Property Development Project Management Fees Explained
As a property development company, it can be difficult to determine the best way to charge for your services.
The last thing you want is to lose clients because you get this wrong.
On the flip-side, if you’re someone looking for a development management company to project manage your next development site then you need to have a clear understanding of property development project management fees and various structures.
Some of which can be pretty crafty so make sure you read on.
Before we hook into the specific property development project management fees structures.
It is worth noting that there are countless ways that companies out there are charging for their services.
In this article we are going to focus on the three most common.
One of which we at Little Fish think is pretty crafty and should be avoided by both development management service providers and clients.
The first one is …
1. Frontline Flat Fee
Frontline meaning it isn’t hidden. Flat fee meaning an agreed cost or charge for the delivery of a property development cradle to grave. It doesn’t matter how long it might take.
Essentially the client and service provider will agree on both the scope of works and a fair and reasonable fee.
Unless the scope of works changes the fee should remain the same. All up in lights and on the frontline.
This is the fee structure we like to use here at Little Fish. We’ve found that the clients we work for like to know exactly how much they are paying for our services. It helps them move forward with their project with confidence.
The fee itself can be determined in many ways. For us we charge a percentage of the build or estimated build cost.
If the build works out to be more than the estimated amount we won’t charge our clients anymore.
BUT if the build works out to be cheaper than the initial estimate we’re happy to adjust our fee accordingly.
We think this is the best way to charge our clients. The feedback we’ve received over the journey definitely proves that to be the case. It means;
- It’s relevant to project size
- It’s consistent pricing for clients and us
- Most importantly it’s transparent
We generally break our fee up into four stages depending on the project. Starting with a deposit, finishing with practical completion.
With the other two stages based on agreed deliverables within the guts of the project.
On a side note, here are some cost examples for dual occupancy development projects. They will give you some clarity around the kind of costs you can expect if you were to move forward with your own project.
2. Retainer Structure
The second type of fee structure development project management companies use is a retainer structure.
This can be a weekly, monthly, quarterly or even yearly retainer depending on the project. The retainer is typically worked out based on estimated hours at an hourly rate.
This type of fee structure is generally used by development management companies doing larger scale developments. Where there are too many variables to commit to a flat fee.
If you’re not confident as the project management service provider to commit to a flat fee then this type of structure can work for you.
Keep in mind due to the nature and size of multi-unit development sites we’ve found that our clients prefer to know exactly what our fee is. I suspect helping them sleep at night knowing our interests are aligned – as far as getting the project done timely.
Also, keep in mind that if you do choose to go down this road there is potential for unhappy clients if and when the project runs overtime.
Even if you’ve done everything in your power to deliver the project timely.
With this kind of project management structure, your interest and the clients aren’t necessarily aligned. Given you make more money the longer the project goes.
3. Backline Undisclosed
The third development project management fee structure is referred to as the backline undisclosed fee structure.
We think this can at the very least appear crafty to clients even if there is no intention from the service provider to be crafty.
This fee structure is generally used by townhouse builders that are looking to land the project so they can do the build. As such they offer their project management services for either free or for a nominal amount.
Nothing in This World is Free
You don’t need me to tell you that nothing in this world is free. I’m hoping you’re smart enough to know that managing a residential property development is no gimmick so it should come at a cost.
Generally, in a fee structure like this the builder will make up for the “free” or nominal fee by working the cost into their build price.
This fee structure as a client or as a service provider you should avoid at all costs. Ultimately if you are the client you are never going to know how much you paid for your developments project management fee.
If you are the service provider you’re opening yourself up to be viewed negatively.
As the client, on top of not knowing how much you are paying for the project management portion of your project, you have no way of knowing if you are paying the right price for the actual build itself. Because you haven’t taken it to the market to be tendered.
As a client, you definitely shouldn’t entertain a fee structure like this. You want your project manager to tender your project out to determine the market value of the build. Then appoint the best builder possible at that level.
- Tender your project out
- Determine the market value of the build
- Appoint the best builder possible
This can’t happen if the project manager and the builder are one and the same. The builder in a fee structure like this has all the power. They can basically inflate their prices because they already have you on the hook.
Wrapping It All Up
So to tie it all up in a little bow for you. If you’re a development project management service provider and you can offer a flat fee for your service you definitely should.
If you are a client you should always engage a project management company that offers a frontline flat fee structure so that you know exactly what you are paying. It’s important that you ensure yours and the service providers interests are aligned.
There you have it! Property development project management fees explained.
Don’t hesitate to reach out if you have any questions or would like some help with your next property development project.
Dual occ advisory is our game, we’d love to hear from you 1300 799 277.