If somebody doesn't truly have English as a first language some of these expressions are not easy. Especially since they are not always easy to look up. Been there done that myself.

Hollysprings beat me to it.

Here is a link that might be useful: PITA definition

If someone has already been told the definition, as munzer was already upthread by you lyfia, and yet disbelievingly keeps up the questioning about it, then yes, a bit of ribbing is in order. BTW, the FIRST link on a Google search is to Urbandictionary. If someone cannot even do a simple Google, then the entire project is completely hopeless.

And every single trade who does a bid on this job will add that tax to the quote. that 1.5 just turned into a 2.5 before it's over because no one will want to deal with the OP. That's pretty much already happened, by his own admission, with builders. No one will lower their price, and if he keeps badgering them, the price WILL go up. It's what capitalism is all about. You pay the market price. And you don't get to decide what that market price is. If others pay the price, then why should anyone take less for the same work? More difficult jobs are ALWAYS more money. Hazard pay, if you prefer, rather than PITA tax.

Even if the builder charged 25%, I think it should be worth it to munzer in order to have him be the buffer between the client and the trades. Any trade who talks with the OP rather than a builder will DOUBLE their bid. At least. Every single element on the build will cost munzer more than it will his neighbor. I'm not even sure I'd deal with him for double my usual fee. I prefer to enjoy my work rather than it be full of suspicious strife.

you folks (builders) come at this site to jack up the builder fee.
I thought, PITA is some kind of luxary tax or something.
Now I understand, PITA is when incompetent greedy builders trying to rip off home owner tax. Pain In The Ass.

@hollysprings,
so, you are a builder after all.

Nope. Not a builder. A retired designer who has worked with builders. Many good builders. Some not so good. None of them as focusedly evil or greedy as you try to paint them. Most of the bad ones are just disorganized and not so smart, and wouldn't be up to trying to create a worldwide conspiracy against million dollar clients. They didn't make it through the downturn at all and are probably doing something else now.

Good or bad, all of them are able to choose the jobs that they want to work on. As can any independent business person. None would work on your build. They'd rather go fishing than deal with a PIA. Life's too short. Most wouldn't even give you a quote after their first meeting with you. Why would they? They have zero incentive to want to take on a job like this.

The ONLY way someone would take a difficult job where they get slapped in the face every single day would be if extra money were involved, not less than their usual pay. And, they'd have to need the money. A few years ago, you might have found someone to take your abuse. Not gonna happen now. The builders who have survived the downturn are busy again. And they don't need your business. There are plenty of people breaking ground where they can earn what they ask. Easily.

@hollysprings,

".....A designer who worked with builder."
So, you are in the same gang of ripping us off.

Your logical dishonesty shows right here, You worte:
"...trying to create a worldwide conspiracy against million dollar clients...."
You exaggerated, changed my words.

I have repeatedly said, there is no conspiracy, it is just price fixing. You even added "world wide"

Do you know why you were forced to add that?
Because your argument was weak.
So you used "world wide conspiracy.." as your crutch.

You are part of the legalized gangster.

There is no conspiracy regarding the commission of mutual fund money managers either. But they also got the price fixing.

Shame on you for your exaggeration"...worldwide conspiracy..." ha,,,,,ha... you had no solid argument.

There are few builders who are not greedy. But they are probably in less than 10% of the industry. You are definitely not one of them.

In your paranoia, in your certainty that everyone here is an evil builder out to take what they can from you, you're overlooking the obvious: This PITA tax that people are discussing is quite real. It means that builders will "up" their bid when dealing with a difficult client -- not because of greed, but because they know that client's going to be a major headache, and IF they're willing to take on the job, it's only going to be for extra compensation. A person who's going to question every detail, who's going to be extra-demanding, who's going to grate on his every nerve at every turn is more work and is more time for the builder.

Fair? Totally. You have the option to approach this project like a reasonable person -- that is, to let go of this idea that everyone's out to get you. Treat the people with whom you're going to work with respect, and you'll get a better price. If you're obtaining bids from other companies, you're going to have a system of checks and balances working for you, and you're not going to be ripped off.

Make the choice NOT to be a PITA, and everything'll go much more smoothly.

DannieGal, You're totally right about the irony of the situation.

