Fourteen years ago, when Peggy Fisher started asking for a design fee, she charged $100 and held her breath hoping clients would pay it. Eight years later, the fee was up to 8%, and today, Fisher Group, a $2-million design/build remodeling company Peggy owns and operates with her husband, Ken, in Annandale, Va., charges 12% of construction costs for design. And they're thinking about raising the rate.
Charging for design and other preconstruction services is growing more common among remodeling companies, but the design/build concept is rarely executed the same way twice. The Fishers, whose typical project costs about $225,000, collect their fee for preconstruction services in three stages, starting with a 5% fee to produce preliminary concepts and a rough estimate that's within 15% of actual cost to construct. They collect another 4% to flesh out the winning ideas with perspectives, specs for finishes, allowances, and other details. The last 3% “finalizes all design intent,” Peggy says, and includes all product selections. Working drawings are not a part of the design fee and are figured into the construction cost.
HartmanBaldwin Design/Build, a $6.5-million design/build firm in Claremont, Calif., also follows a three-stage process for its projects, which average $350,000. The first step is a feasibility study that produces a master plan for the entire project, including drawings, a written scope of work, and a construction estimate guaranteed to be within 15% of actual cost to construct. Design costs are billed every two weeks up to a total of 5% of construction costs. Another 10% fee covers working drawings and all communication with staff architects during construction.
For Fisher Group, fees for preconstruction services cover costs and generate a profit. Too often, however, “it works by the law of averages,” says Peggy Fisher, because some clients are more demanding than others and have “a lot more changes of heart” along the way. One solution she's put in place is a minimum $5,000 fee for projects under $40,000.
Devon Hartman, the partner who oversees the HartmanBaldwin design department, also strives to ensure fees cover costs, especially because some clients pay only for a feasibility study. “They just want a quick idea of what it might look like and what it might cost.” Hartman charges hourly for any client who backs out before feasibility is complete. Otherwise, however, he avoids hourly charges because they tend to discourage clients from communicating. But Hartman still tracks design time hourly and closely monitors how cost per hour compares with earnings per hour.
Hourly charges are the basis for fees charged by design/build remodeler Kent Eberle, although the customer sees only a flat fee. Eberle, who owns $1.8-million Eberle Remodeling, of Sacramento, Calif., does all of the design work himself, so his fee is much lower — only 4% of construction costs —but it is based on historical costs and an hourly rate that covers all of the time spent taking measurements, working up drawings, and writing specs. Eberle, whose average project comes in at just over $100,000, doesn't sign a contract until after the initial consultation. But once design work begins in earnest, the fee is part of a contract that spells out exactly what services he will perform, right down to the number of meetings he will attend.
Occasionally Eberle spends more time than he estimates, but he has never asked for more money. “Design for us has always been a means to an end,” he says, “which is to get the construction project and have a smooth-running project. If it takes a few extra meetings or hours at the drawing board to achieve that, it's worth it.”
Fisher agrees, but grudgingly. “Ideas are my stock-in-trade,” she says. “I'm a design professional and it's my job … to pull together a set of decisions that make sense functionally, economically, and aesthetically. That planning advice is invaluable and it ought to be paid for.”