Over the holiday, I was approached by members of my close family asking if I would help them design a small cottage. I gave them a tentative "yes" but I am unsure how well I can get my family members to stay organized.
I told them that I would only help if they were highly intentional and organized about the process. I tried to explain that it wasn't something that we could only discuss at reunions or by sharing pinterest posts. I don't mind engaging casually, but I feel like there has to be more structure to the process. Granted, I will be doing most of this for free in my spare time outside of work.
Has anyone navigated this sorta thing in the past (or past posts?) and what were your biggest take-aways?
Wood Guy
Jan 3, 23 6:27 pm
It sounds like you don't have experience designing houses--it's your job to manage the process, not theirs. I have done work for various family members and it's always more challenging than working for strangers but the process is the same. If you don't have experience designing houses (in the real world) it's going to be a difficult process for everyone involved.
ill_will
Jan 4, 23 2:01 am
I only have worked at one firm that designed houses and it was mostly in the schematic and design development capacity.
gibbost
Jan 3, 23 6:40 pm
Proceed with caution, my friend. Your goodwill and charity can often be misinterpreted as lack of attention when they want/need it. You seem to have your head around where the pain points might be. Define the scope and offer concrete examples of what you will and will not be providing. As described, the project sounds like it may not be a primary residence--which tends to mean 'long and meandering path'. I recommend you think thru what your exit strategy is when an offramp does not present itself. That said, it sounds like a fun opportunity. Good luck.
x-jla
Jan 3, 23 6:55 pm
“no good deed goes unpunished”. I’ve done projects for several friends and family members. They are always a hassle.
Chad Miller
Jan 3, 23 6:56 pm
My biggest takeaways:
1. You will be managing all of the process, not your relatives.
2. Your relatives likely don't have a clue about what it takes to design a 'small cabin' let alone what will be included in such a design.
3. It's a lot more 'work' to work with family. AKA your relatives are going to expect a lot from you.
4. If you've never run a project before then you realistically don't have the experience or knowledge to do this. This doesn't mean you should try it. Just be aware that it could be a tough process that you'll learn a lot from.
Good luck! Be sure to let us know how this goes!
citizen
Jan 3, 23 6:59 pm
Someone on here once joked that their billable rate for family members is twice that for other clients. This sentiment reflects the potentially risky waters of such an arrangement. It sounds like you already have misgivings... I would listen to them.
Non Sequitur
Jan 3, 23 7:12 pm
Sounds like some Miles would write.
citizen
Jan 3, 23 9:37 pm
I think you're right, Non.
Non Sequitur
Jan 3, 23 7:15 pm
I've done a variety of work for family & friends... and I was always very clear at the start as to what to expect from the process. Set up the ground rules at the start and try to teach them about the process. Last project I did started out as a big pre-fab cabin but finished as a tiny-house on the Atlantic coast.
x-jla
Jan 3, 23 7:31 pm
Worst mistake is thinking that because it’s family or friend you can get away with a half ass contract.
Non Sequitur
Jan 3, 23 9:00 pm
X(zibit)... I failed to mention in my comment that I don't actually do much of the work. I guide them to do it themselves because it's residential and I coach them so they can speak to the building officials and contractors without sounding like laymen. I review their contracts and advise them as they submit their own permits (totally allowed in my area). I don't actually produce contract drawings. My family can't afford my time anyways but I gladly take payment in beer form.
citizen
Jan 3, 23 9:46 pm
^ That third cousin paid your invoice for the laundry room extension. Have you ever spoken to them again?
Non Sequitur
Jan 4, 23 12:23 pm
Make that a Labatt 50 truck and add some snow tires... and you've got yourself a deal.
Le Courvoisier
Jan 3, 23 8:20 pm
DONT DO IT
If you don’t like your family now, you’ll really want to Fargo them through the woodchipper after.
ill_will
Jan 4, 23 2:12 am
Thanks everyone commenting so far, I appreciate the insight. Moving forward I will proceed with a few things in mind
having an exit strategy (maybe grad school far away)
clarifying what I can contribute physically/mentally
and getting paid in beer
additional comments welcome, thanks all!
justavisual
Jan 4, 23 10:13 am
If they dont want to pay you then you should get a percentage ownership in the final building like 10%. If its ever sold you get the money - and you can use it 10% of the time they do as a getaway or something. Or 10% of the money if they rent it out ever. Don't accept payment in beer.
Make sure to keep meetings professional - they can start and end with chit chat and catch ups but in between keep a track of hours spent on the project (also design hours) so they know how much free time you donated to them.