Munzer, I'd be interested to hear just how this generous relative is able to "hold" your retirement account. Retirement accounts are pretty much sacred, and it's all but impossible for anyone to take a cent out of them without your permission. You like to accuse others of being greedy, trying to get something for nothing . . . I'm thinking you've offered your relative a wooden nickel (explaination of an American idiom: Offering someone a wooden nickel means paying in useless coin. In this case, an appropriate saying because -- if you renege on your payments, the relative will never get your retirement money -- at least not without a lengthy, expensive trip to court).

And to be entirely truthful it really is not a PITA tax as much as it is a SURCHARGE for having to deal with the PITA! A tax would presume that it was to be forwarded to someone else (generally the government) while it really is payment for the builders pain and suffering for having to deal with a PITA!!!

My 91 yr. old mother and I hired a contractor to build an addition to our home so that my mother could move home to live with us. My mother paid the amount to the contractor and we didn't use the bank either. We ended up with a crooked contractor that took her money then walked and didn't finish the addition. When we started the process, we didn't do sufficient research so that we were prepared sufficiently to actually go through this process and that was our downfall. There was no schedule for pmts. and he asked for monies almost on a weekly basis yet wasn't completing any of the work. He insisted that we were to pay for the work up front which we should not have done, but again, we are definitely much the wiser now. If you are looking for more information on how things work when hiring a contractor, contact the Consumer Protection Ontario and you will find so much information on what is expected and what is law when it comes to the rules for a contractor to follow. We have learned so much after the fact. There is no need to put any monies into any type of account whatsoever. You should have a schedule of pmts. to be paid only AFTER the work has been completed. I suggest you make your payments by bank draft instead of a personal cheque. There is more support when it comes to whether or not you have made the payment. Just a little more security that way, Also, keep in mind that once you have a proper contract drawn up make sure you have the terms included that cover the possibility that you may want to fire your contractor if he isn't doing the job you wanted or you could run into some legal issues. Also, keep in mind that it is against the law for contractor to walk off the job unless the project is in liveable condition. That means that if the contractor was hired to do a bathroom, he cannot legally walk off the job until that bathroom is in liveable and useable condition. We are now stuck in a legal situation just so we can get enough monies back from the contractor so that we can t least finish this addition. My mom can't even live in it as there is absolutely no bathroom in it. There are so many problems with the addition it boggles the mind and on top of that he destroyed our property. He filled in all our drainage ditches and now when it rains it washes out our laneway. We had a small river running down the middle of our laneway last summer nd it cost us $1000 to have someone come in and temporarily repair it. The gouge down the middle was approx. 4 feet wide and approx. 2 ft to 2 1/2 ft deep. It definitely wasn't a small gouge by any stretch of the imagination. I could go on and on, but suffice it to say that you need not put any of your monies into any account and never in one that the contractor has access to. Keep your monies in your pocket so to speak and make sure you have milestones to follow. Make sure you get a proper receipt for every single payment as well.a If you would like to speak with me for more information, please feel free to contact me. If I can help you at least a little, I will feel that I've protected at least one more person from being taken advantage of by a bad contractor. Good luck with your project and please check into the information that is available on the Consumer Protection website. It won't be a waste of your time...

My Dad was an architect. He knew about the tricks that are pulled by some contractors. He told me to never pay the full amount until the work was done. So when I was having an infinity pool and house generator system built/installed, when we got to the point where 75% of the total amount had been paid and the contractor was asking for more money, I told him that I would be paying the remainder when the project was completed. This was for a project that had been supposed to have taken less than 3 months, and was now at 22 months. He told me that he didn't have the time to finish the project, and I gather incomplete projects is now his poor reputation. What annoys me is that that location has no way of warning reviews to ward off innocent potential customer. This company should not be allowed to be in business!

So I had my management company finish the project. We found out that the power surge protection was fake and didn't save the brand new washer/dryer; that the submersible well pump was not installed correctly and didn't have a safety protection switch, requiring a new pump; then the pool pump failed shortly after installation; then the pool pump timer failed shortly after installation; and then the company severely damaged the house generator requiring multiple parts replacement, along with a fire due to the wrong propane fitting installed. I have now spent quite an amount more to finish the project than I owed, along with replacing brand new or near new equipment due to shoddy installation and not abiding to regulations.