What is typical percentage mark-up on new home builder upgrade options?

[mshan]

Just wondering what typical % mark-up from cost (materials and labor) for upgrade options a builder such as Toll Brothers or others offers?

Is it 10% of supposed list price, 20%, more?

 

[vi edit]

Just really depends on the particular upgrade type, and what they really paid for something...which you probably will never know. There's "list" and then there's what the contractor paid for something. And then there's what they charged you for it. The only way you really know what the real price is by having access to the contractor rates. And even then it's a floating number.

 

[mshan]

Would you say at least 50% profit margin is conservative guess?

 

[vi edit]

Again, it's just heavily dependent on the particular upgrade, the relationship the contractor has with the supplier and the cost he can have it installed for. And also how desperate the builder is to move inventory.

The builder that did my house didn't charge for any upgrades or materials. He just simply figured in allowances for items and had contractor accounts set up at a number of places around town you went and priced out.

Here's a couple examples of cost...

We looked at some hand scraped hardwood at a flooring store that was charging a street price of almost $7 a sq/ft. With our contractor pricing we only had to pay $3.49 a sq/ft. The flooring place would have charged us $4/sq to install but our builder had guys that would do it for $2 a sq. (I did it myself so it doesn't really matter).

With tile, we were looking at 18x18's that went for $6.50 a sq ft. We paid $3.00 after the contractor pricing.

Our appliances had about 10% taken off with the contractor pricing.

Our carpet was about 30% less.

Our quartz counters ended up being about $1500 less than the same thing from Home Depot going through a local shop with the contractor. (so about 30% less)

We paid for fixtures & lights out of pocket because we got some great closeout deals. But those are two areas where you could be absolutely reamed...

So...if you have a contractor that charges you "retail" that gives you something to chew on. If you have a money grubbing SOB of a contractor that charges you retail + 10% for changing things up from the standard...then you have something to go off of.

But it's still a bit of a mystery game because you ultimately don't know what he's paying the supplier for the stuff (possibly even less than the "contractor" rate) and how much he saves in labor by keeping some things inhouse (like cabinet and trim work) vs bidding it out.

 

[Regs]

It's more like 25-30% being conservative. A local or private contractor might have more of a profit margin because he does not have the added costs of running a commercial business that works on volume. Though for someone to be a private contractor, he has to be making that much more of margin for it to be worth his time.

Though I do not really understand your question since both could charge you the same exact price yet one would have more of a pofit margin. Are you the customer or dealer? They will charge you around what the market has to offer at current demand.

 

[Humpy]

Would you say at least 50% profit margin is conservative guess?

A 50% mark up could be reasonable but not nearly all of that would be profit. You left out overhead as part of the overall cost in the OP.

 

[Regs]

A 50% mark up could be reasonable but not nearly all of that would be profit. You left out overhead as part of the overall cost in the OP.

Profit margin by definition means that has all ready been calculated in.

 

[Humpy]

Profit margin by definition means that has all ready been calculated in.

Yeah, I was addressing that the OP was % markup not profit margin.

 

[mshan]

Though I do not really understand your question since both could charge you the same exact price yet one would have more of a pofit margin. Are you the customer or dealer? They will charge you around what the market has to offer at current demand.

Say my parents might be interested in buying a new home from Toll Brothers. They say everything at Toll Brothers is basically up upgrade from base price.

I suspect that new home builder wants to maintain list price is sale price of home itself for comp purposes, so I am guessing most wiggle room would be in terms of how much and what type of upgrades you can get included at that same base price for the home.

Just wondering when Toll Brothers says options cost $50K, their real cost might be 10K or less, for example.

 

[Regs]

Yeah, I was addressing that the OP was % markup not profit margin.

Ah yes. He was using the two terms interchangeably. Could catch.

 

[vi edit]

"Upgrades" are just the latest numbers game that builders are playing to keep prices up and clearing out inventory. They won't reduce home prices, but they'll keep throwing out big numbers on prices of "upgrades!" that they threw in for "free".

I remember SunnyD said that his builder was going to charge $100 for each drop to set him up with ethernet runs. It cost me $100 to wire my entire house with cat5e...and that includes wire, plates, and keystones. Obviously my labor was free...but you can see the astronomical markup there and the fluff associated with it.

There's other things like granite counters that can be wildly overblown in costs by a builder. If you have a granite counter shop come in and quote you a solid 3cm slab of granite, and have it installed with a fancy profile you could be looking at 70$+ a sq/ft. A contractor might go to the slab yard pick out something that's damaged and thinner (like 2cm) and have it cut out/down and install it himself(it's just silicone glued to the counter top boxes) for under $15 a sq/ft. What's he going to tell you that it cost? As much as he can to make you think it's a huge upgrade he's throwing in for free.

 

[Humpy]

Just wondering when Toll Brothers says options cost $50K, their real cost might be 10K or less, for example.

You'll never know without access to their books and in the end it does not matter. Sometimes the market will allow for a huge profit margin on certain components of a house. Sometimes the opposite. What matters is a true apples to apples comparison of the total cost of the finished product from Toll Bros. versus other builders.

It doesn't matter what Ford's profit margin was on the tires for your car, you are buying a complete car. Same with doctors visits, TVs, and cheeseburgers. Why would it be any different for a house?

 

[vi edit]

You'll never know without access to their books and in the end it does not matter. Sometimes the market will allow for a huge profit margin on certain components of a house. Sometimes the opposite. What matters is a true apples to apples comparison of the total cost of the finished product from Toll Bros. versus other builders.

Well put. The hard part though is that a lot of the "apples to apples" that matters isn't readily visible or even obvious until you are in the house for a while. Did the builder skimp and use chinese drywall that will later start offgassing nasty, corrosive fumes? Did they use cheap or poorly installed thinset on their wall tiles in the shower that will fall off a year or two down the road? Did they have some unskilled moron install the windows that start leaking after the initial warranty is up?

All those things reduce the bottom line to the builder and let him spend on more eye catching upgrades that look good in an open house.

 

[Humpy]

Well put. The hard part though is that a lot of the "apples to apples" that matters isn't readily visible or even obvious until you are in the house for a while. Did the builder skimp and use chinese drywall that will later start offgassing nasty, corrosive fumes? Did they use cheap or poorly installed thinset on their wall tiles in the shower that will fall off a year or two down the road? Did they have some unskilled moron install the windows that start leaking after the initial warranty is up?

All those things reduce the bottom line to the builder and let him spend on more eye catching upgrades that look good in an open house.

All good questions, especially when buying from a company such as Toll Bros. rather than a local contractor with roots in the community. Even half the local guys are ignorant or criminals. It's a shady industry.

The other part of the story is the Wal-Mart mentality of so many buyers. Real quality costs money, there is no way around it. Many insist only on the appearance of quality for short sighted economic reasons.