How Architects Charge For Design Services

Thinking about using an architect for your home design and wondering how they charge for their services? Here’s some answers.

If you’re confused about how architects charge for design services, you’re not alone. Many people feel in the dark about how fees are established.

In this article, we’re going to talk about the difference between various fee structures, and more importantly, which one is best for you and your project.

But first, let’s shed some light on why figuring out design fees may seem so confusing.

A Little History To Explain the Confusion

Before we dive into explaining the various fee structures, here’s some background information to point out why there may be confusion over design fees in the first place. This is interesting:

In two supreme court cases in 1971 and 1990, the government enacted the Sherman Antitrust Act, a law that made it illegal for 1) the American Institute of Architects (AIA) to offer design fee recommendations to architects and 2) for architects to discuss how they set their fees with other architects. It meant that architects must act on their own when deciding fees and compensation. So they couldn’t get any help from the national AIA or from other fellow architects without being held liable for price fixing. Crazy huh? (You can read more about the court cases here if you’re interested.)

Because many of us don’t fully understand this law or its implications, what it has done, essentially, is silence the profession about talking about fees and compensation. Architects are afraid to talk shop and talk about their fees for fear of breaking a law that they aren’t entirely familiar with… which has led to a wide-spread uncertainty and confusion on how architects determine their fees.

::shakes head::

It’s a shame, but the resultant effect is mass confusion over setting rates for professional services.

So let’s talk through some of the confusion and give clarity on HOW architects charge for design services.

Types of Fee Structures

Regardless of the anti-trust cases brought to the Supreme Court, architects still must decide how and what to charge for their professional services. Over the years, there have been a few basic fee structures that have gained popularity and are used most frequently. Here are the common methods:

percentage-based fees
fixed (or lump-sum) fees
hourly rates
a hybrid combination of the above

Because architects can’t talk shop with other architects about fees, most rely initially on trial and error to select which fee structures to use. Ultimately, after having gone through the process a few times, they get comfortable with a few ways of determining fees – based on successes and failures of each model – and then rely on their experience and gut to help establish fees based on those methods.

In addition to using their experience and past history to determine fee structures, design fees are also set based on project specifics. The following factors can play a big part in determining the fee structure and the actual fee for any given project:

project scope (size and complexity of the project)
project type (new build, renovation, addition, detached structure)
project delivery method (design-bid-build, design-negotiate-build, design-build)
the scope of services (how much work the architect will be doing)

With all this being said, there is no right or wrong way to charge for fees. Each way has its pros, cons, challenges, and benefits. So let’s dive into each one and give you some insight into when its best to use each one.

Follow along as we explain the most common fee structures and where and when to use each.

1. Percentage-based fee structure

What Is a Percentage-Based Fee Structure?

In percentage-based fee structures, fees are based on a specified percentage of the construction cost then get adjusted along the way as the design is refined. The percentage is defined by the architect based on many variables. Industry standards for residential projects have architectural fees that range between 8% and 20% of construction cost (which is different than the overall project cost).

Architects will often have a range of fees associated with ranges of project budgets, project sizes, project types, or scope of services. The percentage you’re quoted may differ from those of another project because the project specifics and level of involvement are different. Remember, architects are in the service industry, so time = money. If architects feel the project will take longer, they will adjust their fees accordingly.

For example, renovations and additions are usually more complicated so they usually lead to a higher percentage fee. In a similar way, complicated projects that have a lot of program requirements or detailing will take longer to design and document so their percentage may be higher, also. Projects that have a high level of design also warrant fees on the higher end.

However, on the other hand, because of economies of scale larger projects with bigger budgets may actually have lower percentage fees because the scope is essentially the same as a smaller house. The rooms may be bigger, but the design time may be about the same, so the fee percentage is often lower.

Why Architects Use Percentage-Based Fees
Architects like to charge percentage fees when they are hired for full architectural services. Full services mean that they will be with you (designing, advocating, and managing the project) from start to finish, a process that can sometimes take years to complete.

