Is tendering out designs the best way forward?

Hi Guys,

I’m interested to know what the seasoned developers workflow is when it comes to having development plans designed and choosing a builder.
Let’s say hypothetically I want to build a triplex on a flat and typical site. What’s the best way forward, would I approach an independent drafter to design the townhouses or villas on the site and then tender them out to various builders?
I have built a duplex in Perth in the past and have just had off the rack plans drawn from a mainstream builder but I feel like this isn’t the most cost efficient process.
What about building brokers, is that something worth considering?

 

I have found a lot of builders tend to be cheaper on their own designers than when they tender. I think one of the main reasons behind this is that the designer designs to the way the builder constructs and they are more intimate with the plans than when they receive plans via tender that they haven't had input into and there are more unknowns with so they put in some risk amounts.

Having said that I've done it every way - builders designers, building brokers, independant drafty and architect.

For me it really depends on the site, the budget, the council and the risks. For a triplex in a middle ring area I'd probably lean to broker or development builder designer who has previously built and got DAs for that council.

 

Hey @Beachsnow, great question!

This is such an important aspect of developing and is something I have put a lot of thought and experimentation into. I'll go into a bit of detail how I think you should approach a project Full disclosure- I am a builder, but I'm going to try to be as objective as possible.

The first thing to mention is that the design stage of your project is incredibly important. It is your single biggest opportunity to add value. Good design starts with a good understanding of the local market factors and an understanding of local planning policy and council attitude. Design should be about managing cost, but still putting enough in the development such that it appears unique and special because that creates points of difference and adds value

With that in mind, let's talk about the different options:

Private Designer/Architect
This is a great option and something I have done in the past, but there are a few traps for young players:
1) Expensive - this approach is by far the most expensive and there is a huge variance in fees between designers. You could end up spending between 5-25K to design a triplex.
2) Designers are good at design, but you have to feed them information on the market in your design brief. Do not expect your designer to pick the product, or set the parameters for your design.
3) Designers typically have a very poor understanding of build costs, and so they are typically not well positioned to find cost optimizations.
SUMMARY:
- great if you have a pragmatic designer/architect with a track record and the cash to pay for them.
- be sure to be VERY specific in your design brief
- have key steps and review to ensure you are on a budget and on vision.
- best for PPOR, complex or large developments, particularly apartments.

Building Broker
Building brokers promise to give you great deals on builds by shopping your project. This is great in theory. I have had experience both as a client of a building broker, and as a small builder involved in the tender process, and there are few things you should know.

1) Commissions: building brokers charge take huge commissions from the builder, and most of the time they do not disclose these to the clients. For a triplex, your building broker will probably ask for a commission in the order of 30K. We simply price the build then add the commission on top. Initially, we thought we would lose the jobs on price, but after a while, we realised that our prices were always very competitive so I figure everyone must be doing the same. Ultimately, clients would have been much better off coming directly to us.
2) Ethics- as above, most building brokers do not want to disclose their commissions, and something about that makes me feel slimy:S. I'm sure there are good ones out there, but you have to be careful.
3) Tender process: For a tender process to work, it needs to have sufficient information, and the returned estimates need to be closely vetted and checked for compliance. Most of the tender opportunities we get from building brokers are not clear enough to be accurate on pricing. Finishings, prime costs and allowances are almost never specified.

Summary:
-If your building broker is an excellent designer and discloses their comms, then it's probably not bad. Otherwise sending out an email to 3-4 builders with your drawings and asking for a price is not worth the comms you will end up paying.

Project Builder
Project builders are probably the cheapest in terms of their design work, and will often even give you some designs for free. The downsides are:
1) Project builders own your plans, and so you can not get comparable quotes.
2) The design is about adding value, and to add value something needs to be unique and special. Project builders are great at cookie-cutter things, but this automatically makes your development a bit 'meh.' If you start doing custom builds and adding upgrades than project builders quickly become very expensive.
3) Design quality- usually project builders hire in-house draftys, which are usually not anywhere on the same level as good designers.
SUMMARY
-best if you have a block and you can place an exact design and do not want any upgrades.

My Approach
Over the years, I have developed a hybrid approach which works really well for me and my clients. The aim is to keep the upfront costs low, ensure you have a great team on the project, and importantly make sure they are clear about their roles and are given an opportunity to contribute their expertise. For a triplex project it would look something like this:

1) Concept stage: (~1-2K)
Developer- puts together a design brief including target retail price point, finish, budget, target buyer profile.
Architect/Designer: floor plans, 1 elevation
Estimator- initial review and estimation, early identification of 'value engineering opportunities'
Council- council meeting if required to discuss

2) DA Stage (~2-3K)
Develop designs based on feedback from the above stage and proceed to lodge the DA.

