Why This Poll Is Useless: Cost of Architectural Services
I still asked the question...
A few weeks ago, I posted a poll on X, asking developers what they usually pay for architectural fees on a project. I tried to give some parameters, so there might be some semblance of comparing similar projects, but the comments [and my DMs] told me that not everyone really paid attention to the actual question I was asking, or they had different ways of looking at the issue.
So at first glance, the results of this poll seem clear: most developers are paying between 0-6% for architectural + MEP + structural services on their projects.
But, a significant proportion of folks are paying more, and who knows what “less than 3%” could mean - are there people paying as low as 1%"?
And what does it mean?
And what *should* developers be paying for architectural fees
As usual, this is a simple question with a much more complicated answer than first meets the eye.
So, let’s break it down.
Like anything else, to understand how much fees should be for a project, you have to understand what you’re buying, and the *value* of what you’re buying. Architects and engineers aren’t all created equal, and the best ones ain’t cheap. They’re also not outrageously expensive, or they wouldn’t be in business anymore - they have to stay within a range that the market will bear.
No matter how good your architects or engineers are, they also might offer different levels of service. Barebones service might be just help getting through zoning, a permit set, a light set of construction documents, but very little construction administration support and no interior design services. Full services, at the other end of the spectrum, would include full support from zoning approvals through construction, as well as different levels of interior design services.
So right away, we’ve got four different levers that impact cost of services, across several different professional service providers. You could have the really good architect who’s providing minimal services combined with the crappy structural engineer who’s providing full services combined with the good MEP engineers who are providing minimal services, and that would be a different fee package than the mediocre architect providing full services plus the great structural providing minimal services plus the crappy MEP engineers who are providing full services.
And so on and so on.
And we haven’t even talked about project type, jurisdiction, or any of the other factors that can drive fee!
But let’s get back to the poll. Why did I call it “useless?”
[Also, so I don’t have to keep repeating it: major caveat that applies to everything here: I’m speaking generically, and with my experience bias [northeast/midatlantic, mixed use/multifamily, GC background, smaller architectural firms, etc] - these numbers can be very different per project, construction type, jurisdiction, and when the project was built. This stuff is NOT straightforward!]
Judging from my DMs and the comments, many people didn’t read the prompt: they included only architecture fees in their answer, not architecture + MEP + structural engineering.
Of the total fees for architecture and engineering for a project, usually the lion’s share is architectural fees, but engineering fees can still add up to 40-50% of the fees. So if your architectural fees are 4%, your engineering fees might be 2-3%. Obviously that would change your poll response!
Also, some projects require more engineering than others. If it’s a complicated building, or a tricky site, or you’re required [as we are in Massachusetts] to do energy modeling and meet high energy/environmental standards, you’ll need more engineering services.
People use different ways to calculate the percentage.
When architects calculate their percentage to determine their fee, they use “construction cost,” which is basically the hard costs of the project. So, it does NOT include land costs, carrying/financing costs, other professional fees [but it does include the GC’s fee]. It *may* include costs of FF&E [furniture, fixtures, and equipment], if the architect is involved in selecting those items, but usually not.
When developers look back at projects to calculate “how much did I spend on architectural fees,” they may calculate as I described above, or they may calculate them as a percentage of the total project costs. This is all dependent on how they run their numbers, what they care to track and how, and what matters to them. I’ve seen it done both ways, and I’ve heard developers say “What?! I would never do it that other way, that’s dumb!” To each their own.
But the point is, if you calculate the same dollar figure fee against a bigger or smaller number, the percentage will be different. Against the whole project cost, the fee will appear as a smaller percentage, even though it’s the same dollar amount.
That’s why the larger a project is, the smaller the fee percentage is. You can see that play out in this chart here.
But wait…
Why use a percentage to calculate a fee anyway? Doesn’t that incentivize the wrong thing, namely, that the architects and engineers make more money if the project is more expensive? Traditionally, percentage based fees is how it’s always been done, and by now, those percentages are pretty decently calibrated to the effort required for that kind of project.
We don’t argue with Kohler about the cost of a bathtub based on how long we think it should have taken them to make a bathtub…Kohler charges us what the market will bear for bathtubs. While professional services aren’t that simple, it’s a point worth pondering: what is the *value* of architectural and engineering services? What are the risks that architects and engineers are taking on a project?
Much focus is given to the risks that a developer takes - and they are *very* real and *very* serious - but the architects and engineers also take risks. When we stamp drawings, that stamp means we take on the liability of our work, removing it from the shoulders of the owner and putting it on our own. [We have to carry serious insurance policies, as a result!]
That means if something goes wrong, we are getting sued. And by the way - architectural liability is *personal* - I personally am liable, not my company. [In simple terms…obviously there is nuance here…talk to your legal professionals!]
Providing that kind of liability coverage is *extremely* valuable, and depending on what kind of building it is, may be even more valuable. Condos, for instance, are by far the most litigious kind of building [besides single family homes]. Many architects won’t do them at all, and those that will, charge more fees to cover the higher insurance premiums and hassles that come with working on condos.
So back to the poll. As you have now fully picked up on [even though we’ve only scratched the surface of factors that impact fees], there are many different reasons why fees differ, and why people would report them differently here in this poll.
So the golden rule of the internet still applies: “your results may vary.” Any time there are numbers getting thrown around, you need to contextualize them, or they’re useless.
Unfortunately, I wasn’t able to put enough caveats in my X poll, but we were still able to learn a few things and have an interesting conversation…so…all was not lost!
As usual, thanks for reading and being a subscriber! Your support really does make it possible for me to continue doing this work. I would be honored and grateful if you would share this with someone who you think would find it interesting!