Should you be your own general contractor?

6 min read

So, Mr. Handyman, you think you’re ready to build your own house. Or at least to supervise the people who do the actual construction work.

You want to be your own general contractor and hire the subcontractors, set the schedules, coordinate with inspectors and suppliers and buy some or all of the supplies. Maybe you should think about it some more.

The idea, of course, is to save the cost of a general contractor. “If you’re really savvy, you can get the lot at a good price, get construction at a good price and save a lot of money,” says Robert Irwin, author of
Tips & Traps When Building Your Home.

But it’s not easy. “Everybody can do it, but not everybody wants to,” says Carl Heldmann, author of “Be Your Own House Contractor.”

C. Kent Conine, immediate past president of the National Association of Home Builders, is not a fan of the practice. “There are just so many pitfalls that come up in the middle of the process of constructing a home,” he says. “It’s not a perfect science.”

It can also make it difficult to find financing. “The lender wants to see that the person who’s doing the work is qualified,” says Irwin.

Who’s best for the job?Acting as your own general contractor works best if you’re highly organized, detail-oriented and have a clear idea of what you want in your home.

“You don’t have to know how to put the shingles on the roof or tape out the drywall if you know how to manage the crew that’s doing it,” says R. Dodge Woodson, a professional builder who also wrote
Build Your Dream Home for Less.

How much time will you spend on site? There’s no telling. “You have to be available when you’re needed,” says Irwin. “And nobody knows when that will be.”

Heldmann remembers building one vacation home where he only went to the site three times during construction. Others believe in being more hands-on. “Once construction begins, it’s a good idea to visit the site every day,” says Woodson.

Professionals also disagree on how much you stand to save. While some claim you can cut as much as 40 percent of the cost of your home (especially if you do some of the work yourself, too), others believe 10 to 20 percent is more realistic.

But Conine doesn’t think it’s that much. He pegs the typical general contractor’s fee at 10 percent or less. In addition, he says, a homeowner will pay substantially more for supplies.

What do you want?Before you build anything, you need a clear picture in your own mind. Tour homes. Read books and magazines. Look at floor plans. Start a scrapbook with information and notes on all the details you want to include.

This also is when you want to learn about the building process. Study up on the latest materials and supplies, as well as what goes in when. Building a house is like reciting the alphabet, and the order of the steps is just about as immutable.

When you feel ready, engage an architect to draw up a complete set of plans. “Make all the changes you want on paper,” says Irwin. Later, “even the smallest changes cost you a fortune.”

This also might be the time to weigh hiring a building professional, under a management contract, to help you. This person would cost less than a general contractor, and could walk you through parts of the project where you feel inexperienced.

Draw up a plan of action that includes each step in the process. “Storyboard it out,” Woodson says.

Now the fun begins. “It’s the largest shopping experience you will ever go on in your life,” says Heldmann. “If you like to shop, you will have a ball.”

As the manager, your biggest responsibility is hiring the subcontractors who will do the work. Start with the usual suspects. Who do you know who had some work done on their house? Who did they use? Was it done on time and within budget?

Drive around neighborhoods you like and find out who’s doing that work. Talk to subcontractors you’ve already vetted. If your carpenter recommends an electrician he works with frequently (and it’s not his ne’er-do-well brother-in-law), that’s a solid lead. If you’re using a project manager, have him help you.

Once you get names, you want to learn all you can. Google them. Get a long list of references and talk to them. Examine past work in person. Arrange to meet them on a current job site.

Once you get a handful of subcontractors you like (three to five), start penciling in what your picks will charge to do each job. And remember that the low bidder doesn’t necessarily do the best work.

One other wrinkle: The builder’s crew normally does the framing. But since you’re the builder, you have to find a subcontractor who will do it for you.

Another point to consider: Do you want subcontractors to buy the supplies or do you want to do it yourself? There is no set answer, and the standard practice can vary with the professional, the trade and even the area of the country. “It’s a mixed bag,” says Conine.

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— Posted: Nov. 12, 2004

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But the supply issue can make a big difference in what you pay and when. “Supplies are going to cost a pro less,” says Don Sever, general manager of Sever Construction LLC, in Oakton, Va. In addition, subcontractors may have their own preferences.

Remember, if your subcontractors are buying their own supplies, they will probably want some money upfront. And that leads to another point of frequent debate: when to pay the subcontractors.

“They don’t get paid until the work and the inspection [are] done,” says Heldmann. The one exception: carpentry. You might pay in stages as the work is completed, he says. “But I wouldn’t pay them the last 30 percent until the inspector looks at it.”

Sever disagrees. For a typical remodeling job, he gets about 10 percent of the project total, plus the cost of any special order supplies, when he signs the contract. The balance is divided into thirds and paid at various phases of the job.

Finally, pencil in estimates for your subcontractors, plus any supplies that you are buying, the property cost, permit fees, construction insurance and legal fees, and you’ll have your first total estimate.

Last but not least: moneyNow that you’ve got some numbers, it’s time to shop for financing. And that could be ticklish.

When it comes to parting with a large sum of money to build a house, who would you rather back: someone who’s done it a few hundred times already or an amateur doing it for the first time?

“It’s not as tough as it used to be, but it’s tough,” says Heldmann, who also heads up Construction Loan Management Inc., a firm that consults with credit unions in Michigan on owner-builder financing.

Possible solutions:

  • To reassure your lender, consider hiring a construction general contractor under a management contract. For a flat fee (about a third of what a regular general contractor would make), he will help you out with permits, hiring, generating a realistic estimate and getting the project in on time, says Heldmann. For a referral, try the local home builders association.
  • Shop lenders as carefully as you do your subcontractors. “You have to match the loan to the lender because they all have different financial goals,” says Woodson.

You also need to choose between getting one loan for construction and another for your mortgage, or one loan that would cover both phases. There are advantages and disadvantages either way you go.

Heldmann recommends separate loans for construction and final mortgage. The advantage: a construction loan is by nature more elastic. “You will never bring this house in at the price you’ve predetermined,” Heldmann says. “It’s never been done. You’ll go over by 10 percent, at least.”

If you have a combination construction loan and mortgage, you’re locked in on construction costs. That lack of flexibility might mean you’ll have to return to your bank and take out a second loan with a second set of closing costs, says Heldmann.

But Woodson believes a combination loan is a better choice because you are qualifying for both the mortgage and the construction loan at the beginning, so funding for both phases is assured no matter what happens later.

Ready, set, build!When you hire your pros, give them a rough estimate of when you’ll need them. After you have a good idea of when you really do need them, call with a firmer date, says Irwin.

No matter how organized you are, some glitches will delay your progress and increase your costs. Figure on running at least 10 percent over budget, according to several pros.

When he built his first house in 1972, Heldmann admits that his biggest mistake was “not hiring good subcontractors.”

“I had everything go wrong that could go wrong, including subs going bankrupt and not showing up,” he says.

Bottom line: When you act as your own general contractor, there are no guarantees. And no matter how carefully you shop, things can and do go wrong. Subcontractors disappear. The price of materials goes up. A company you’ve paid in advance folds. And then there’s the weather.

There can be complications on your side, too, from changing financial situations to changing careers.

So why do it?

The chance to save some money, the opportunity to get exactly what you want and “the joy of doing it,” says Irwin. “You really get a sense of accomplishing something. Everyone should do it just once in their life.”

Dana Dratch is a freelance writer based in Atlanta.

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— Posted: Nov. 23, 2004

Average mortgage rates and points in the top 10 markets


Mortgage Matters: A daily Weblog on mortgage rates


My First Home
: A first time home buyer guide