Change Order Strategies That Can Make You Money
Change orders are a fact of life for nearly all fixed-price contracts. Managed properly, change orders can keep you from losing money and time when clients decide to split a master bathroom in half after it’s been rough-plumbed, or when they make other midstream changes to what you’ve contractually agreed to build or remodel. Try the following tips on pricing change orders and communicating the costs to customers. They were contributed by 2004 Custom Builder Symposium attendees who traded strategies in a roundtable discussion. - Include in your contract the price that you charge for change orders. You can add it before or after the description of your change order procedure. “If you spell out the procedure and price ahead of time, customers will accept it more easily,” says Dennis Dixon, of Dixon Ventures, Inc., in Flagstaff, Ariz.
- Some builders charge for every change order. Some charge just for major ones. If you do the latter, you should still spell out the change order price in your contract. “To ease tension with the consumer, we only charge for substantial change orders,” says Kevin McGinnis, of Period Homes in Fort Worth, Texas. “For those, we charge a flat fee of 25%.”
- It takes time to produce a change order, so make sure you get paid for it. “My minimum charge for change orders is $175 plus a managerial fee of $85,” says Dixon. “I charge the managerial fee only if a client says no to a change order. That way I get paid for estimating, etc.”
- Be sure to charge for additional labor when pricing a change order. The cost does not only cover the material. “If someone wants to upgrade from standard hardware to a premium brand, the premium brand may take more time to install,” Dixon points out.
- Consider using a change order if a customer goes over an allowance amount. This provides an incentive for customers to agree on and stick to a realistic allowance amount. Giving your customers a list of approved vendors (instead of letting them pick out cabinets at the most expensive showroom in town) will help them stick to their allowances.
Additional Resources at the Custom Builder Symposium
Mark your calendar for the 2005 Custom Builder Symposium, which takes place Nov. 11-13 in New Orleans. The symposium offers world-class education, exceptional networking opportunities and fun-filled activities for custom home builders, remodelers, architects and other residential construction professionals. | 