So the flexibility of percentage fees supports this arrangement. It’s a long time, a long involvement together, and lots can change. You don’t need to know all the detail of how those years will pan out, and how much attention your project will need. You can navigate it knowing that any anticipated work involved is included in your scope, and set by how much money you spend on your project.

If you change your mind about how much you want to build and how much you want to spend, then you will most likely need more work designed, or drawn, or managed on site. The architect has to know they have a mechanism in place to cover the fees associated for that work and the flexible percentage-based method allows for that by allowing the architect to adjust the actual fee based on the new construction cost.

Pros & Cons of Percentage-Based Fees
The advantage to using the percentage-based method is that you and your architect can get going on your project without knowing the full scope of the project or final construction budget up front, as long as you know how much involvement you want your architect to have.

This method builds in flexibility in how the fees are determined. You can estimate a budget, agree to a percentage fee on that basis and just get going – and things won’t change as long as you don’t change your budget or scope of services.

So if you’re building a new house and you estimate a construction budget is $400,000, and you and your architect agree to design fees of 13% of construction cost, then the design fees would be $52,000. Remember the percentage and resultant fee is based on how much time the architect thinks will be spent working on your project.

However, the challenge is in getting the construction budget right.

A realistic budget is rarely known up front. Most people have an idea of what they’d like to spend but they don’t know if that’s a reasonable budget or not, and it’s hard to predict a budget without a set of drawings to estimate from.

Estimating the construction cost is extremely difficult. Throughout the course of design, construction budgets can and do change. And in a percentage-based fee structure, that means the fees will change over time as the design is refined.

In most cases, this is a logical and fair way of doing business. If the project size or scope increases or the number of services you’re asking the architect to provide increase then adjusting the fee accordingly makes sense.

Depending on how your agreement is worded, this may mean that you could be back-charged for additional fees if the budget is higher, or from that point forward the fees are increased. In either case, the architect/designer is entitled to adjust the amount owed to them for work at the newly revised amount.

So for example, you and your architect create a great design concept and have refined the scope and size of the project to be more appropriate than just a guesstimate. Then, you get a cost estimate for the concept and learn that the project will cost closer to $450k instead of the initial $400k ballpark, at which point your architect would actually be entitled to $58,500 instead of what was initially assumed.

However, where it becomes less fair is when you decide to go with a $50 tile instead of a $10 tile. In these cases, the amount of detailing and drawing involved won’t change significantly so why should the fee? Now, if you’re changing materials entirely like going from sheetrock to tile or carpet to wood flooring, then the impact of that change affects the amount of drawing time and details that the architect must now provide, and in these cases the adjustment in fees is valid.

When It’s Best To Use Percentage-Based Fees
It’s beneficial to use the percentage-based method when you know you want full architectural design services, but you haven’t quite figured out the scope of the project or a realistic construction budget. This fee structure lets you set a percentage rate and then adjust the fees later as the project specifics become known.

Similarly, this method isn’t best when you have a small project with a small budget or a remodel project. Due to economies of scale, there is a point where the amount of work it takes to design, draw, and manage a project doesn’t relate to the budget you’re spending.

This is similar to economies of scale that exist in the construction process. It’s a lot harder to achieve a construction cost of $150 per square foot for a project that is 1000sf than it is for one that is 2000sf. You’ll still have a water heater, an HVAC unit, and plumbing fixtures. These material costs don’t scale with the size of the house very well. So the cost per square foot is usually higher for smaller projects.

So similarly, for design projects, a percentage-based fee structure isn’t the fairest method for smaller projects because there’s still a certain baseline level of designing, drawing, and managing that has to occur regardless of the size and budget. Remember the time = money equation: behind those percentages lies an assumption of how many hours your project will take (multiplied by an hourly rate) for an architect to remain profitable.

At the same time, for remodels, the construction cost is significantly less than new builds because some of the walls, framing, and infrastructure are existing so they aren’t included in the construction cost. The percentage-based model doesn’t work out well because the math doesn’t work right.

