Change orders is an important tool for a homeowner during the course of construction. It’s important to understand exactly what a change order is, how to control change orders, and to endure that your homebuilder is not using change orders as a significant profit center
To Change the Past
A change order is a written directive to the homebuilder to make a change to the project which will affect scheduling, cost and material for an item or activity that has already occurred or has been scheduled and material ordered. A change order should not be for a future change.
Often, a change order will consist of the cost of the change, including homebuilder profit, and a penalty. The penalty can range from small ($250+-) to large amounts, depending on the homebuilder and their change order policies. Ask your homebuilder how much the change order fee is before signing the contract.
To Change the Future
Change orders are not a change of selection. Change of selections is making a change in something selected for the future. For example, your custom home’s plumbing fixtures were initially selected as Moen Chateau in chrome. Prior to ordering the valve assemblies (at the start of framing of the home), you want to change the plumbing fixture to Moen Eva brushed nickel finish. This change in selection should not be a change order as it is for a future selection change and there should not be a penalty for making such a future change.
There’s often confusion as many homebuilders will use the term “change order” to indicate a change in selections. The way to determine a change of selection/change order is if there is a penalty fee associated with the written change order.
THE GOOD, THE BAD, and THE UGLY Change Order
Homebuilders are a diverse group of entrepreneurs. Most homes are built by homebuilders with less than 5 employees. Knowing what type of homebuilder you have selected will make your custom home experience wonderful, or a nightmare. By understanding your homebuilder’s policies regarding change orders, you will have an important insight on how your relationship with your homebuilder will
go. The following list and information are subjective, but with 30 years plus of homebuilding, we have an exceptionally good understanding of our industry.
This may be the most important information for a homeowner selecting a homebuilder in these blogs.
The good homebuilder is transparent in all information and actions. Although no homebuilder will share their actual cost to build your home with a fixed-price contract, most margins are similar for a region.
The goal with a good homebuilder is to build a quality home for their client and minimize conflict and issues. Full disclosure on all specifications and selection, contracts, scheduling systems, change orders, and what a client can do, and what they cannot do during the construction process is important. Everything is in writing, or online systems that can be reviewed and verified.
A homebuilder’s specifications and selection documentation should be extensive and presented in a clear and concise fashion. Change of selections and change orders are straight forward and simple.
A good homebuilder’s business philosophy regarding change orders is that a change order is when something has gone wrong and it needs to be corrected. It is not used as a tool to make more revenue or punish the client. Typical change orders would be moving a framed wall, enlarging windows, changing door locations, etc. These types of changes are initiated by the client who simply did not understand the blueprints or wants to change an item in the home.
A typical change order will result in stopping certain work on the project to change the requested item. This can have multiple consequences as once work is stopped, it will need to be rescheduled and subcontractors are often scheduled several weeks with other projects before they can return to the job.
The goal of a good homebuilder is to minimize change orders, not create change orders for additional revenue.
The bad homebuilder will often use change orders to fix construction mistakes that originated from poor information, lack of communication, or hectic and confused scheduling. Instead of taking the blame and fixing the issue which can be an expensive proposition, the bad homebuilder will place the blame on their client and try to recoup the cost by enforcing a change order situation. This creates conflict in the construction process.
Often, it is difficult to determine if your homebuilder operates in this fashion prior to the start of construction. The best method is reviewing your homebuilder’s documentation, selection system, scheduling system, etc. If the processes are poorly documented and confusing, you may have a future issue.
To make the selection process more confusing, there are great custom homebuilders that only build several projects a year and are on-site and hands-on during the project. They may not have great documentation and systems but are excellent homebuilders that care deeply for their clients.
The ugly homebuilder is easy to spot. They depend on providing a low price for the project and depend on making-up their revenue in change orders and extras. There is a lot of homebuilders that operate in this fashion. The typical relationship between the ugly homebuilder and their client becomes stressful and full of conflict.
It is important to understand that most homebuilders pay similar rates for material and labor. Profit margins are standardized in the industry. If you receive a low-priced bid versus other bids, look very closely at the homebuilder and do your research. Once you sign the construction contract, it is too
late without significant penalties and legal action. There is nothing in this world for free. You truly get what you pay for in custom homebuilding.
Another glaring component to the ugly homebuilder is if their initial price is low and they offer “homeowner help”. We’ve seen certain homebuilders that provide a very low price, but require the homeowner to excavate, paint, hook-up utilities, and more. While the low price may seem appealing, the ugly homebuilder depends on their client not being able to do the work according to the schedule and will complete those items for a large premium. That’s where their profit comes from, not the original contract price.
More harm has been done to the general homebuilder’s reputation and trade due to this type of ugly homebuilder than any other action or issue. Please beware of the ugly homebuilder.
Ask for More Information
Sullivan Homes PNW believes the more information our custom homeowners have, the better their decisions will be. Contact us for a video conference call. Any questions and all the answers. We love to talk construction!
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