3) Construction drawings (usually placed in build contract)
-finalise construction drawings, specs, engineering details etc

4) Tender/comparable quote
-We allow our clients to seek a comparable quote if they wish, but most people don't usually bother

Anyway, thanks for reading the long post

Cheers,
Angad

 

That’s a great post @Angad Singh

I’m currently in the planning process for a subdivision/build and had elected to go for a project builder option.
Essentially found a floor plan that fitted the newly created lot nicely and opted to roll with that.

I think because we plan to hold it and rent it out long term it will be a good outcome due to the initial lower cost.
That being said from an overall project perspective we could’ve designed a far better dwelling for the block

 

Awesome thanks @Angad Singh and @Westminster. Great info there to digest!

 

I like to use a cost estimator in my design stage and then before tender he will document what materials to use in build as he knows most cost effective ways to build/materials. Then when builders tender they know exactly what I want and price usually comes back very close to what my estimator estimated. Any below ( all things being equal) means a good deal and if too above could mean too inflated a build cost.

 

Iam in the process of doing a backyard build and grappling with the choice of project build using their shelf plans for a 3bv or custom designs
I gather it could come in cheaper if i use a project builder and there shelf plans and tweak i it to fit the block ,having said that if i go with option 2 and custom build at one point do i get an estimator
Anagd i know your excellent thread explained it all ,just need another clarification
Thanks

 

Hi @frank22,

No problem at all, my friend. Happy to clarify. I'll go into a little bit more detail on the process.

The first point I'd like to make is this; the purpose of good design is to add value to the property and it is an incredibly important element to your project. I would be focused on trying to get the best house on the block for the following reasons:

1. There is a "flight to quality" phenomenon that occurs in depressed markets. So the good properties sell, and the bad/average properties sit on the market and need to offer heavy discounts. If you are in Perth (like me), then you should be VERY careful about this at the moment.
2. Good design can disproportionately add value (without adding cost) by ensuring a functional layout and a 'wow factor' that ultimately should create urgency and competition amongst buyers. Things like solar orientation and the 'feel' of spaces make a tremendous difference.
3. Having a desirable and scarce product is your best shield against risk.

Secondly, custom designs are not inherently more expensive than cookie cutter plans. As a builder, I can absolutely guarantee you that the price of bricks or labour doesn't change based on where you put them. The reason it might that appears that cookie cutter designs work out cheaper is because project builders charge higher than usual margins on variations, as their entire system is based on scale and volume.

It's taken me almost 10 years to establish my team and find the right people I work with, and I can tell you that there was a lot of fumbling to get to this point, but this is the approach I would take:

1) Concept Stage (floor plan and 1 elevation only)
My architect charges approx $500-2000+GST for a single story home. Honestly, this is the highest ROI activity in your entire project, so I wouldn't skip this, even for a single home. If you are based in Perth, I'm happy to refer you to the architect I use (just drop me a PM). Alternatively, maybe someone else on here can refer you to someone that is familiar with your location.

• Make sure you do your research. What does the area need? A 3x2+theater, or a 4x2 with one living area? WIR's or a double vanity? This drives profit in your deal, and so you are the person that needs to be making the decision on this. Do not leave this to your architect, and definitely not a project builder.
• Study your council areas and look for ways you can add value. Can you get concessions on the built-up area, or setbacks or something else that will make your house better? Trust me, this can add huge profits to your deal. Again, do not leave this to your architect, and definitely not a project builder. We recently turned a project builders '3x2' design into a '3x2+study+media room,' simply through the application of some concessions available to us and more efficient design. You can imagine what this does to your profit...
• Ensure your architect/designer puts together a good floor plan that is in line with the above. Ask loads of questions. If you see something as not quite right, then change it. Get it right from the start. Usually, it takes me 2-5 revisions to get something I'm happy with.
• Once the floor plan is done then you can start on the elevation. You want to ensure there is at least one 'hero piece' that makes your home stand out without breaking the bank.
• Get a builder that you trust to estimate the plans using an appropriate spec for the area. Do not cheap out on finishes- you are only hurting your profit and increasing your risk. Almost no one ends up using the 'base spec' of a project builder- so ensure your builder understands what you are going for. Ask your builder for opportunities to add value/reduce cost. This estimate is not suitable for comparison because there are so many assumptions, and you do not want to incentivise your builder to underprice.
• You may also want to to have a quick meeting with the council to run through the areas where you need concession. This is a good practice to avoid delays and questions later and start an open relationship.
• I also get a real estate agent to value the properties and give feedback on design and spec.

2) Approval Stage ($1-2K+GST)

If all your numbers stack at this point then go ahead and prepare the necessary stuff to lodge. The architect usually charges $1-2k for this.

• I like to attach the drawings and add any diagrams to communicate how this is in line with their future vision for the area
• Dress up the streetscape and landscaping in the elevations and stuff to make the development look sexy (even if you are going to cut out some of the stuff later). Make sure there is a lot of greenery in your illustrations. Presentation matters A LOT. Council planners love good looking design, and they are much more likely to be on your team if they see you as adding value to the community.
• Attach a covering letter explaining your intent and justification

3) Construction Drawings/Tender

After you have your approvals in place is when you should be going on to construction drawings and getting tenders. For simple projects, builders can get pretty accurate without full engineering details, but for more complex projects it's probably better you get those done before you ask builders for 'quotes.'