Bill them hourly for interactions with outside parties - aka contractors and engingeers/site visits - as these are really different than design.
ill_will
Jan 4, 23 12:17 pm
the 10% ownership is a good idea, the beer thing was a more of a joke...
Non Sequitur
Jan 4, 23 12:23 pm
the 10% equity stake is the real joke here... No one would agree to that... that 10% could easily be 5x or more the value of the design fees. The beer comment is legitimate tho. It's so much easier to control family expectations that way.
Chad Miller
Jan 4, 23 4:59 pm
I really hope justavisual is joking about the 10% fee.
ill_will
Jan 4, 23 5:38 pm
maybe they just don't like beer
justavisual
Jan 5, 23 4:08 am
You can take payment in cases of Orval or La Trappe Quadruppel bottles and let them age + gain value - that's beer worth getting paid in. Beer is 90% water after all...
Orval gains one euro value per bottle per year - bottles from 2010 going for for 14 euro now...
I'm serious about the equity. Arch fees for full service is around 10% of construction cost...even if you drop it to 6% or whatever you want (figure it out w them) - consider then adding some % interest as you have no idea when you'll get the money out of it...
Either way - point stands - don't work for free.
JonathanLivingston
Jan 5, 23 2:03 pm
I'm curious if anyone has ever seen an exchange of services for an ownership stake like that. Other than the architect acting as their own developer or for the developer. But a more traditional services model where flat fee compensation is agreed to in equity portion.
Chad Miller
Jan 5, 23 3:10 pm
justavisual wrote:
"I'm serious about the equity. Arch fees for full service is around 10% of construction cost...even if you drop it to 6% or whatever you want (figure it out w them) - consider then adding some % interest as you have no idea when you'll get the money out of it..."
Depends on the project type and size. Custom single family residential is typically around 7.5% of the construction costs.
What you're proposing used the future sale price. That price will almost always be higher than the initial construction cost. Not to mention it would include the site purchase costs - not something typically included in an architects fee. You're idea seem to be dishonest and takes advantage of the client.
ill_will
Jan 5, 23 3:13 pm
had a chat with them and they don't like the equity idea, still appreciate the discussion it sparked tho
Chad Miller
Jan 5, 23 3:15 pm
JonathanLivingston wrote:
"I'm curious if anyone has ever seen an exchange of services for an ownership stake like that. Other than the architect acting as their own developer or for the developer. But a more traditional services model where flat fee compensation is agreed to in equity portion."
The only thing I've heard of is if an architect is a partner in a development venture and they get a percentage of the profits. Then again I don't do a lot of developer type projects so . . . .
Non Sequitur
Jan 5, 23 4:48 pm
so... do you also pay taxes, pay for upkeep, utilities, etc on your equity stake? Is the equity only on the increased market value of your scope or of the whole property? Can you use 10% of their storage space to keep your belgian beers while they age?
Chad Miller
Jan 5, 23 5:26 pm
I'm starting to thin that justavisual hasn't ever used their 'percentage of future sale' as a fee . . .
That's too bad. I'd like to hear more about how I'd get paid 5-10 years after completing a project.
Non Sequitur
Jan 5, 23 5:39 pm
Of course they have not Chad. It’s a super weird idea filled with Landmines.
Chad Miller
Jan 5, 23 5:43 pm
Obviously. What confuses me is how could someone think this was a good idea after giving it a few minutes thought. It was such an obtuse concept I figured I was missing something.
JonathanLivingston
Jan 5, 23 6:14 pm
Yeah, it's strange and full of landmines. But I also appreciate the conversation about alternative business models. A small project for family seems like an interesting place to try something different. Hourly seems to be leaving benefits on the table in the name of reduced risk. Flat fees are good if you can get them high enough and stomach the risk but even harder to sell a family member than appropriate hourly fees.
Chad Miller
Jan 5, 23 6:17 pm
You're leaving a lot on the table if the owners never sell the building in your lifetime. Also unless it's hourly not to exceed then you're not leaving anything on the table.
In my experience a percentage of construction cost is a good fee structure that will protect both the owner and the architect. It's not perfect but works rather well IF you can understand the project scope and complexity.
JonathanLivingston
Jan 5, 23 6:50 pm
I don't think I agree you're not leaving anything on the table charging hourly. Especially when I see contractors charging 20% profit on top of overhead because they can if the market supports it. Developers can realize huge profits when they sell based on the market's ability to support the profit. To be fair they can take big losses when the market is not in their favor but it sure seems like we constantly shirk risk at the cost of reward in this profession. % of construction cost does get you a lot closer to being able to realize the ups of the market but then you have the conflict of interest with the architect potentially being perceived as looking for more expensive construction solutions.
