Hello everyone, This is Brian and Steven back with Building with Brevin. We are back for Week #12 and consequently Episode #12 and we're once again happy to be back on the podcast and provide you guys some more value. So this week we've got a a fun topic that I think everybody's really going to find a lot of value in because every single bill that I think I've been a part of has run into this
particular instance. So it's going to be a good one and we're excited to share that with you guys. But with before we jump into that, Brian, how's everything going? Good. I think we. We need to share with our listeners. We've struggled on the timing of getting this podcast done because you're you're in the middle of a personal move yourself.
And I would say that what we're the topic we're going to talk about which we'll share in in just about 10 seconds actually is. Stevens kind of going through that on his on his personal house in a different sense because he's that the house is complete and it's not a it's not a brand new build. It's a it's a resale. But he's he's making some changes so how's the how's the move going? That's never, no matter how nice or new or old or whatever you're doing, it doesn't matter.
Moving is stressful. And I guess nobody ever says moving into a new house is pleasant. Yeah, well, you know what? I always try to go into it with the best attitude, but man, it Peach it down throughout the process. So, you know, it's it's mostly just the financing aspect of it and you know, signing all the documents and getting all the documents to the lender.
And so that's one thing. And then of course the actual moving is the second piece that, yeah, I mean it's just more stuff than you ever thought you had, comes out of your current house and your new house. So anyways, but no, it's an exciting transition and we're excited for the new house and and definitely excited for the baby that we've got on the way. So yeah, it's going to be, it's going to be a good space that we're going to make our own and we're excited for that.
So and the reason if anybody's asking or wondering that we didn't build a Brebin home is well, we really couldn't find land in the area we wanted to be that made sense to build a Brebin home on. So went back to that, that very important first topic of finding the right lot and we couldn't do that. So anyways, we're happy with the home that we picked, but Brevin home would be in hopefully yours, Brian and my future at some point. So anyways. Yep, absolutely.
Good, Good point. And I think we might need to. We'll keep building this business and helping homeowners that. That are looking to get into their dream home because that's that's our passion. That's what we love to do. But we might need to start another business. So creating corrugated boxes because I'm sure you're buying boxes at Home Depot and they're insanely expensive. So Oh yeah, there's good money
there. Yeah, what you're getting, it seems like, yeah, it seems like it's just crazy. But anyways, I know people didn't tune into this episode to listen about my move. So it's I think we're, we're ready to jump in. Yeah, this week, like I said, is is a topic that I believe every person that builds a custom home runs into, whether they they think they're going to or not.
And that topic is change orders. Now Brian, you know, I think just jumping right into this, but we're going to have some questions. And I mean, can you just kind of tell us what a change order is? I think a good place to start is to talk about some some things we've discussed in some previous podcast, but also the the steps that are taken to get to a point of where construction has begun. So after you have worked with an architect after the final complete, 100% complete plan set
has been agreed upon. Mainly with you but also with the builder. So the builder knows what they're signing up for in terms of hey, I now have to take what's on this piece of paper and and turn it into a a real 3D structure that is everything you expect and hopefully more there's that's what we would call a a complete executed signed off plan set. What we do with our homeowners is, is we ask them to to sign every page of that plan set.
So that we know, hey this is what's final, this is what we are going to move forward with because after that's done in what we call the, the concept agreement or fairly early on after we are done with the architect, there's a lot of work that has to be done right, the engineering, the energy analysis you move in this selection. So we talked about what that looks like in the preliminary building agreement and some of the some of the work that's done as soon as the.
The floor plan has been excuse me, not just the floor plan, the whole plan set has been complete. So as Steven said this happens on every single build we've ever built and it happens even in production homes right.
Things come up so let's Fast forward we're starting to build the house and something was something was maybe overlooked on on the homeowners and they're oh shoot we didn't add this to the plans or. We really like this and we didn't even know to to think about this when we were working
with the architect, right. I mean there's there's clearly a good period of time between when you finalize the plans with the architect and when the house comes to life, certainly in different phases of the build, right. I mean the foundation is one thing, but you're 681214 months down the road at some other point in the build and so you say hey, I I for example, I forgot to add the. I have a Tesla and I forgot to add a 220 Volt car car charger in the in the garage, right. Okay.
