During a question and answer session at a recent industry conference, a home builder asked Moody’s Analytics chief economist Mark Zandi for his thoughts about the labor
Everyone's a Winner
Builder Jay Grant contracts with his custom-home clients using an 'open-book' construction management fee arrangement. He collects 20% of the cost of labor and materials rather than agreeing with the client on a set fee in advance.
Builder Jay Grant contracts with his custom-home clients using an "open-book" construction management fee arrangement. He collects 20% of the cost of labor and materials rather than agreeing with the client on a set fee in advance.
"I really believe that this is the best way to serve my clients," he says. "I tell them upfront my percentage and how the choices that they make will affect the cost of the house. This really brings the client into the decision-making process."
Grant begins the process by using preliminary drawings for the project and an extensive worksheet that details all the costs involved and serves as a road map for his clients. "I tell my clients, ‘Here’s the bottom line: I’m charging 20% no matter what. If you keep your costs lower, then my commission is lower, and that’s OK.’ This gives the client a lot of flexibility - and they like that."
Grant says he even welcomes his clients’ involvement in the bidding process. "I’ve had cases in which the clients met with representatives of three or four manufacturers themselves, and then they can make the decision on what features are important to them and how much they ultimately want to spend."
Once they get into the routine, he says, most clients are up to the extra work. "You do have to have a client, however, that is willing to be highly involved in the construction process," Grant says. "But this is the kind of client that I want anyway."
If there is a downside to this arrangement, Grant says, it is that it can be more of a challenge for the builder to build a house this way. "I’m dictated by my own ethical standards to give clients updates on costs and work hard to get them the lowest bids possible," he says. "But this is really a win-win situation for everyone. I’m providing a service for the client but not doing all the bidding work myself."
Architect Robert Scialla agrees that this is a sound approach. "I have directed my private clients to Grant because I really like his construction management fee arrangement rather than the antiquated approach where the general contractor charges a lump-sum fee," he says. "It’s a very up-to-date way to build a house."