JonathanLivingston
Jan 5, 23 6:53 pm
The biggest downside to hourly, in my opinion, is that in order to increase the profit you have to expand and contract along with the market. Higher and fire. You can only work more hours or raise your hourly rate. I have never seen an hourly rate reduced so inevitably either your target market changes or you become less competitive with the newer firms.
Chad Miller
Jan 5, 23 6:55 pm
How are you loosing money if you charge hourly (without a not to exceed)? If your hourly billing rate is correct it should have overhead and proffit built into it. If the project scope expands you're paid more.
I suppose if the client all the sudden decided to increase the construction cost then you could lose money. Then again that would be a change in services . . .
JonathanLivingston
Jan 5, 23 7:19 pm
I guess I see it as not getting what the market would potentially support. I suppose you could just change your rates for every project. Typically firms raise rates once a year and never go back down. It's more in line with the cost of living than the smaller economic fluctuations. Not to mention projects that are multiple years long stuck with old hourly rates.
Non Sequitur
Jan 5, 23 7:20 pm
What if they reduce construction costs? Do you pay back some of your fee?
Chad Miller
Jan 6, 23 10:18 am
The thing is that the market can barely support the fees we charge now. Less than 8% of people can afford to hire an architect for single family home design. I think it's under 15% for commercial design. I'm not saying that we need to lower our fees but thinking that we're leaving money on the table is a bit far fetched.
Hourly, hourly not to exceed, percentage of construction cost, all have their place depending on the project type and the client. I've had clients that were willing to pay a higher percentage of construction cost fee rather than an hourly because they wanted the certainty of knowing what the fee would be.
Keep in mind I don't use hourly fees very often. I do mostly commercial work.
JonathanLivingston
Jan 6, 23 11:41 am
That's a fair point about the limited number of people who can afford architectural services. But then again I think about how people have no problem handing over 4%-6% of the transaction when they purchase or sell to real estate agents, and 15-20% profit on construction costs to contractors. Not to mention escrow, title, and insurance. There are like a dozen professions that get a cut every time something is built and sold. But our soft costs up front are very visible and difficult to manage for a lot of people because we are not a part of that transactional system with the others. Which is why something like an ownership stake sounds appealing.
Chad Miller
Jan 6, 23 12:00 pm
Sounds appealing is the key word. You're going to wait how many years to get paid? What type of contract are you going to need to future out your % of the sale price?
I think you're upset that we don't get paid more. I totally understand that. A few things to keep in mind. Real estate agents - no pay unless they sell. The also have to split it with any other agents involved in the sale. GC's- they are at very high risk with building projects. I think a 15-20% profit seems reasonable. Escrow, title insurance - I'm sure you're not saying that insurance is a 'cut' of the project. It's insurance.
As for architects soft costs - they shouldn't vary or be difficult to manage. They should be well known and clearly established. If a firm is having issues with this and can't make a profit then they are bad at business, and basic math.
JonathanLivingston
Jan 6, 23 1:17 pm
Haha, not upset. Really enjoy our conversations Chad. Thank you. I think the line of inquiry is more along how do we a) secure more fees when we can but b) also make architecture and design more accessible? let's try returning the conversation to helping a family member or someone who might not typically afford architectural services. The soft costs for architectural services of single-family residential design, well and design in general are often difficult for owners to swallow. There is no funding source, and you have to front it before you have an asset to leverage against and refinance.
Over the holiday, I was approached by members of my close family asking if I would help them design a small cottage. I gave them a tentative "yes" but I am unsure how well I can get my family members to stay organized.
I told them that I would only help if they were highly intentional and organized about the process. I tried to explain that it wasn't something that we could only discuss at reunions or by sharing pinterest posts. I don't mind engaging casually, but I feel like there has to be more structure to the process. Granted, I will be doing most of this for free in my spare time outside of work.
Has anyone navigated this sorta thing in the past (or past posts?) and what were your biggest take-aways?
It sounds like you don't have experience designing houses--it's your job to manage the process, not theirs. I have done work for various family members and it's always more challenging than working for strangers but the process is the same. If you don't have experience designing houses (in the real world) it's going to be a difficult process for everyone involved.
I only have worked at one firm that designed houses and it was mostly in the schematic and design development capacity.
Proceed with caution, my friend. Your goodwill and charity can often be misinterpreted as lack of attention when they want/need it. You seem to have your head around where the pain points might be. Define the scope and offer concrete examples of what you will and will not be providing. As described, the project sounds like it may not be a primary residence--which tends to mean 'long and meandering path'. I recommend you think thru what your exit strategy is when an offramp does not present itself. That said, it sounds like a fun opportunity. Good luck.