Well, we can certainly go back and add that, but that's really where a change order comes in. So a change order is when there is something that you would like to add to the house that is not on the original executed plan set. Yeah, I think that sentence right there at the end kind of summed that up really well. And I like how you took it back to the beginning to say, okay, here's what you're starting
with. Anything that deviates, changes, adds to or subtracts from that plan is going to initiate a change order. And so for that reason, yeah, change orders are an important topic because when you build custom homes, it's it's never been done before. You know, that particular home on that particular lot, there's things that are going to come up that could have never been planned or the homeowner could have never envisioned in their
head. And for that reason, you know, they really want to see the home come up and as they see it come up in front of their eyes, they're going to want to potentially change something. So as that happens, like you said, that initiates change order, you know, and I think that leads us into our next question, Brian. When should we expect to run across a change order? You know, with homeowners or if you're a homeowner, what exactly is going to initiate a change order?
This is to be fair, I think it's going to vary from builder to builder and to the extent of what the the change is, right so. There's a there's a million different reasons or or changes that could happen on any build, right. So I use the example of the of the car charger right that that would be something that would require the change order because it's going to change the electrical plan and the materials and the labor that's
needed to to do that. So we'll jump into some more details on that here in a second, but you.
Again depending on the builder there's other things like you you would not need a change order for things like hey can we move your walk in the house at the at the completion of the mechanicals phase which is after the plumbing, electricity and HVAC has been installed in the home but before insulation and you say hey can we this switch is. 6 inches too far this way and I would prefer to have it here. Can we move it on this up the other side of the stud Bay?
That would be something that we as Brevin Holmes would not charge a change order for, right? So there's there's little, very little details like that that, hey, yes. Is that how it is on the plan? No. You want to move it over because of XY&Z reasons down the road that would not require a change
order, but. I would say things where you have to, we have to go back and work with the trades where there's going to be additional labor and or materials and we have already done work to to build the house as it is on the original plans and we have to go back and do redundant work. We just most builders including ourselves, we just have to be compensated for that because it is redundant work.
Yeah. And I like what you said there that you know it's really comes down to a materials in labor type of thing. You know, it's it's an equation there that as those change, of course the subcontractors that we use, their price is going to change and then that changes our price and then that changes the price for the homeowner ultimately. So like you said, I mean it's one thing to move an outlet from a stud Bay to the one right next to it, you know, that's a fairly simple change.
But as those start to add up and as things move further or you know, something changes to a different sized outlet or so, whatever it is, those are the kind of things that require additional materials or additional labor or both and those would initiate those change orders. And like you said, I mean every builder is going to handle these
a little bit differently. Some builders are fairly lax or lenient on their change orders and whether that's right or wrong, that's something to consider. Other builders are very regimented and strict on change orders. So anything that deviates from the plan is typically going to initiate a change order, even if it's a change in location or a change in something else, you
know, those kind of things. But I think another thing to note too, and we've seen this with some of our subcontractors is that, you know, a lot of times they'll give you a credit, say you don't want an outlet in one place and I don't want it. This all be about electrical. It could be about anything. But you don't use an outlet in one place. OK, you know what, you guys get the credit back for that because you didn't need it there. Do you want to use it somewhere else in the house? Right.
And typically that's something that homeowners will, will take. Okay, yeah, we didn't want it here, but let's put it over at this desk that we added. You know, so little things like that that there's a lot of nuances or caveats here. But yeah, I think that that's kind of the gist of it is materials and labor changes. So yeah, looking at the next question here, why is the change order needed?
And I think we've maybe already touched on this a little bit, but I think we can go into it in more detail. Yeah, I think there's, there's two main reasons and and one we haven't touched on is just pure organization, right. We have to work off of a complete plan set with or without change orders so that we build the house that you expect and and organization is a critical piece of any build. Whether it's a production home or a custom home doesn't matter.
You have to be organized that the builder has to be organized. Excuse me. Make that clear and and there's a lot of different ways you can people stay organized but I think that's one thing right if if changes are being talked about and not organized in a in a good way things will get missed right and and we'll be the first to admit we've we've.
