Pricing Exercise

wurdan freo

Ok. Here's the deal. I'm new at this and was hoping to get feed back on my process as well as challenge those who have never done this to look at architecture from a different point of view.

Let's say a developer calls me and asks for pricing for architectural services.  He has 7 apartment buildings he is buying, 5 of which are going to be remodeled and 2 are going to be torn down for future development. Total units to be renovated equals 75. 

Services I am going to provide include as built documentation, site and mep consultant coordination, code compliance, some minor space planning(most of the existing spaces will remain as is), construction documents including specifications, and construction observation to consist of a rough in walk through, a punch list and substantial completion.

He has budgeted 20,000 per unit for the remodel, putting him at a total budget of $1.5 million. At 8%, my fee for the above services would come in at $120,000. Broken down as such

50% = MEP and Civil = $60,000

50% = Architectural = $60,000

50% of Architectural = $30,000  for insurance, taxes, overhead, etc.

50% of Architectural = $30,000 for profit and wages.

20% profit of $30,000 = $6000

10% contingency 0f $30000 = $3000

70% wages of $30,000 = $21,000

$24,000 @ $35/hr = 600 billable hours

or  (15) forty hour weeks

or  3.5 months.

To get this job done,I am anticipating the following:

1. Asbuilting (3) forty hour weeks for a $10/hr intern and a $20/hr entry level draftsman.

= $3600

2. Code compliance and cd's = 6 forty hour weeks for a $35/hour Licensed Architect and a $20/hr entry level draftsman

= $8400 + $4800 = $13,200

3. This leaves $4200 at $35/hour =  120 hours that I can bill myself to the project.

Thoughts? Comments? Does it seem feasible? What details am I missing?

Many thanks. Pricing reflects a mid tier mid-western city. Yay Milwaukee.


Mar 8, 12 4:37 pm

I don't think anyone's giving you $120K in fees on a $1.5M job. But if they did, it's nice to know even in fantasy-land interns still only make $10/h. 

Mar 8, 12 7:30 pm
wurdan freo

So what would be a realistic fee on a $1.5M job.

Should have used different terminology.

For the intern wage I was thinking more along the lines of someone in HS who is interested in architecture or construction. I think $10/hr is appropriate for someone who is holding the end of a tape for three weeks. Now that I think about it, maybe it's too much.

Mar 8, 12 9:36 pm

I'm guessing your fee will be 5% to 6% after negotiation. Are you including assistance w/ bidding and CA in your 120 hrs? If you're not prioviding these, drop fee to 4% to 4.5%.

Mar 8, 12 10:16 pm
wurdan freo

Ouch!!! 4%. That is too painful. Where is the motivation to pursue work for that? Might not even be worth it. Difficult times we are in.

Was including CA, but not bidding assistance.


Mar 8, 12 10:42 pm

This project appears to be more of a facility management gig than anything else. I've seen fees dip below 2% for this type of work. Yes, it's impossible to turn a profit with that, but if you don't like it someone else will gladly take it.

Mar 9, 12 1:17 am
won and done williams

My inclination (albeit I don't have a lot of experience with this) would be to partner with a CM. Your MEP allocation seems too high. I've worked on a few small projects like this where the CM brought in his MEP contractors; we walked the site, determined the requirements and developed what minimal drawings were required based off the walk. As Rusty said, we're not talking high design here; it's more a facilities management-type project. I think anything you can do to bring down cost both for you and your client will be to your benefit; CM sounds like the best route to that.

Mar 9, 12 8:05 am

CMs can be trouble - they have a tendency to make rash decisions in the field that end up costing more in the end.  they'll also create a weird power dynamic between you and the client.

Mar 9, 12 10:40 am

Time for a career change. Either that, or a name change. Paco Sanchez wouldn't work for those wages.

Developers are notorious for renegotiating after the work is done.

Mar 9, 12 10:57 am

Is it me— being the complete amateur that I am— to find $20,000 a little low for full apartment renovations?

With 8' tall walls and 225' linear feet of walls (160' @ 140% to include interior walls) for a 1500 sq. ft. unit, you're looking at roughly $500 for demo and $1800 to rehang basic drywall per unit. That's already 13%~ of your total budget.

Mar 9, 12 11:30 am

that's why design build contractors have the upperhand on renovation projects. 

Mar 9, 12 12:25 pm

You're taking the wrong approach to trying to price this. Don't start with your costs or calculate hours according to some pre-determined phase structure. Figure out what the project owner wants (specifically and in detail), and then figure out what that's really worth to the owner (to do that, you'll need to know a bit about their business model for the project). Then define the scope to those specifics and set the price just a little bit less than that number.

Second task is to figure out if you can accomplish the work for that and make a profit. If not, don't bid the work. Let your competitors lose their shirts, not you. Always be happy to let your competition commit financial suicide. As a general rule, if you don't think you can make a real profit of more than 10% (and by real profit, I mean NET CASH, not chargability against some bullshit hours budget that means nothing to your real profitability or cash flow), then don't take the work.

Mar 9, 12 1:16 pm

As a follow up to the previous, the way an apartment developer will look at your costs vs. value is like this:

1) What is the cost of your services per door (i.e. per dwelling unit) in the project?

2) What is the value-add of your services in terms of price of each unit at sale?

3) How fast can you get it done and permitted? (This is a carry cost issue)

So, when you make your proposal, give them a lump-sum fee with strictly-defined scope. They will immediately divide that fee by the number of units to figure the per-door cost, so know what that number is in advance and make sure it's attractive ($5,000 / door in Seattle just about works for a rehab, for instance). Make sure your client understands the value-add you bring to each unit. If you can show a track record of boosting unit sale prices above market, and quantify that, you'll be fine. If not, you'll want to emphasize the quality of your work and how market-responsive it is.

Finally, go for an aggressive schedule. This will work in your favor. On one hand, the faster you do it, the more likely you'll be profitable, since you'll have immediate cash flows from the work and be front-loading that as much as possible. On the other hand, the owner will be happy to be moving quickly. Lay out in advance that your schedule will depend on them being timely with information and decisions, and hold them to that with friendly reminders that it's for their own benefit.

As a sweetener, put in a clause for a performance bonus if you can get the project permitted quickly. Most developers are happy to pay bonuses like this, because it's very important to them. It involves some risk for you, but the fact is that it makes you look bad if you can't get through permit expeditiously anyway. You might as well own that and get paid for it, even if you can't control it entirely.

Those are just a few thoughts. My old firm used to do a fair amount of this type of work (though not me specifically), and we never made less than a 20% real profit on it.

Mar 9, 12 1:29 pm

Oh, and one more thing:

For a project of this type, you'll want to have the project owner hire all consultants except structural directly. You'll coordinate them, but let the owner negotiate over and pay their fees. That goes doubly for MEP. That should all be design-build anyway.

Mar 9, 12 1:37 pm
wurdan freo

Thanks gwharton. Your input is golden.

Mar 9, 12 1:53 pm

I agree with gwharton with the exception that I would have the owner hire the structural as well.  You don't want to be liable for the engineers fees if the developer stiffs you.  In that regard, you MUST do your homework on who you are working for.  Biggest danger is doing all this work and paying your intern/staff architect and then not getting your fee.  Negative cash flow= the shits!  Be careful out there!

Mar 9, 12 5:04 pm

I agree with the previous post.  Please make sure quotes are accurate. It’s impossible to give a quote without knowing project specifics and you need to be made aware that a quote is formed after a few Q&A. Good luck!

Mar 12, 12 1:14 am

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