2. Hourly Rates

What is an Hour Rate Fee Structure?
This concept is pretty straightforward. Architects have standard billing rates they state in their contracts. They then bill you for their services based on the number of hours they work on your project multiplied by their billing rates.

Hourly rates can vary depending on the project, location, and experience level of the design personnel doing the work. (Remember that the anti-trust cases prohibited collusion or standardization of rates so architects and architecture firms set their own billing rates however they want.)

Hourly rates for architects vary significantly. Rates in the US can be anywhere from $80 for to $250 per hour for licensed architects. Bigger cities with higher costs of living and high-profile names can warrant hourly rates on the higher end of the spectrum. Intern architects obviously would bill at less.

Why Architects Use an Hourly Rate Fee Structure
Architects like to use hourly rate fee structures because they know they’ll get paid for all the work that they do. There’s less guesswork and estimating in the amount of work or the scope of services that they have to anticipate. Architects know that they won’t lose their shirt on the project even if the scope changes or they find that they are spending more time on a particular aspect of the project than they anticipated.

Pros & Cons of Hourly Rate Fees
Using an hourly fee structure is a fair fee structure. You’re trading dollars for hours of work which is typical of many service industries.

It seems fair, however, it can be problematic. Many clients have a hard time accepting an hourly fee structure without having some sort of idea as to how much they are ultimately going to spend in the end. An open-ended agreement with simple hourly rates doesn’t incentivize the architect to work as efficiently and effectively as possible to achieve the same result. What is stopping them from working slowly and eating up more fees?

At the same time, on the opposite side of the spectrum, while in theory of agreeing to an hourly rate structure may be fair, what many clients don’t understand is the sheer amount of time/hours architects spend on projects. People have a hard time imagining it takes so many hours to complete a design that looks so “simple” and “straightforward” on a piece of paper. But in actuality, there is a lot of research, analysis, iteration, and thought that goes into the designs, most of which is hidden behind the scenes and doesn’t show up on the final drawings. Many architects feel forced with the decision to either lower their hourly rates or not to bill for all their hours just to get clients to agree to work with them. And in both cases, it’s not fair.

When It’s Best To Use Hourly Rate Fees
The best situations to use this method are when the scope of services is undetermined or there is a lot of uncertainty in the project, either in scope, size, cost, duration, amount of design effort, or a confusing approvals process. If you haven’t quite nailed down how much involvement or work you want the architect to help with and you want the ability to add or eliminate services on the whim, this model is great because you don’t have to amend the contract when you change the scope of work.

This model works well for clients if and when the architect is ethical and is truly working efficiently towards completing your project and doing it well. An unethical architect may take a long time to complete the work or provide less than complete drawings which would require additional time to do the revisions.

An hourly fee structure is even better when the architect can give you an estimate or range of how much money they think the design fees will be based on the scope of services you initially discuss. When you have a rough idea of how much the total fees may be, you can budget better for those fees and breath easier knowing what you’re working with.

You can further control the number of work hours by adding a not-to-exceed (NTE) amount or cap in the contract. This gives even more reassurance that there’s a limit to the work. Keep in mind that if anything changes with the project in terms of scope, size, etc that may impact the amount of work the architect does, then they are entitled to adjust the NTE limit accordingly.

3. Fixed Fees

What is a Fixed Fee Rate Structure?
A lump sum or fixed fee contract is one that stipulates an agreed upon flat fee amount for the professional services rendered by the architect.

Why Architects Use Fixed Fees
Architects like to use this fee structure for smaller scale projects. In smaller projects, whether the project is small or the scope of services is small, its easier to determine how much work is involved. There may not be as many programmatic elements to design for or you may request only concept drawings. In either case, the services are a little more cut and dry and the scope is more easily defined.

Pros & Cons of Using Fixed Fees
The advantage of a fixed fee method is that it’s straightforward. The amount that you agree to is what you ultimately end up paying unless the project or services scope changes beyond the architect’s control.

Many people like this method for that reason: They know what they will ultimately pay in the end.

It also incentivizes the architect to work efficiently to complete your project because their pay is based on a fixed amount regardless of how much time they spend on it.