Made some mistakes and had some some errors because because of different ways of communicating and hey was that was that written and and and signed off but by both parties, the homeowner and us on a formal change order form it just I don't think we can just look past the organizational piece right to say hey here's the complete plan set and then here are the change orders which we would put on top of the.
The final plan set is what we call redlining it saying okay, well, here's the plan set with the red lines that we all have agreed to. So that's number one is organization #2 is the financial aspect, which we've already addressed a little bit here and that that can look any number of ways, right. I mean there could be a change order that it is, is, is minimal in, in cost or it could be rather significant, right. And that's. Obviously very dependent on what the change request is.
Yeah, both really good points there and I'm glad you brought both of those up. And really another piece to think through on the financial aspect of it is on the change orders. As far as financing goes, a lot of times these homeowners that we're building for come with a set number in their head of this is how much I want this build to
cost or this is my budget. Now once change orders start coming into the picture, change orders could be small or they could be large and there could be a lot of them or there could be a little of them, but they're all going to fluctuate the budget. And so whether that budget goes up most times or possibly comes down, not very likely. You know, where is that extra money coming from. And that's something that really, really needs to be
tracked very well. So that homeowners are aware of how much they have added to their budget and know Okay, is that coming from the bank loan, is that coming from their personal money, is that coming from somewhere else, You know and that's something that is really, really important to keep track of so that you don't get to the end of the build and you've already initiated change orders throughout the build, oops. And then you run out of money by
the time that the home is done. So very important to track that and and make sure that it's it's all good. Steve and I said there were only two two main. Points why a change order is needed and I probably forgot the most important one. Or or you call it a Third Point and that is with a builder like ourselves where our guarantee is on time and on budget, a change order can affect the schedule as
well. So if we are guaranteeing a on time move in and handing the keys over and then a. A change is requested that all parties agree to move forward with after the financial side's been reviewed. It's we also have to look at how that affects the schedule. Sometimes it may not affect it at all. At other times we've had change orders that can that can delay the bill by a month or more. And so obviously that's out of our control when we have agreed to a move in or a on time.
Completion on the original plan set. So another part of our change orders is well, hey, if we execute this, this is how much it's going to cost and this is the delay that is going to be realized in construction. So this change orders $10,000 for everything and. The on time guarantee is now pushed back for weeks, for example, right? And we will have this home complete with this additional change that we all agreed to a month later than originally agreed to.
That's a fantastic point and I think it's one that is important to note because sometimes like I said, change orders can be huge and in in huge, I mean changing the structure of the floor plan
of the home, you know. So when that happens, there are a lot of parties involved where we have to go back to sometimes all the way back to the engineer, start from the beginning, you know talk to the engineer, how is this going to change the structural components of the home bracing layout, all that good stuff and then go back to the the lumber company for example, go price that out. So I mean, I hope the listeners can see that some of these change orders change every
single thing. If it if it starts at the frame or even foundation stage, they want to add a wing to the home or do something, you know, there's a lot of other dominoes that fall behind that. And that's something that us as a builder, we have to think through all that and every last thing that's going to change based on one little change order, no matter how big or small it is. And I think we joke or I joke a lot of times with clients, they
say, oh, can we do that? Is it too late to do that at this point? Can we change this and always tell them we can make your one story, A2 story. That's not the problem. The problem is usually it comes down to a budget or a timeline perspective. You know, we can tear down your one story and make it a two-story. But is that reasonable or is does that make sense? No. You know, so unfortunately change orders sometimes fall
into that bucket. Not to be crass about her, I don't, I don't know the right word. But, you know, not to poke fun at the situation, but there's a certain time where it becomes a lot harder to make change orders on things that that ship has already sailed. You know, we get we get drywall up, okay. You know, it is really hard to make a change on the structural components of the home at that point.
Or the mechanicals, plumbing, drywall, you know, HVAC, electrical, all that stuff becomes a lot more difficult to change. So that's why we kind of joke about that at any point in the build. Yeah, we can tear down a wall, we can do other things, but it's gonna require a lot more work. So kind of a little side note there, but just something to talk through. Yep, that's a good point. So we've covered a lot.
