Architecture Fees: Hourly vs. Percentage vs. Fixed
Architectural fees can vary significantly depending on the firm and project. When searching for an architect, clients are likely to encounter not only different costs but different fee structures as well.
Generally, architects use three methods to determine their fees:
- Hourly rates
- Percentage fees
- Fixed fees
Depending on the project, an architect may use one method or a combination of the three. Although you may start at an hourly rate, you may switch to a percentage or fixed fee later in the design process.
We understand there is a lot of confusion surrounding architecture fees and aim to help you on your architectural journey, whether you work with us or another firm. This article will discuss the difference between hourly, percentage, and fixed fees and explain why an architect may use one fee structure over another.
3 Architecture Fee Structures
1. Hourly Rates
Hourly rates are a common way to charge for architectural services. While some architects may use this structure for the entire project, others only use it in early design phases before establishing a percentage or fixed fee.
Typically, architects use hourly rates when the client is unsure of the project’s scope and wants to explore their options. Pre-design services like feasibility studies, programming exercises, and benchmarking tours may be charged hourly. Often, the architect will break down the estimated time for these services to give you a better understanding of the overall cost.
After developing a program or concept, your architect can provide a price-per-square-foot cost opinion and switch to a percentage or fixed fee. The hourly rate covers exploration before you determine the construction budget.
Hourly rates are also common on residential projects. Often, the personal nature of residential work leads to more exploration and iterations throughout the design process. It can be difficult for an architect to determine the time and effort the project will require, making an hourly rate an appropriate fee structure.
Similarly, hourly rates may be used on projects requiring jurisdictional approval. The architect may need to make presentations on behalf of the client or design changes based on council recommendations. Some municipalities may evaluate the building for aesthetics, creating more unknowns than a simple checklist.
Since it can be difficult to estimate the time these approvals will take, hourly rates are the fairest fee structure for both the client and architect. Once the project receives approval, the architect may switch to a percentage or fixed fee.
2. Percentage Fees
Percentage fees are based on a percentage of the project’s construction cost. For example, an architect may charge a 9% fee on a $20M commercial project.
Often used on large projects, this fee structure allows the architect’s compensation to change alongside scope changes. Under an American Institute of Architects (AIA) contract, the fee is based on the owner’s approved budget and is adjusted accordingly at each phase of the design process.
For example, if the project’s scope increases from $20M to $25M in Design Development, the owner will need to approve the change before moving forward. The contract protects the owner, ensuring the architect will not design beyond the project’s approved budget to increase the fee.
If your goals are not possible within the approved budget, you may need to eliminate project elements or increase the budget. Regardless, the architect’s fee will remain the same percentage.
Percentage fees are broken down by phases of the architectural process for billing. At Neumann Monson, we typically charge as follows:
- 20% for Schematic Design
- 20% for Design Development
- 30-35% for Contract Documents
- 5% for Bidding/Negotiation
- 25-30% for Contract Administration
These percentages are then broken into monthly payments based on the completed work. For example, if you complete 10% of Schematic Design in one month, the invoice will reflect 10% of 20% of the total percentage fee.
3. Fixed Fees
Occasionally, an architect may charge a fixed fee rather than a percentage of the construction cost. While the amount is calculated based on the construction cost, it is charged as a fixed amount. Some organizations prefer this method for budgeting and billing, specifying it in the contract.
Fixed fees will change alongside the project scope. For example, if the project scope increases at the end of Schematic Design, your architect will issue documentation defining the scope change and the additional cost. If the scope decreases, the fee should decrease as well.
Like a percentage fee, a fixed fee is broken down by design phases for billing. Monthly invoices will reflect the amount of work completed within the percentage.
Learn More About Architecture Fees
When budgeting for architectural services, it is important to determine the fee structure. While some projects may be billed at an hourly rate, others may use a percentage or a fixed fee. Other times, an architect will use a combination of the three.
Typically, hourly rates are charged in the early phases of the design process before determining the project’s scope. Once you set a construction budget and the project’s requirements, your architect may switch to a different fee structure.
Understanding how architects charge for their services can help you make an apples-to-apples comparison when evaluating fee proposals. Learn more by reading about why fee proposals differ and how to compare.