Land development in Mapleton/springville
Lehi, UT · Member since 2017 · 7 posts · 1 vote
How much is typical price to pay someone to develop land? My uncle has an offer he pays all development fees and then gives the guy who engineers it all 33% gross cut. Is that excessive? he pays the million for all construction costs. he takes home 67%.
The typical price for land development varies widely depending on the scope of the project, the location, and the type of development (residential, commercial, etc.). However, when it comes to compensating a developer or engineer, a 33% cut of the gross revenue can be seen as on the higher end, though not necessarily excessive depending on the specifics of the deal.
Here’s a breakdown of what to consider:
### 1. **Standard Compensation Models**
- **Flat Fee**: Engineers and developers are often paid a flat fee for their services. This can range from a few thousand to several hundred thousand dollars, depending on the complexity and size of the project.
- **Percentage of Profit**: Some developers or engineers might be compensated with a percentage of the project's profit or the gross revenue, typically ranging from 10% to 30%.
- **Equity Stake**: In certain cases, a developer might receive equity in the project (such as a portion of the profits), which might be higher if they are taking on more risk or responsibility.
### 2. **33% of Gross Revenue**
- This is on the higher end of compensation for land development. It would typically be negotiated in cases where the developer or engineer is adding significant value through their expertise, connections, or risk management.
- If your uncle is providing all of the funding and handling the construction costs, the 33% share to the engineer might reflect a major role in the development process, such as managing zoning, permitting, or complex site engineering.
### 3. **Risk and Reward**
- If the engineer or developer is assuming some risk (such as project financing, delays, or cost overruns), their higher percentage may be justified.
- If they’re only doing the engineering or planning with no investment or risk, then a 33% share of the gross revenue might be on the high side, and 10-20% might be more typical.
### 4. **Comparing Local Norms**
- The compensation structure can vary greatly by region and the specifics of the land development project. It’s a good idea to review local real estate development compensation norms or even consult with a lawyer to ensure the deal is fair.
In your uncle’s case, the terms seem fairly favorable to the engineer if he is only handling the development and not contributing any capital. However, if the engineer is assuming a larger role (for example, project management, approvals, etc.), the 33% could be justified.
The typical price for land development varies widely depending on the scope of the project, the location, and the type of development (residential, commercial, etc.). However, when it comes to compensating a developer or engineer, a 33% cut of the gross revenue can be seen as on the higher end, though not necessarily excessive depending on the specifics of the deal.
Here’s a breakdown of what to consider:
### 1. **Standard Compensation Models**
- **Flat Fee**: Engineers and developers are often paid a flat fee for their services. This can range from a few thousand to several hundred thousand dollars, depending on the complexity and size of the project.
- **Percentage of Profit**: Some developers or engineers might be compensated with a percentage of the project's profit or the gross revenue, typically ranging from 10% to 30%.
- **Equity Stake**: In certain cases, a developer might receive equity in the project (such as a portion of the profits), which might be higher if they are taking on more risk or responsibility.
### 2. **33% of Gross Revenue**
- This is on the higher end of compensation for land development. It would typically be negotiated in cases where the developer or engineer is adding significant value through their expertise, connections, or risk management.
- If your uncle is providing all of the funding and handling the construction costs, the 33% share to the engineer might reflect a major role in the development process, such as managing zoning, permitting, or complex site engineering.
### 3. **Risk and Reward**
- If the engineer or developer is assuming some risk (such as project financing, delays, or cost overruns), their higher percentage may be justified.
- If they’re only doing the engineering or planning with no investment or risk, then a 33% share of the gross revenue might be on the high side, and 10-20% might be more typical.
### 4. **Comparing Local Norms**
- The compensation structure can vary greatly by region and the specifics of the land development project. It’s a good idea to review local real estate development compensation norms or even consult with a lawyer to ensure the deal is fair.
In your uncle’s case, the terms seem fairly favorable to the engineer if he is only handling the development and not contributing any capital. However, if the engineer is assuming a larger role (for example, project management, approvals, etc.), the 33% could be justified.
This sounds like a terrible deal, but not much info in hand. If we were to split like this on our current development, our engineers would collect 25 to 35 times as much as we paid them on a straight up fixed cost contract.
I would probably find another engineer. Apples to apples, they appear opportunistic and taking advantage of someone who is green.
PS: If you find out where all of the developers post on forums (aside of the 5-20 at bp) please dm me. Thanks
That question cannot be answered in definite terms. Development projects can vary from a 1-lot Single Family home to 20-acre subdivision, to a 4-acre commercial site, etc.
I'm a civil engineer, and for example, I do the civil engineering/permitting for many Gas-Station & Convenience Store. Our fees are not based on the profit or value of the project. Its a per-service fee. I.E., how much design work does the civil engineer need to do. For a Gas-Station with total development cost of ~$1.5M, I will tell you our fees would be nowhere near 33% of that.
Fee for professional services are not typically based on the profit or value of the project. Its a per-service cost. I.E., how much design work does the civil engineer need to do. The requirements from projects/jurisdiction's varies greatly. Also, logically speaking, for whoever the owner/developer of the project is, they have much more risk involved and should deservedly be the ones with the profit to gain.
How much is typical price to pay someone to develop land? My uncle has an offer he pays all development fees and then gives the guy who engineers it all 33% gross cut. Is that excessive? he pays the million for all construction costs. he takes home 67%.
@Kyler Berry exactly what @Jamie Hora said. It's VERY rare that an engineer could add enough value to a deal to have them be an equity partner (sweat equity). You could setup something where the fees are deferred until you secure the construction loan and then pay them 1.5-2x their standard fee if they waited the 6-18 months to get paid. But an equity position is not recommended unless they own the dirt or bring some other kind of value.
It's possible the engineer is agreeing to take on the ENTIRE development process and manage the entire development of the project but that would need to be clearly defined in the roles and responsibilities of the development partnership.
In any partnership you can't just cut a check and hope for the best especially if you're providing the money and the other partners don't have more than their time in the game. So I'd just make sure you have good checks and balances and reporting setup.
My team and I develop residential and commercial in Salt Lake, Davis, and Weber Counties. We use two business models. (1) We charge $250 an hour for all entitlement work. This includes meeting with the city, engineering, conducting required studies, plat maps, etc. Or (2) we partner with land owners and we decide a fair split based on the sweat equity and associated costs we put in. Whatever the case, we strive to ensure our clients and partners are satisfied throughout the whole process.