Owner Builders Save 50 Percent on Custom Options

Last week we talked about how owner builders can save twenty to twenty five percent by general contracting out their own home.  This is the fee the builder charges for managing the project.  We also discussed how an owner builder can save even more by taking on some of the physical labor themselves.  From painting to trim carpentry to cleaning, about half of the cost of a home is in the labor.  So huge savings can be achieved by doing some of the labor yourself.  Today I would like to talk about how owner builders save even more when making custom changes to their home.  This savings can be anywhere from fifty to one hundred percent of the cost of the custom changes when building their own home.

How Builders Make Money

Professional builders make money basically three different ways.  First, they make money on the base house plan.  The builder applies a standard markup of about fifteen to twenty to the base house plan to manage the construction of the home.  The second way builders make money is on the standard options customers choose.  Most home builders have a list of standard options that can be added for an additional fee.  This includes things like recessed can lights, and upgraded finishes like flooring, countertops and cabinets, and higher spec appliances.  The third way builders make money is when a customer makes a custom change.  These are items that need to be designed, bid out, and require changes to the plans.  An example of a custom option might be to add a third bathroom on the second floor in place of an existing closet.  Most professional builders charge a markup of anywhere from fifty to one hundred percent of the cost for these custom changes because of the time and risk involved.

Owner Builder Changes

So one of the great things about becoming an owner builder is that you are in complete control of the project.  In this case, there really is no such thing as a custom option.  Instead, they are just changes.  And the best part about that is…there is no 50-100 percent markup on the change!  So let’s say you decide you want to bump the back wall of the kitchen back two feet to accommodate your extra large dining table.  After all, you want to accommodate extended family for Thanksgiving.  And let’s say the additional cost for labor and materials will be $10k.  If you were building the house with a general contractor, they would tack on an additional $5k-$10k to the option cost giving a total of $15k-$20k.  But since you are managing the project yourself, the additional markup doesn’t exist.

The savings on custom options can be huge for those that like to customize their home.  As a builder, I’ve seen homes double in price because of the custom changes made by a discriminating customer.  In these cases, it would be extremely cost effective to manage the project as an owner builder and avoid the additional builder markup.  This is where we hear quotes from owner builders who say they saved 40% on their new home.  The more highly customized the home will be, the bigger the potential savings.

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