Let's walk through a. Let's walk through a full example of a change order, if that's fair with fair to you, Steven. So I mean how does this change order work And we know that of course we've already said it depends on on your builder and how they they organize and manage change orders. And there's really change orders look a little different when you get back to the type of contract
that you signed, right. They look a little different on fixed price versus cost plus agreements, but let's as quickly as we can walk through an example of of how a change order works in, in both those in both those situations with cost plus and fixed price. Yeah, I think that's an excellent idea. Just to give the listeners an idea of how the whole process would would play out.
So OK, going all the way back to the very beginning, but keeping this brief, you have your fully designed plan set, so all your engineering is done, all that stuff that you need to get to the starting line of your build. Home starts being built and you get to, let's say you get to frame stage, right. We'll just use this as an example and walk through it. You want to move a wall or let's say you're going to close in a dining room and make it a study. So that's going to require a lot
of things that will change. Of course you've got to add framing to close in the walls that were going to be opened. You've got to possibly change some electrical because those were probably going to run through those openings or walls or now new walls. Are there any doors that are going to be required, things like that. So that's our thought process as we've look at those plans and what is going to change now, what trades are going to be
affected. So we go through that exercise in our head and we think through every single trade that that could possibly affect. Is that going to be a cost increase or cost decrease, right, Is it maybe? Less flooring or something like that, right? You're going to do carpet in the office instead of hardwood floors. OK. Well, you might get a credit back for that, right, because carpet is cheaper than hardwood floors, things like that.
So as we're thinking through those pricing exercises, OK, and what stage of the home are we in right now? Do we just start frame? Did we catch it at a good time that we can still add those walls and go through the the exercise in proper order? That definitely helps, right? So that'll help speed the process up. Did we catch it at the end when we're doing flooring? You know, Okay, that's going to add a lot more difficulty to it. We've got to go all the way back to the start.
We've got to tear some drywall off, probably put the walls up, put the drywall back, mechanicals, all that kind of stuff to think through. So that's basically the construction aspect of it I would say. But as far as a an admin or administrative perspective, typically a change order will be brought up by the homeowner. They'll say, hey, we were walking the house or hey, we've
been looking at the floor plan. We'd really like to do X or we'd really like to do Y Okay. Well, let's talk through that. Let's see what that would cost or what that would look like and we give them. Typically we'll start with a range, right, the best we can and a lot of times these things are very custom. So it's hard for us to give a pretty targeted price, but we do our best. So we'll give them a range. This cost could or this change
could be $5000. Is that something you guys are still interested in at this point? Homeowners will think about it, say yes or say no. If they say no, of course, just. Cuts the conversation. They say yes. Then we really go through the process of, OK, here's what we'll do, send you a change order, a change order document. We have a contract basically through tab that's free or it's a promulgated form. So we fill that out, we send it over to the homeowner for those
of you. For those of you listeners tab, Texas Association of Builders. Oh yeah, Yep. And every building jurisdiction has their own. An association of builders. So whether your builder uses those contracts or not, just something to be aware of. But yeah, we use a tab contract that is a change order specific and it gives us a section where we write in exactly what the change order is going to entail. We can even put pictures if
that's easier. We can put whatever is going to specify exactly what that change order needs to be. We talk about pricing on that change order sheet. And then we send it over to the homeowner to sign.
Now there is a clause in there that if we go through all of the work to get the pricing and everything else for this change order and the homeowner at the very end decides not to proceed with it. Then the agreement is that the homeowners pay us for our time to go chase down all those numbers and the work through the whole change order exercise that was not executed. So just something to be aware of. Most builders will execute that or enforce that. Some will, so that's more of the
admin side. Once that change order is signed and agreed upon between the builder and the the homeowner, then that change order goes into effect as quickly as possible. The builder will start ordering materials or whatever they need. They'll communicate with the proper trades to make sure that that's on the on the books and documented, and then the change order moves into effect. And ideally. It goes fairly quickly or as quickly as it can to be worked
into the build. And then after all that you have your change order now implemented into your new physical home. So Brian, I'm sure I left some stuff out. Where did I want to fill any gaps? Now, a good summary I think. Let's talk a little bit about the different aspects of cost plus versus fixed price and how that looks. So starting with the easy one, fixed price change order is real
simple, right? I mean, you have a fixed price agreement to build the home and you request a change order. Who cares how big or small it is? The builder goes and does all the work and says hey, your change order is going to cost $15,634, right. You you don't know how much of that is materials, you don't know how much of that is labor. You don't know how much of that is profit. It doesn't matter.