“no good deed goes unpunished”. I’ve done projects for several friends and family members. They are always a hassle.
My biggest takeaways:
1. You will be managing all of the process, not your relatives.
2. Your relatives likely don't have a clue about what it takes to design a 'small cabin' let alone what will be included in such a design.
3. It's a lot more 'work' to work with family. AKA your relatives are going to expect a lot from you.
4. If you've never run a project before then you realistically don't have the experience or knowledge to do this. This doesn't mean you should try it. Just be aware that it could be a tough process that you'll learn a lot from.
Good luck! Be sure to let us know how this goes!
Someone on here once joked that their billable rate for family members is twice that for other clients. This sentiment reflects the potentially risky waters of such an arrangement. It sounds like you already have misgivings... I would listen to them.
Sounds like some Miles would write.
I think you're right, Non.
I've done a variety of work for family & friends... and I was always very clear at the start as to what to expect from the process. Set up the ground rules at the start and try to teach them about the process. Last project I did started out as a big pre-fab cabin but finished as a tiny-house on the Atlantic coast.
Worst mistake is thinking that because it’s family or friend you can get away with a half ass contract.
X(zibit)... I failed to mention in my comment that I don't actually do much of the work. I guide them to do it themselves because it's residential and I coach them so they can speak to the building officials and contractors without sounding like laymen. I review their contracts and advise them as they submit their own permits (totally allowed in my area). I don't actually produce contract drawings. My family can't afford my time anyways but I gladly take payment in beer form.
^ That third cousin paid your invoice for the laundry room extension. Have you ever spoken to them again?
Make that a Labatt 50 truck and add some snow tires... and you've got yourself a deal.
DONT DO IT
If you don’t like your family now, you’ll really want to Fargo them through the woodchipper after.
Thanks everyone commenting so far, I appreciate the insight. Moving forward I will proceed with a few things in mind
additional comments welcome, thanks all!
If they dont want to pay you then you should get a percentage ownership in the final building like 10%. If its ever sold you get the money - and you can use it 10% of the time they do as a getaway or something. Or 10% of the money if they rent it out ever. Don't accept payment in beer.
Make sure to keep meetings professional - they can start and end with chit chat and catch ups but in between keep a track of hours spent on the project (also design hours) so they know how much free time you donated to them.
Bill them hourly for interactions with outside parties - aka contractors and engingeers/site visits - as these are really different than design.
the 10% ownership is a good idea, the beer thing was a more of a joke...
the 10% equity stake is the real joke here... No one would agree to that... that 10% could easily be 5x or more the value of the design fees. The beer comment is legitimate tho. It's so much easier to control family expectations that way.
I really hope justavisual is joking about the 10% fee.
maybe they just don't like beer
You can take payment in cases of Orval or La Trappe Quadruppel bottles and let them age + gain value - that's beer worth getting paid in. Beer is 90% water after all...
Orval gains one euro value per bottle per year - bottles from 2010 going for for 14 euro now...
I'm serious about the equity. Arch fees for full service is around 10% of construction cost...even if you drop it to 6% or whatever you want (figure it out w them) - consider then adding some % interest as you have no idea when you'll get the money out of it...
Either way - point stands - don't work for free.
I'm curious if anyone has ever seen an exchange of services for an ownership stake like that. Other than the architect acting as their own developer or for the developer. But a more traditional services model where flat fee compensation is agreed to in equity portion.
justavisual wrote:
"I'm serious about the equity. Arch fees for full service is around 10% of construction cost...even if you drop it to 6% or whatever you want (figure it out w them) - consider then adding some % interest as you have no idea when you'll get the money out of it..."
Depends on the project type and size. Custom single family residential is typically around 7.5% of the construction costs.
What you're proposing used the future sale price. That price will almost always be higher than the initial construction cost. Not to mention it would include the site purchase costs - not something typically included in an architects fee. You're idea seem to be dishonest and takes advantage of the client.
had a chat with them and they don't like the equity idea, still appreciate the discussion it sparked tho
JonathanLivingston wrote:
"I'm curious if anyone has ever seen an exchange of services for an ownership stake like that. Other than the architect acting as their own developer or for the developer. But a more traditional services model where flat fee compensation is agreed to in equity portion."
