How Much Does It Cost to Hire a General Contractor?

A good general contractor can bring a lot of value to a home renovation or building project. These professionals help their clients set a realistic budget, keep a project on schedule and manage construction so the homeowners don’t have to. How much does it cost to hire a general contractor? Find out below.
What Do General Contractors Do?
  • Provide realistic cost estimates. One of the most important services a contractor can provide is nailing down a realistic cost to build or remodel a home — before construction starts. There are two ways to get this all-important cost estimate from a contractor.
Traditionally, clients either purchased house plans or worked with an architect to develop them. Then the homeowner sent the plans to multiple contractors for competitive bidding. The contractors bid — estimated the cost of building — the project without charging the client for their time. Many contractors still work this way today.

However, plenty of excellent general contractors don’t participate in competitive bidding or offer free estimates.

That’s because creating an accurate bid takes time, more time than many contractors are willing to give up for free. 

Some (though not all) of the general contractors who do participate in competitive bidding may be less precise than homeowners might like.

The alternative to competitive bidding is to bring a contractor on to a project before the home is fully designed and pay him or her to provide ongoing feedback on cost and feasibility as the plan develops. When homeowners go this route, they generally hire a contractor for pre-construction services.
  • Provide pre-construction planning services. When you hire a contractor early, he or she can help shape the project and its budget. For instance, a general contractor might walk the property and suggest the best siting for a new home. Or she might draft plans for an interior remodel. Most important, pre-construction services include a detailed and accurate cost estimate to build (or remodel) the house.
These planning services are often not free, though sometimes they can be. Either way, by the end of the pre-construction phase, the client should have a finalized building plan as well as an excellent sense of how much it will cost and how long it will take. 
  • Offer help with design and materials. Many general contractors provide some level of design services, even though they’re not design-build firms. These might range from helping clients with materials selections to creating plans. Of course, plenty of general contractors leave the designing to other pros, and many can suggest designers the client may find to be a good fit. 
  • Establish a budget and help the client stick to it. General contractors purchase building products and materials and hire laborers, which means they’re very familiar with current building costs. They can help clients establish a budget and stick to it by offering a big-picture perspective. 
  • Manage the construction process. A general contractor can pull permits, schedule tradespeople and keep the clients informed on progress. 
  • Provide post-construction services. The amount of time a contractor is on the hook for work performed depends on state regulations. However, most general contractors warranty their work for at least a year. Many will return to a job site well beyond that period to help clients with issues that come up after the warranty ends. Some contractors even sell post-construction home maintenance packages that involve sending out crews periodically to inspect and maintain the home.
How Much Does a General Contractor Charge?

Contractors may have a single method of charging for their work, or they may use different fee structures for different phases of the project or for different types of projects. Here are some common fee structures you may come across:

Hourly rate. This is just what it sounds like: A client pays the general contractor for his or her time — and, in some cases, his or her employees’ time — spent on the project. Rates of $50 to $100 per hour for general contractors are common. Charging hourly is more typical during the pre-construction phase than the building phase.

Pre-construction services contract. Homeowners who hire a contractor early on often sign a pre-construction services contract, sometimes called a design agreement or a professional services agreement, to cover the contractor’s time spent on planning and cost estimating. This agreement may come with a flat fee, which could range from $3,000 to $20,000 depending on the region and the contractor’s market niche. Or the contractor might charge for this work at an hourly rate. (If so, the total price will typically fall within that flat-fee range.)

Once pre-construction services are complete, many contractors will allow clients to take the work (cost estimate, plans, materials selections) and use it with another builder — or decide to manage the project themselves if they like. After all, the clients have paid for the work.

Plus, the pre-construction phase is a test drive for both the homeowner and the contractor.

If the relationship is a good fit, there are advantages for the homeowner in sticking with the general contractor. For one, some contractors will credit some or all of the pre-construction-phase fee toward the building phase. Plus, the homeowner will be able to more quickly get on the contractor’s schedule to actually start building.
Fixed price. Before we get into the details of a fixed-price contract, it’s important to understand how general contractors make money. It’s standard in the industry to mark up the cost of both materials and labor. This markup covers the contractor’s costs of doing business plus a reasonable profit. Markups on individual products and labor may range from 10% to 45%, depending on which elements of the job are being marked up and on the contractor’s practices and the local economic conditions.

A key question homeowners should ask is whether the construction contract is fixed-price or cost-plus. In a fixed-price contract, the contractor offers bottom-line costs but doesn’t break out the markup for the homeowner to see. For example, pricing might be as generalized and unspecific as a single all-in price to build a project — say, $364,000 to remodel a home. Or it could be spelled out by category, with totals for demolition, carpentry and plumbing. The markup will be baked into those line items but not shown separately.

The contract language may specify the percentages of total construction costs the contractor charges for profit, overhead and insurance. But bills to the homeowner won’t separate the raw costs from the markups.

Cost-plus. In contrast to a fixed-price contract, a cost-plus construction contract spells out the raw costs and the markup. Billings under this type of contract should also show both.

When Do You Pay a General Contractor?

Contractors have various methods of being paid. For pre-construction services, homeowners may pay half or all of the total fee up-front.

For construction services, it’s common to require a deposit of 10% to 25% of the total construction cost up-front. After that, payments may be required every two weeks, monthly or at certain points in the construction process: after demolition is complete, at the start of drywall installation, after the cabinets are finished or at the start of painting, for instance.

If a homeowner is paying for a remodel or new build with cash, the client can pay the contractor directly. For clients relying on a bank loan, the contractor can work with the bank to make draws against the construction loan.
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Can You Afford to Hire a General Contractor?

If you’re thinking about building or remodeling, you may be debating whether you need to hire a general contractor or can manage the project yourself. Though a contractor’s services do cost money, the payoff is a smoother-running project. For one thing, these professionals understand the sequencing required to time the various tradespeople needed for a job. 

Good g
eneral contractors also have established relationships with quality tradespeople and can tell whether the work on your home is quality or subpar — a distinction that may not be as clear to the untrained eye. 

If paying a general contractor to manage your project isn’t realistic given your budget, you may want to hire one for pre-construction services, or as a consultant by the hour, to start your project off on the right foot in terms of budget and scope.

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