General Contractor Fee for Your New Home

One of the big motivations people have for becoming owner builders is the potential savings achieved by eliminating the general contractor fee.  This is the fee the contractor or builder charges you to oversee the construction of your new home.  Whether the home is custom home built from scratch or a production home from one of the builders plans, you pay a premium for them to manage the process.  So what exactly is the current price paid to have your home built for you?

General Contractor Fee Covers Management, Not Physical Labor

There are many different forms of owner builders, some swing a hammer and take on some of the physical labor, while others choose to hire trade subcontractors to do all the work.  For this discussion, we will be looking at the cost of the general contractor fee only.  This is the fee that covers the management of the process, no labor.   When we say management we mean things like…

• Pulling permits
• Creating and maintaining a budget
• Hiring trade contractors
• Scheduling the work to be completed
• Performing regular quality checks
• Meeting with inspectors for approvals

These are the types of things covered in the typical general contractor fee.  So if you do become an owner builder and decide to take on some of the physical labor (i.e. painting, cleaning…etc.) in addition to the management items above , your cost savings can be much higher than just the general contractor fee alone.

NAHB Cost Survey

On a regular basis, the National Association of Home Builders (a.k.a. NAHB) conducts a construction cost survey with their builder members.  They recently compiled the results from surveys sent out to builders throughout the country late last year.  We dissected these numbers to share with you the typical costs the customer pays to the general contractor or home builder to manage the process of building a home.  Of course the builder doesn’t break these costs down for you.  These are internal numbers that are included in the new home sales price or in the fee charged for taking on your new custom home project.  Here is the breakdown of the costs as reported by the builders…

Overhead and general expense includes the typical costs of doing business as a builder.  This includes things like office rent, employee salaries and benefits, and general business insurance.  Marketing involves all of the costs the builder has for getting customers into the sales model or showroom and includes advertising, model home costs, signs…etc.  The sales commission is what the builder pays to inside sales personnel and to the buyer’s agents.  If you consult with a realtor to have them show you new homes, they become your buyer’s agent and typically get paid by the builder.

All of the costs listed above are included in the general contractor fee because you wouldn’t pay for them if you took on the general contractor role yourself.  You wouldn’t need to pay sales commissions or do any marketing.  You also wouldn’t have any of the typical business expenses that builders must pay in overheads.  So based on the recent NAHB survey, the average national fee paid to have a builder manage the process of building a new home is currently 18.3%.  The video below shows dives deep into the financials of a public home builder to come up with potential cost savings for owner builders.  If you are looking for more information about how to go about building your own home, check out our resources page full of videos, articles, and downloadable digital resources.

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