You wouldn’t buy something without knowing how much it cost – right? That is why most things, including typical new homes, are sold for an exact, “Fixed-Price” (FP). With FP homes, the Builder has determined – and has a strong incentive to control – what are their costs.
But Custom Homes and Remodeling Projects are different. Builders can’t know, exactly, what resources will be needed for them, so they can’t offer an Owner a FP. Instead, they will propose to do the work on a “Cost-Plus-Fee” (CPF) basis. With a CPF Contract, the Builder provides the Owner with an Estimate of the job costs and agrees to accept a lower Profit percentage than usual. In exchange, the Owner agrees to pay for all of the Project’s costs – no matter what they end up being or how they come to pass.
CPF deals work in a typical construction market. But Florida is not a typical market. It is “inverted”: there is more work than there are resources available to do it. Unprecedented Material cost increases, Labor shortages – and that was before Hurricane Ian. All of the market forces that drive competitive pricing and high quality are weakened, pushing construction costs up. This means that Project cost control is challenging on every local construction Project, whether the job is a FP or a CPF.
But with a CPF deal, now the Owner (you), not the Builder, are exposed to all of the delays and cost risk in a market that exploits those exact vulnerabilities. That’s the “injury”. The insult? You’ve left a fox to guard the henhouse: a Builder who isn’t obligated to control your costs and who actually makes MORE money the higher the costs are!
Builders must compete for said resources. The Fox doesn’t raid the henhouse with ill-intent for the Farmer, he does it because chasing down hens otherwise is difficult. In fairness, most Builders, likewise, aren’t actively trying to take advantage of Owners. Compromising an Owner’s time and money is simply the easiest way for them to navigate the “inverted” market and compensate for their own poor Project Management. How will you know how much of your time and money is being compromised?
Owners like their Builders. They rely on them to act in “good faith” to manage costs, but assurance is not insurance. All Foxes Builders must, ultimately, put their best interests ahead of yours. So, who’s really in your corner?
Owner’s Representatives are. They work with the Team, but solely for you, ensuring that your needs for the Project (cost, schedule, quality) are met. With 25 years of first-hand, local experience, Naples Custom Home Cost Consulting offers a full range of Construction Project Management Services to assist Clients, including Owner’s Rep Services that no one else ever has or can. We take every opportunity to create equity by adding value to your home and know how to keep Builders in check without undermining them.
With CPFs, YOU ARE buying something without knowing how much it will cost. Are you really on Budget? Schedule? Is your Project being managed as well as it could be? Hint: it’s not. It’s everything you won’t/can’t know about your Construction Project that, now more than ever, will cause you to incur considerable, but UNNECESSARY, costs.
So, DON’T. Protect your investment. Enjoy peace-of-mind. Let Naples Custom Home Cost Consulting do the “knowing” for you.