On the flip side, this may lead to a less than ideal situation when the architect realizes that the project is actually taking longer than expected and is running low on fees so they may become less engaged with the project because they can’t afford to spend that much more time on it. Once the architect passes that threshold, they may end up skimping on some of the design services or having someone with less experience in their office work on the project who works at a lower rate.

The challenge with this method is that you have to have all the details of the project figured out. An architect will rarely agree to a fixed fee contract when there is uncertainty in any aspect of the project.

When It’s Best To Use Fixed Fees
This method is best used when the project specifics and scope of services are known upfront. If you know for sure which services you want help with and have a good idea of what you want out of your project then an architect has a better idea of how much work they’ll need to do on the project and can reasonably estimate how much they’ll need to charge for the project.

4. Hybrid Fee Structure

What Is a Hybrid Fee Structure?
A hybrid fee structure is one that combines aspects of more than one fee structure. For example, the fee structure might be such that some phases or services are provided at an hourly rate and others at a fixed rate.

One example of this is where an architecture firm charges you a fixed fee for basic design services (because they can estimate the time involved in completed the services) and then an hourly rate for other additional services like casework detailing or product and material selections (because those services are harder to estimate the amount of time involved).

Another example of this is when a firm charges hourly rates to come up with the concept design for the home, then switches to a fixed fee for the rest of the design documentation. In the early stages when its hard to determine what the programmatic elements are, what the size and scope of the project may be, and how many design iterations are involved, the architect feels more comfortable with an hourly rate to account for this flexibility and changing scope. And once the design and scope of services firms up, it’s easier to predict the amount of time that is necessary to design and document the rest of the project. They may even switch back to an hourly contract for construction administration because the amount of involvement during construction is unknown.

Why Architects Use a Hybrid Fee Structure
Architects love this fee structure because it’s a safe bet for them. It provides flexibility and a safety net for the unpredictable phases of the project when there are a lot of unknowns and then provides standardized fee structures for the more predictable phases or services which most clients appreciate.

Pros & Cons of Using a Hybrid Fee Structure
This fee structure provides the best of both worlds. It’s fair, flexible, and still structured in a way that clients can understand and agree to, and architects can get on with doing what they do best.

The challenge with this hybrid system is getting the client to accept it and buy into it. It seems like a complex fee structure but most clients are more accepting when they understand the reasons behind the hybrid nature. Once they understand that there is a lot of uncertainty in some phases and it’s hard for the architect to estimate fees based on a moving target, they can understand why this model may be suggested.

When It’s Best To Use a Hybrid Fee Structure
This method is used predominately for full architectural design services, w n the architect is providing all services for all the various phases of the design and construction process. It may seem complicated at first, but once it’s implemented it’s pretty straightforward and both clients and architects like it.

Which Fee Structure Is Best?

There is no one-size-fits-all approach to how architects charge for design services. Each type of fee structure has its merits, its challenges, and its natural tendencies for best use. There are many variables at play, there’s a lot of work to do, and there’s a lot of money on the table. Your architect will suggest a fee structure. It’s up to you to understand why they are choosing that method and what it ultimately meets in terms of fees, design quality, and deliverables.

Have opinions about one or more of these fee structures? Share your thoughts in the comments below.

And lastly, we do believe that working with the right architect through the entire process will get you the best outcome. But we also know that some people may not have the budget for the design fees, even though design professionals bring incredible value to a project.

If you don’t have the budget for full architectural services, we believe the single most valuable time to work with an architect is early on to get the design concept nailed down and rest easy knowing that you’ve’ got a good design in the end.

Because we know how important it is to get the design right, we offer concept design services that make it easy to get the concept design figured out with an architect and then give you the freedom to do whatever you want afterwards, whether you want to hand them off to a draftsperson, designer, or builder to finish the project. Offering our expertise where we know it has the biggest impact – upfront in the design – helps us reach more people with great designs which is something we’re passionate about doing.

Have a project in mind that you’d like to collaborate on? Contact us.