It's just this is the cost or do you want to do it or do you not want to do it and you sign or you don't sign. If you don't sign like Stephen said, then the the agreement is that well, you're going to pay the builder an hourly rate for their time to go do all this work because they they need to be compensated for what could be many many hours of of work putting the change order together, the cost plus I want to, I want. To add something, don't. Don't lose your train of thought.
But you said, and I know this is just a wording thing, but you said it doesn't matter how much it costs. Well, I mean, for homeowners, yeah, it does. You know, they're thinking, okay, how much does this cost? I do want to know where my money is going. But I think your point is that the builder is wrapping the whole package up as a present to you. Okay. Here's what it's gonna cost to present this change order to you now. I think a lot of people get tied up in.
You know, this seems like so much money for what we want to do. But I think what a lot of the homeowners miss is it changes so many things. So one simple change that you think is just a minor thing. Oh, it's no big deal. Just move it over here. Oh, and look, Google says that this plug is only $30.00, so why are you charging me 150? You know, it's it's not that simple. And to pay return trip fees for trades that have already been out to the house and they've got
to come back and change things. There's I think my point is, is that there's a lot of other fees that homeowners probably don't realize when change orders are initiated. So just to talk through that bit, please don't be scared whenever you're home or when your builder presents a price that seems very high to you in comparison. It's probably not I just want to point out and it's probably because a lot of things will change and or will be affected
by that change order. So just a. You know, kind of a clarification there on that. Yep. Yeah, good. Good point. Thank you, Steven. And you're you're right, I think without scaring people because change orders have happened on every single home that we've ever built and it will happen on your home too. The, the cost regardless of whether it's fixed price or cost plus is probably going to be higher than you think it would be when you get that final price.
It just is to Steven's point, there are so many other things that that are often changed even if it's not really visible right. There's just a lot of behind the scenes work on from from multiple people and so part of what what goes into that that final price or final cost. So looking at change orders in a cost plus agreement looks a
little bit different. So in a cost plus you have your cost plus the the builder fee builder markup, whatever you have agreed to with the builder and that might be cost plus 15%, cost plus 25% whatever it is. So in a change order the the effort to go through the the the change is still roughly going to
be the same. However the build some builders may say hey I'm going to go price this out and get all the all the necessary costs and tell you what it's going to be or just like the beginning of the bill the cost plus hey here are estimates here are here's an estimate on what it's going to cost to build this house but it is cost plus or whatever cost.
We realize you get to see and full transparency in the books and if it goes if if the cost is above or below the the the the estimate well then it it comes in and out of your pocket not the builder's pocket. So where change orders can get a little look a little bit different and again each builder is going to do this differently in a cost plus agreement. They can say well it's going to cost about $15,000 but they
don't really know. And because you're in a cost plus agreement, it's whatever costs are realized are going to go into your are going to come out of your pocket and whatever are not realized you're you're going to essentially and I'm doing air quotes, you're going to save you know which maybe was never really a savings but it might look like that on paper. So I think that the challenge is the builder may approach you with, well our for example, our building agreement is a cost
plus 20%. So whatever the costs are, the builder is going to mark up all the costs by 20% and that's what the builder makes. This is just an example, obviously, well on a change order it could be rather involved and they say well I want to make or or I'm going to make 30% on this. But it becomes very difficult to manage on the books because you have, you start to have all
these costs that blend together. And oftentimes with the Subs they're not separating out the the cost of the original, the original project versus what's included or not included in the change with the change order. So I don't want to get too far in the weeds on the the details of a change order with cost plus. It happens every day. It's it's handled, it's handled in a very similar fashion.
But just understand the differences and and this is a great question to ask your builder, if you are going to sign a cost plus agreement early on, we would give you some tidbits of insight to ask them about how does a change order work and if there's a complicated change order, how, how are you compensated, how are you going to, what's the markup on that, How do you manage that from an accounting perspective?
