Price vs. Value

 

Thorsten Deckler

principal, 26'10 south Architects

Published Apr 20, 2022

How Discounted Architectural Fees End Up Costing Clients More Money.

Discounting professional fees is a common practice in the construction industry. But as the saying goes: "Price is only ever an issue in the absence of value". With this in mind, I have put together some thoughts, specifically for custom home projects and residential developments. 

Design fees represent a fairly small part of the overall cost of a project, yet design determines the quality, performance and cost of the entire project. At lower fees, less attention can be spent on a project and it is thus far more likely to end up costing more due to lack of resolution (graphic below).

A compromised project can also reduce a property’s value, while a resolved project will increase its value (graphic below). 

 

Another way to look at design fees is to consider estate agent fees. In South Africa these range from 5% to 7.5% of the value of a building plus the land. Yet the estate agent has no hand in designing or creating this asset. An architect may charge between 10%-15% of the construction costs for creating a new house, less even for a residential development of repeat units (graphic below).

 

Because an estate agent earns a percentage on the entire value of a property (land + building) their fees might even outstrip the design fees in some cases like renovations.

In the bigger picture, architectural design fees amount to 0.01% of the overall lifecycle cost of a building, according to the American Institute of Architects (graphic below). 

 

Yet design determines almost every aspect of a building’s performance and its return on investment – from emotional to functional to maintenance and energy consumption as well as uptake / sales and tenant churn on residential developments. This means that saving on design fees is not the place to save, but to invest.

One way to lower the cost of design is to reduce the design scope. This is also a common practice and often results in the feasibility phase of a project being skipped or done hurriedly. People jump into the design process without clearly defining or understanding the parameters. Building is a big investment and without proper consideration of all constraints and opportunities a project starts off on a shaky foundation. Moving a line on paper is easy, moving a wall in reality is exponentially more expensive and disruptive. The graphic below shows the increasing cost of changes when made late in the design / construction process.