Navigating Change Orders for a Smooth Custom Home Build
Welcome! After a few week hiatus, we are back and ready to talk all about the world of change orders in custom home building. In this post, we'll shed light on what change orders are, how they are priced, and why builders include a profit margin. We hope you walk away with a better understanding of this essential aspect of custom home building.
What is a Change Order?
A change order is simply a request from the client to make a change to the original plans or specifications. These changes can range from minor adjustments to significant additions. For instance, a client may decide they want to include crown molding in their home despite it not being part of the initial plan. This request initiates a change order.
How are Change Orders Priced?
Change orders involve additional costs that need to be accounted for in the project budget. Pricing change orders must consider both labor and material costs. While specific pricing methods may vary, our standard of practice is to add a 25% profit margin to every change order. This process should be outlined in the construction contract between the builder and the client.
To better understand the pricing method, let’s revisit the example of adding crown molding. Suppose the additional labor cost for trim carpentry and paint is $1,500, and the added material cost is $1,000. The cost of this change order would amount to $2,500. But we have not yet added the profit margin. To determine the total cost to the client, including the 25% profit margin, we divide $2,500 by 0.75, resulting in a grand total of $3,333.33.
Why Include a Profit Margin?
You may wonder why builders include a profit margin for change orders. Rest assured it is NOT because we are greedy! When changes are made to the plans, the builder must:
Obtain material and labor pricing: Research and collect updated prices for the new requirements.
Address schedule modifications: Analyze how the change order will impact the project timeline and adjust it accordingly.
Seek client approval: Present the change order details to the client and await their agreement.
Revise contracts and coordinate: Adjust labor contracts and coordinate with subcontractors or additional trades if needed.
Procure and deliver materials: Order necessary materials and transport them to the job site, often using company resources.
Supervise and ensure quality: Oversee the work and maintain quality control throughout the change order process.
Communication and updates: Keep the client informed about the progress and any potential impacts on the project.
The profit margin allows builders to cover the time, effort, and resources required to manage change orders effectively, while still delivering a high standard of service.
Change orders are an integral part of construction projects, providing clients the flexibility to adjust plans and specifications. We understand that change orders can sometimes seem costly, but it's essential to consider the time, effort, and resources required to implement these changes effectively. Our aim is to provide exceptional service and deliver results that align with our clients' visions, even when adjustments are made along the way. Above all, our priority is protecting your peace of mind so you can enjoy building your custom home!