• Never ask your builder for 'price' without providing them with an inclusions list. You are opening yourself up to 'underpricing' and large variation fees. Also, it defeats the purpose as you are not able to compare 'apples for apples.'
• Make sure you provide your builder with appropriate detail (often this means a soil report and engineering detail) if you want a fixed price. This can cause significant variation. Don't be fooled by the term 'fixed price contract' - a builder can legally still charge you a variation if the assumptions of their price change. The problem with project builders is they charge you a very large margin on variations (30%+), smaller builders like us charge a much lower margin on variations (0-10%, depending on the reasons for variation).
• Be sure to work closely with the builder that has helped you so far. Property development is a long term game and your relationships and reputation matter. Having said that, it's totally reasonable to cross-check the price to make sure it is reasonable. Some of our less experienced clients do this. Our more experienced clients generally tend to know what stuff should cost and whats a good but fair price.
• You will find most builders (at least in Perth) will almost always end up very close in their pricing if you have been clear enough with your information (within say +/-2%). Do not discount the importance of professional service, transparency and workmanship. As a client, you have no idea how diligent the supervisor will be, but when all is said and done you will be the one holding the monkey. Trust me, if your tiles break because the builder didn't pay the tiler enough to get enough glue, it will be your problem. If the paint peels off because the supervisor didn't do the appropriate quality checks on the plaster, it will be your problem. One trip to the "shonky builders" facebook group will give most people sleepless nights, and just about every project builder has been named on there. Factor in your 'qualitative' analysis on your builder, along with their price so as to protect your mental energy

Anyway, hope that helps clarify the process on how I think you should approach every single deal regardless of how small or large, the target retail price point, and whether your budget is 200K or 2Mill... Obviously, the team may change (as different builders/architects have different expertise) and the budgets may change based on the project, but the process and principles remain the same

Cheers,
Angad

 

Angad I wish you were in Melbourne ,what I have picked up here in two days would have taken me months .A project builder named "STROUD HOMES" orginially from QLD have agreed to give me a free survey and site analysis (in a few days ) ,in the meantime they have given me a quote which I have attached for a 3BV single unit including 81 inclusions such as planning soil test , downlights ,driveway 60sqm ,service connections ,single garage ,plus upgrades to 2.7M ceiling,kitchen splash back for $301,419.96 incl GST (see attached ) ,this is my 2nd quote ,the first was way too much from TREVOR HOMES. I am asking them for references and will be looking at other project builders too. I prefer a shelf plan to a custom builder because of price and inclusions. The proposed property is for rental only ,my budget is $350K ,so this is way below budget
just hope going forward I make the right choice ,but you never know till you try or you die wondering . This is my first project ,it can be daunting

 

@frank22,

It's my pleasure Thanks for your kind words.

Sometimes, you gotta just trust and jump, and it's never going to be perfect. It seems like you have a good attitude!

Why not post your floor plan on here and get some ideas from Property Chat members?

Cheers,
Angad Singh

 

how many squares or sqm is the house?

how much did Trevor Homes want?

I read the quote, the inclusions are reasonable. What I would upgrade that would make it feel like a higher quality home and still be under budget are:
- 2340mm high doors
- 40mm stone benchtops
- double glazed windows

Even though it's rental, pay extra for quality tapware, it will save you money in the long term. I personally like Methven, very long warranty without being too expensive.

 

The cedar 148 is approx 17 sqs at $301k +15k plans and town planner approx 4k
At the end of the day i understand it all comes down to site analysis/survey
I am working on a budget of $350k and want a 18 sq preferably 3 bv town house,a single storey would do ,with upgrades such as 2.7 ceiling ,splash back kitchen, eaves ,cooling
Might even be up for another single garage, if the existing carport has to go ,so i am cautios regarding hidden costs and going for a single storey

 

Frank you should upload the design as even though mathematically it might be 17 sqs they might not be good squares. A poorly designed 18sq home can feel smaller than a well designed 17sq home.

 

This is 17.21 SQ you can see it on their website its called the ASHWOOD 163 .approx 300k pplus

 

I thought it was a two storey you were looking at?
If it's a single storey then I believe it should be cheaper.

 

Hmm - have you got a backyard? Because none of the living/dining/kitchen can see it - no windows except to the alfresco area?

 

@frank22, Wow...this is what you get for 300k in Melb?
In WA that would be around the 180K mark. Don't know how Melb costs compare though .

 

I was pretty shocked too. I had assumed this was for a largish double storey.

 

That includes 81 inclusions ,plans ,permits ,working drawings plus driveway
I built with Carlisle in 2009 back then it cost 185k ?

 

I'm not local to Melbourne but I would have expected that to be around $1400 per square metre finished - so around $230k for 168sqm.