There are easily 10+ posts that I can think of that I could talk about right off the top of my head that are specific to explaining how architectural fees are employed on residential projects. It is also extremely easy to see how people might be confused or not understand how residential architects charge for their services because even in my own office, we do not necessarily have a consensus on which way is best.
But what does that actually look like? Are we talking about:
- Best for the Firm?
- Best for the Client?
- Best for both (which is actually best for neither)?
As a practicing architect, I do this work to pay for the food I eat and the clothes I wear. I have to charge people for the services I provide and for the most part, most folks are reasonable about the amount I charge. However, things this last year have made pricing out architectural services a lot harder than it used to be.
For the last twenty years, we have charged our fees one of two ways:
- a percentage of the construction cost, or
- an hourly rate.
What is interesting is that for the first ten years of my residential career, all of my contracts were based on a percentage of the cost of construction. However, the last ten years have gone almost exclusively to hourly-fee contracts. Since starting the residential studio here at BOKA Powell, we are at 50/50 on the different contract types. We do not dictate which model of billing the clients get, that is an option that clients have to choose the method that best suits their interests and needs … but here is where the potential for problems arises.
Since I take on projects all over the country, the cost of construction can fluctuate wildly based on geographic location. The current pandemic is also playing a role in those prices as demand for skilled labor has increased and the cost of some building materials has become untenable. What you could build for $250-$300 per square foot last year is trending more towards $450/sf and higher, even more so in certain parts of the country. So how does someone like me account for these variances? I count on the involvement and participation of a qualified contractor from that area to be selected and join the team.
That is assuming that you can even get a qualified contractor to spend the time to go through this process. Most good residential contractors are busy beyond their capacity at the moment and without an actual contract, I would be surprised at their ability to help go through pricing activities without charging a fee to do so.
Construction Cost Consensus?
Another challenge I am currently experiencing is when my practical experience is out of alignment with what the client feels their house should cost based on information that is collected from a myriad of different sources – some reliable, most probably less so. The actual cost of the project, or better the discrepancy between what I think and what they think, only really matters if the client wants to hire me using a percentage of the cost of construction as the generator of my fee. Now I am in the position to ponder how can I be helpful without being the “no” person when we don’t see eye-to-eye on what things will actually cost. One of my great fears is that someone thinks I am just telling them what they want to hear just so I can work on their project when in reality, my actual fear is that I can’t do what I said I’ll do for them and they experience some level of disappointment with the process.
When this misalignment occurs, we can prepare what is called a “Design Development” package and this is something that we prepare fairly often for our clients. It normally just consists of the first two phases of the entire process:
- Schematic Design – project programming and floor plan development, and then
- Design Development – 3-dimensional massing, interior + exterior elevations, selection of material finishes, plumbing selections, etc.
The result of preparing a Design Development set of drawings is that this level and scope of work is typically enough information for a good contractor to develop reasonable estimations on pricing, and it is usually enough for banks to evaluate their exposure.
Our fees for generating this type of package are still broken down in the same way as if we were doing a full scope of services package except we just stop at the end of the Design Development phase. If you went with an hourly proposal, none of this really matters because the very nature of what an hourly contract suggests is that we only do what we need to do, when we need to do it – and typically only with prior client approval – and stopping at the end of DD is fine. If you go a percentage of construction, things get a little bit trickier. I’m sure you can imagine a scenario where you are wanting to build a spectacular house for $600,000 and I think that the house you are describing falls more into the $1M range based on the square footage costs we historically see, there is going to be a disconnect between how we both anticipate this project going. For example, if I charge 12% fees based on the cost of construction, my fees for a $600,000 house will be $72,000. If based on my experience I think we are really more in the $1M range, my fee would be $120,00 – which is a huge difference. Here is the part that everyone should be interested in:
If you tell me your budget, and I am working on a percentage-of-construction cost contract, I am responsible for hitting that budget within a reasonable percentage amount (normally 10%). That is my real motivation for identifying the proper construction amount – I don’t want the client to be disappointed and I don’t want to undo a bunch of work at my own expense. This is the whole “skin in the game” mentality and if I am the client, I want my architect to have a little skin in the game. When I tell you you are over budget based on the fact that I do this sort of thing for a living and the client tells me that I am wrong and that they’re correct based on their own research, Great! … but I no longer have the same level of responsibility to fix the drawings once the estimates come in over what they anticipate.
Residential Architecture 101 – Architectural Fees
If you are an architect reading this post, what do you think the chances are that if I set my fee based on the clients’ pricing information rather than my own experience, and the costs come in where I say they will, that I will be able to go back to the client and collect on the difference? For the record, I don’t charge 12% for these DD packages, that a full-service contract amount. For Design Development packages that are generated for the purpose of establishing a budget amount – I generally try to get the clients to go to an hourly contract because, for residential work, this is the moment when the client realizes that an hourly contract limits their exposure.
I’ve written on architectural fees many times on this site, and here are some of those articles that hit upon the highlights:
Architectural Fees are a mystery to most people and there is no shortage of methods that architects use when charging for their services. How do you make sense of the options, which method works best for you, and how do you provide a method that suits the needs of both the architect and their clients.
I like to tell clients that everyone needs to have skin in the game, that both architect and client are accountable to one another and while we both have something to gain, we both also have something to lose.
Determining residential fees is both easy, and complicated, at the same time. The nature of the creative process is exploratory and as a result, it is easy to describe how we will price things, but it is extremely challenging to accurately determine that price before any of the work has actually been done. While I am on the service provider side of things as the architect, it is not difficult to imagine what the client would like to see from their side of the equation. So what are we to do? I can tell you that I try to err on the side of caution and involve the client in the decision-making process from the onset. When all parties are involved and collaborating, I think you have set yourself up for the best chance of success.