The only thing I've heard of is if an architect is a partner in a development venture and they get a percentage of the profits. Then again I don't do a lot of developer type projects so . . . .
so... do you also pay taxes, pay for upkeep, utilities, etc on your equity stake? Is the equity only on the increased market value of your scope or of the whole property? Can you use 10% of their storage space to keep your belgian beers while they age?
I'm starting to thin that justavisual hasn't ever used their 'percentage of future sale' as a fee . . .
That's too bad. I'd like to hear more about how I'd get paid 5-10 years after completing a project.
Of course they have not Chad. It’s a super weird idea filled with Landmines.
Obviously. What confuses me is how could someone think this was a good idea after giving it a few minutes thought. It was such an obtuse concept I figured I was missing something.
Yeah, it's strange and full of landmines. But I also appreciate the conversation about alternative business models. A small project for family seems like an interesting place to try something different. Hourly seems to be leaving benefits on the table in the name of reduced risk. Flat fees are good if you can get them high enough and stomach the risk but even harder to sell a family member than appropriate hourly fees.
You're leaving a lot on the table if the owners never sell the building in your lifetime. Also unless it's hourly not to exceed then you're not leaving anything on the table.
In my experience a percentage of construction cost is a good fee structure that will protect both the owner and the architect. It's not perfect but works rather well IF you can understand the project scope and complexity.
I don't think I agree you're not leaving anything on the table charging hourly. Especially when I see contractors charging 20% profit on top of overhead because they can if the market supports it. Developers can realize huge profits when they sell based on the market's ability to support the profit. To be fair they can take big losses when the market is not in their favor but it sure seems like we constantly shirk risk at the cost of reward in this profession. % of construction cost does get you a lot closer to being able to realize the ups of the market but then you have the conflict of interest with the architect potentially being perceived as looking for more expensive construction solutions.
The biggest downside to hourly, in my opinion, is that in order to increase the profit you have to expand and contract along with the market. Higher and fire. You can only work more hours or raise your hourly rate. I have never seen an hourly rate reduced so inevitably either your target market changes or you become less competitive with the newer firms.
How are you loosing money if you charge hourly (without a not to exceed)? If your hourly billing rate is correct it should have overhead and proffit built into it. If the project scope expands you're paid more.
I suppose if the client all the sudden decided to increase the construction cost then you could lose money. Then again that would be a change in services . . .
I guess I see it as not getting what the market would potentially support. I suppose you could just change your rates for every project. Typically firms raise rates once a year and never go back down. It's more in line with the cost of living than the smaller economic fluctuations. Not to mention projects that are multiple years long stuck with old hourly rates.
What if they reduce construction costs? Do you pay back some of your fee?
The thing is that the market can barely support the fees we charge now. Less than 8% of people can afford to hire an architect for single family home design. I think it's under 15% for commercial design. I'm not saying that we need to lower our fees but thinking that we're leaving money on the table is a bit far fetched.
Hourly, hourly not to exceed, percentage of construction cost, all have their place depending on the project type and the client. I've had clients that were willing to pay a higher percentage of construction cost fee rather than an hourly because they wanted the certainty of knowing what the fee would be.
Keep in mind I don't use hourly fees very often. I do mostly commercial work.
That's a fair point about the limited number of people who can afford architectural services. But then again I think about how people have no problem handing over 4%-6% of the transaction when they purchase or sell to real estate agents, and 15-20% profit on construction costs to contractors. Not to mention escrow, title, and insurance. There are like a dozen professions that get a cut every time something is built and sold. But our soft costs up front are very visible and difficult to manage for a lot of people because we are not a part of that transactional system with the others. Which is why something like an ownership stake sounds appealing.
Sounds appealing is the key word. You're going to wait how many years to get paid? What type of contract are you going to need to future out your % of the sale price?
I think you're upset that we don't get paid more. I totally understand that. A few things to keep in mind. Real estate agents - no pay unless they sell. The also have to split it with any other agents involved in the sale. GC's- they are at very high risk with building projects. I think a 15-20% profit seems reasonable. Escrow, title insurance - I'm sure you're not saying that insurance is a 'cut' of the project. It's insurance.
As for architects soft costs - they shouldn't vary or be difficult to manage. They should be well known and clearly established. If a firm is having issues with this and can't make a profit then they are bad at business, and basic math.
Haha, not upset. Really enjoy our conversations Chad. Thank you. I think the line of inquiry is more along how do we a) secure more fees when we can but b) also make architecture and design more accessible? let's try returning the conversation to helping a family member or someone who might not typically afford architectural services. The soft costs for architectural services of single-family residential design, well and design in general are often difficult for owners to swallow. There is no funding source, and you have to front it before you have an asset to leverage against and refinance.