If you ask those types of questions early on, you're going to show that you're really on top of it and have done your homework from the beginning. Yep. Yeah. And and furthermore, asking those questions is going to. Number one, lets you know the builders thought process on how they're going to handle change orders, but also #2, let the builder know that you're going to be looking out for that and you're going to have your eyes
open for those kind of things. So, you know, like we always say, I mean, pick a builder you can trust and that you feel comfortable going through these exercises with and know that they're going to treat you right and do what is right, but still. Very, very important that the listeners know this stuff so that they can look out for themselves as well.
And I think that, you know, you brought up a good point, Brown, as far as accounting goes, that there's just a lot of Gray area in a cost plus when a change order is initiated, a cost plus contract when a change order is initiated. And for that reason, like you said, it's very important that people understand how their builder is going to handle that.
And I do want to state too that if you are in a cost plus contract and you initiate a change order with your builder, it is not uncommon and this is from a builder, but it's very true, it's not uncommon for that change order to be charged at a higher builder rate than your your standard contract. Now the reason for that, and Brian, you kind of touched on it, is that there's a lot of work that is involved in change
orders. Typically, you know it's doing backwards work to go back and change things that were already done or already discussed with the original trades and then of course adding the new stuff on top. So it's almost double work in a sense and a lot of times it requires specialty materials or other things and a lot of premeditated or thought out processes and procedures and.
There's just a lot of things that go into change order sometimes and for that reason it's not uncommon for builders to charge more than their their standard rate on a cost plus now a fixed price like we mentioned, you know you're already locked into the price with the builder for the total build. Any change order initiated would be above and beyond that price. So it's it's. Almost more transparent in that sense that it's not quite as wishy washy.
Here's the price that we charged you up front. Here are your change orders that are added on top of that so you can see your your total plus your additions. Whereas cost plus, like you said, it's there's a lot of Gray area and it's hard to separate out what was added and what wasn't and then the budget gets a little muddy and. You know and maybe there's some builders out there that have found a better way to handle them.
But like we've said, you know we don't do many cost plus contracts and for that reason, you know we'll be the first to say that we, we haven't found a winning situation where you incorporate change orders into a cost plus contract. So not to scare anybody that's in a cost plus contractor thinking about going that direction, just be very aware of
how those are handled. Yep. And I just I wanted we can wrap this up on just really what's important to us And and I know there's many other builders out there that that you're talking to if you don't build in in
Central Texas or in our market. But it's extremely important to us that we are always focused on the customer experience and that's why we do fixed price agreements, that's why we have the on time on budget guarantee and we have found that that makes your experience throughout the build so much more pleasant, right. And we've we've used those words many times before on on these episodes, but it is so true. So my my parting words are change orders are going to happen. It's okay.
It's we're happy to tackle them with you. We don't look at change orders as a negative thing. It's just making sure that the expectations are clear up front of what it entails and it seems to be much smoother for everybody. So the other the other piece of this is and I know this is hard to do in a hard ask but you can't study your plans enough early on with the architect right. I mean, you need to be thinking about every last corner of the house and every last thing you
may or may not want to add. And I know that's hard to do because it's a snapshot in time when you say hey I've got it figured out and then something changes down the road.
But the more you can go through your final plan set with a fine tooth comb, have any of your friends and family look at it and give their input and opinions and you take them or don't take some of their thoughts, I think goes a long way in minimizing the change orders later for your best interest both from a financial and a time perspective.
But again, change orders will come up and we we work through them as smoothly as we can to to keep the the homeowners experience as pleasant as possible. Well said. I think that's a fantastic way to wrap this episode up. So yeah, thank you for those final words. And. My final words are going to be to ask the listeners for a favor
and this one's free. We would just like to ask that if you guys listening have found any value in our podcast, we'd really appreciate it if you could rate and review our podcast on whatever platform you're listening on and then share it with any of your friends that are thinking about building a custom home or a home in general or are in the process potentially right now, so. Anybody else that can find value in our podcast, we'd love to have this podcast help them.
And with that being said, I think this will wrap it up for week 12 and episode #12. Thank you everybody so much for listening and all your support and we'll catch you guys on the next one. Thank you all. Thanks. Steve.