Construction Bargain Strategies
3-6. Don’t fall for a “package plan”. - Electronic Edition
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Elaine and I attended a package plan presentation a few years ago at a local hotel. The package or “owner-builder plan” was a format where you are called the contractor, and the service provides materials and offers you subs from an approved list.
After listening for a few minutes we asked a few questions and soon found ourselves attended to by the owner of the franchise who dealt with us personally to prevent contamination of the rest of the group. We figured out that the service made money in several ways: They bought land in bulk and sold small parcels to participants. They charged a fee on your construction budget, which they estimated. The bundled the land into the budget and you paid the same 10% fee on the land you just bought and paid for. They sold you the materials. They provided the subs via an “approved” list. This means they extracted a fee from them, which you absorb through higher prices. They provided standard plans, which you change only with an upcharge. The standard plans cost very little to produce, and enhance the standardization of materials for greater profit. They procure financing for you, and receive commissions from lenders, as well as interest for your funds on deposit. They allowed you to choose your own outside subs, but they had to approve them, which means they extracted a fee from them to continue being “approved”. They even charge you a fee on the work you may do yourself, because, this is part of the overall “scope of work”. They reluctantly specified savings for participants as being in the “15% range” versus contractor-built homes. Since we’ve learned that the average owner-builder saves 35%, there is 20% taken off the table by the package plan. On an average custom O-B project, more than $100,000 of the owner-builder’s equity. Owner-builder T.J. Cox came to his own conclusions about this: “It would be a decent program for someone who had absolutely no experience in building or project management. They provide lots of material requirements, budgeting, scheduling and so on. For a price of course; their fee was going to be $13K, which would be reasonable, I thought, for all the work they would be doing. I just decided that I could do everything they proposed just as well and would save the $13K.”
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