Howdy!
I'm a new member who will soon sign a contract with a home builder to build our home in Virginia. I'll be on this site a lot over the next year, as I'm going to work alongside him doing those tasks which I'm able (just call me a glorified day laborer).
The first thing I'm seeking is feedback on the contract he and I will sign. There are three basic types of contract I'm aware of: fixed price, percentage management fee, and fixed management fee. We're going to do a fixed management fee with an incentive clause. In a fixed price contract, the builder has an incentive to lower costs, but the home owner realizes none of those savings, because every dollar saved goes in the contractor's pocket, and none in the home owners. In a percentage management fee contract, the builder has incentive to inflate costs, as the higher the cost, the higher his fee. Again the home owner's interests are not best served.
We're moving forward on a fixed management fee plus incentive, where the builder gets paid a flat fee. We're also going to include a provision where we agree on a budget estimate of the cost to build the house, and, as an incentive for him to constrain costs, he'll get a percentage of every dollar the project comes in under that budgeted estimate.
My question is: What is a equitable split for any savings under the budgeted estimate? He's asked for 50%, and I'm thinking maybe 33%. I'd be grateful for any feedback from contractors or home owners.
I look forward to being on this site often during construction. Thanks in advance for your feedback!
I'm a new member who will soon sign a contract with a home builder to build our home in Virginia. I'll be on this site a lot over the next year, as I'm going to work alongside him doing those tasks which I'm able (just call me a glorified day laborer).
The first thing I'm seeking is feedback on the contract he and I will sign. There are three basic types of contract I'm aware of: fixed price, percentage management fee, and fixed management fee. We're going to do a fixed management fee with an incentive clause. In a fixed price contract, the builder has an incentive to lower costs, but the home owner realizes none of those savings, because every dollar saved goes in the contractor's pocket, and none in the home owners. In a percentage management fee contract, the builder has incentive to inflate costs, as the higher the cost, the higher his fee. Again the home owner's interests are not best served.
We're moving forward on a fixed management fee plus incentive, where the builder gets paid a flat fee. We're also going to include a provision where we agree on a budget estimate of the cost to build the house, and, as an incentive for him to constrain costs, he'll get a percentage of every dollar the project comes in under that budgeted estimate.
My question is: What is a equitable split for any savings under the budgeted estimate? He's asked for 50%, and I'm thinking maybe 33%. I'd be grateful for any feedback from contractors or home owners.
I look forward to being on this site often during construction. Thanks in advance for your feedback!