Understanding Architectural Fees

Types of Architectural Fees

There are three main fee structures used by architects on single-family residential projects: fixed, hourly, percentage of construction, and sometimes a creative combination of several of these. It’s important to note that we’re discussing ‘full-service’ architectural services. Meaning, the architect is being hired for the entire project scope starting with predesign services through the completion of construction. No matter the fee structure, a project's successful outcome is heavily reliant on the architect completing all phases of the project.

Fixed

A fixed fee is exactly how it sounds. A fixed cost for a carefully defined scope that is agreed on before beginning a project. This might sound like a nice, buttoned-up approach, but when the fee is fixed, so too are the design and services. This fee structure is rarely used in residential construction because clients don't typically have a perfectly defined scope before starting design. Likely the main reason you're excited to work with an architect is to explore ideas and determine the best design for your budget. But if used, the fixed fee will usually high to cover unknown rounds of design and/or the rounds of design allowed will be limited. As soon as anything falls outside the pre-determined scope, or issues arise during construction that need to be solved, you’ll be subject to open-ended additional service fees, limiting your access to expertise when it matters most. As much as it sounds nice to have the certainty of a fixed fee, this approach is too risky for both homeowner and architect.

Hourly

An hourly fee is billed (usually each month) based on the number of hours the architect works on your project. This method sounds appealing because it’s easy to understand and doesn’t rely on a perfectly defined scope. It also feels less committing to get started with an unclear project scope. The major problem with billing hourly is that it rewards a bad architect for taking longer to complete their work and it penalizes a good architect for finishing quickly. It also penalizes you if you want to see more options, ask questions, or explore more ideas to make sure you're happy with the design before moving forward. Another issue is how little control the client has over the architect’s overall fee. You’re at the whim of how many hours were spent to complete the tasks you request each month. If this wasn’t projected accurately and communicated beforehand, you get blindsided with a steep bill, leading to frustration and conflict across the project team. If you're lucky enough to have an architect who works hard to limit their time spent, it's more likely that mistakes will be made, or things missed. And when that happens with an hourly fee, you, the client are the one who ends up paying for the Architect's time to fix it.

*Hourly billing is often thought of as a lower cost than a fixed or percentage fee. I want to dispel this. You may be tempted into thinking you can pick and choose services throughout the project and stop paying an architect once construction begins to save money, thus limiting the number of hours you'll be billed for. This way of thinking is a recipe for disaster. A full-service Architect doesn't include all their services just to make more money, they are full-service because it guarantees the highest quality, smoothest management process and best relationship at the end of the project. Once this level of oversight starts to get broken apart, things go south.

Percentage

A percentage of construction fee is a defined percentage (usually 8%-15%) of the ‘hard cost of construction.’ The ‘hard cost of construction’ simply means the cost of material and labor, and you can think of the architects fee as a fixed fee that rises and falls with this cost. So, if the ‘hard cost of construction’ is $1,000,000 and the architect’s fee is based on 10%, then the total architects fee will be a fixed $100,000, but if the client decides to expand their project mid-design, a new contract isn't needed, since the fee will scale with this added scope. This is probably the most popular fee structure, and our preferred method, because it protects the client and architect from uncertainty and allows the project to morph and change as the client wishes. Further, it incentivizes the Architect to listen to you and deliver what you want, sooner. The sooner we're able to develop something you're happy with, the more of our fee we get to keep for our time. Failing to design something you approve of for your budget will require redesign, and in the percentage fee structure, the Architect pays for this by having to spend more time for the same fee.

Why we choose a percentage Fee?

1.    It puts you in control of the Architect’s fee.

If you have a defined budget for your project, the architect can apply their percentage to this number and present their fee. If you want a lower fee, you can simply reduce your budget. It’s important to note that the budget must be based in reality. Read this ARTICLE for determining a project budget. We always provide "ballpark" pricing from day one, but advocate heavily to bring in the general contractor for pre-construction services as early as possible. The GC can provide an accurate budget based on current (ever changing) material costs for the design, and offer ideas for more cost-efficient construction before anything is set in stone. Throughout the design and construction process, the Architect will continue to provide updates on their fee as the budget changes so you have a clear understanding of how the changes in scope and budget impact the architectural fee.

2.    It forces the Architect and the client to be responsible with the project budget.

A percentage fee requires a conversation about budget before starting the project and then constant tracking throughout the project. By keeping tabs on the budget as the design morphs, you avoid ending up with a design you love that you can't afford. If the client requests changes to the scope, it's the architect's responsibility to convey how those changes will impact the cost of construction and architectural fee. During a construction project it's vitally important to have clear communication and we've found that this open dialog about the budget keeps everyone's expectations in check.

3.    It eliminates the unknowns of how much you'll be billed each month.

Once we have a defined project budget, we can divide the architectural fee across the entire project schedule and establish a consistent monthly billing cadence. But what happens if the budget or schedule changes mid project? Not a problem! We update the overall architectural fee based on the new budget and update our monthly billing amount to meet the new schedule. As always, we communicate throughout this process so the client never feels blindsided by the updated billing numbers.

4.    It give you the freedom to change the design throughout the project.

Residential projects are uncertain. You never really know what you want until you start the design process and can begin to visualize your new home. Opportunities, that weren’t originally part of the project brief present themselves and you change direction. You might increase your budget to accommodate more square footage, better materials, more glass, higher ceilings, etc. This is the beauty of designing something custom. You almost always end up in a place that you never could have imagined. For this reason, the scalability of the percentage method is ideal because the architect’s fee will simply scale with the design and budget decisions you make. The higher the project budget, the more work it is to design, draw, construct, and manage. This requires more work for the Architect, hence a fee that scales alongside these choices.

5.    It preserves relationships with the project team.

Because you know the Architect’s fee upfront during the design and construction process, there are no surprises. The easiest way for an Architect to strain a relationship is to send a client a $20,000 bill at the end of the month that they weren’t expecting. Do this several months in a row and you are now both upset with a very awkward relationship. Not very conducive to creativity and a shared positive outcome.

Final Thoughts

I could write a novel on the downsides of open-ended fees, but I’ll summarize. When billing hourly or additional services on top of a fixed fee, every month's bill is a surprise. This not only takes any semblance of control away from the client, but creates tension and a very un-fun process for everyone involved. By having a defined budget and an architectural fee based on that budget there is no uncertainty. Everyone on the project team has an agreement and the focus can be on quality design and construction. This shared responsibility is what makes a solid project team and successful project outcome.

Hopefully this guide helps demystify architectural fees. As you review proposals from different Architects be sure to study the fee structure and what services are included. Architects tailor their services to their unique process and some will include services that others don't. Some might even offer a lower initial fee, but hide additional fees for services that are actually necessary to complete the project to the level you're expecting. It's important to understand this when comparing fee amounts. It's not always apples to apples. Most importantly you have to find an Architect with a process that aligns with your wants and needs, and who you simply get along with.

For us here at Follow, a percentage fee is the best way to guarantee the highest quality outcome of a project and preserve the positive, fun experience building a custom home can be. Our involvement in the entire project is vital and we never want our clients worrying about unexpected additional services or whether they should include us in a conversation or not. Our fee includes everything without exception. It's clear.

If you have questions feel free to reach out.

‘till next time,

Colin