Large vs. small home builders — who has the higher overhead?

July 8, 2014

custom home builder overheadThe answer may surprise you. When you’re in the process of selecting a custom home builder for your project, your budget will undoubtedly be forefront on your mind. That means you’ll probably be searching for a builder who can give you the biggest bang for your buck. This quest typically results in a discussion about overhead — the expenses a building company must charge that are not tied directly to materials and labor. The largest being wages for personnel that do not provide direct labor to the home construction. The common conception is that small builders have the lowest overhead and therefore are leaner, meaner, and can price their homes for less. But this may not be the case.

Larger builders often have a lower overhead per project.

Many people think that a larger builder of say six to seven employees has a higher overhead and, therefore, must charge more. This makes logical sense, but it only really applies if the builder is doing one project at a time, like a small builder might. The amount you pay toward overhead is determined by how many projects a builder’s overhead costs can carry. A larger builder can efficiently handle several projects at one time, so the cost to you would typically be less. A common benchmark for well-run home builders is 4% General and Administrative costs (i.e. overhead). So for every dollar in sales .04 cents is taken up in overhead. On the other hand, even if a builder is just a one-person operation, he has to pay himself a wage. If he has to make his entire wage in one or two projects, his overhead will be much higher than a well-run, larger builder’s overhead percentage. Additionally, a one-person operation does not have the ability to match skills with rate-of-pay to all the overhead duties. Often the highest paid person in a one-person operation is doing entry level work since they have no team members.

So I should go with the larger builder?

Not necessarily. While, in general, a larger builder will have a lower overhead per project, the actual cost will depend on how efficient the home builder is. Your best bet will be to compare several builders and determine which builder best fulfills your needs from several perspectives. Have questions about the builder selection process? Get a free copy of our report “13 Tough Questions to Ask When Selecting a Builder” for an easy step-by-step guide. [action] Estes Builders is an award winning home designer and home builder serving Western Washington state since 1989. We design and builds new homes in Port Angeles, Sequim, Port Townsend, Kingston, Hansville, Poulsbo, Bainbridge Island, Bremerton, Silverdale, Port Orchard, and surrounding Clallam and Kitsap Peninsula neighborhoods. “Creative custom homes without the creative accounting” create a custom home budget Estes Builders is an award-winning design build firm that specializes in custom homes in Western Washington. We have earned more than 130 customer testimonials and a reputation as Western Washington’s most trusted custom home builder. We build custom homes in Sequim, Port Angeles, Port Townsend, Port Ludlow, Bainbridge Island, Kingston, Silverdale, Port Orchard and surrounding areas. Contact us for a FREE Project Analysis to discuss your project.]]>