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It’s easy to confuse a contractor with a builder or a developer, but they all have different roles in the real estate ecosystem.
We see advertisements saying “direct from the developer,” similar to “direct from the wholesaler” used in retail. But what does that mean?
Let’s dive in and understand the difference between a developer vs a general contractor vs a builder.
Real estate developers are responsible for finding and acquiring land suitable for development. They assemble the necessary financing to purchase and build on that land, obtain zoning permissions, and get the necessary permits from the authorities for construction. The primary motive of a developer is to develop real estate on a piece of land for a lucrative resale.
Once the developer acquires a property, they must go through what is called due diligence to find out what needs to be done at the site before construction can begin. This includes aspects like environmental assessments and soil testing.
Developers can be categorized into residential and commercial. A residential developer builds homes, condos, and other dwellings for residential use, whereas a commercial developer builds office buildings, malls, schools, hospitals, etc.
The scope of work for general contractors can vary depending on the project they are assigned. They supervise the construction or renovation process, select the best materials, and hire subcontractors for tasks such as plumbing or electrical work.
Depending on their business model, general contractors can take on various other responsibilities. For example, they might be responsible for designing a building or managing other contracts with subcontractors.
A real estate builder constructs new buildings from head to toe. He is responsible for the whole process, from the initial planning to the final construction and delivery. They are also responsible for ensuring that the building is up to code and has all the necessary permits before construction.
Different builders specialize in different types of construction. They may specialize in residential or commercial construction or be generalists who build everything from single-family houses to skyscrapers.
The difference between a developer vs a general contractor vs a builder lies in the task they are assigned. A developer can be a general contractor if he takes up renovation activities. Whereas all developers can be builders if they dive into complete construction. It is for this reason that these terms are often used interchangeably.
Let’s get specific and differentiate a developer vs general contractor vs builder.
As discussed, a developer buys a piece of land to construct residential or commercial real estate for sale to multiple individual customers or resellers. A major difference between a developer vs builder is that a builder does not get into purchasing land; he simply looks into the construction. However, there exists a unique developer-builder relationship in construction.
On the other hand, a general contractor mostly takes up renovation tasks and supervises construction activities at the site.
Real estate builders are responsible for designing, constructing, and selling.
There are different licensing requirements for a General contractor vs Builder vs a Developer. Let’s find out in detail about each of them.
To qualify as a general contractor, you must have at least one of the following:
The US Department of Labor (DOL) requires that all general contractors in the US must have a state license. To get a license, one must first have an active business and register with the DOL as a contractor.
The requirements may vary from state to state, but you must determine what your state requires before applying for it.
For example, in California, you must be licensed by the Contractor’s State License Board (CSLB).
Certified by the International Code Council (ICC), a nonprofit organization that develops codes and standards for building safety.
A builder’s license is required for constructing, altering, or demolishing any building in the US.
The United States Department of Housing and Urban Development (HUD) provides a guide on its website which outlines the “Licensing Requirements of Homebuilders.”
The first requirement is that the builder must be licensed by the state where they are building.
The second requirement is that they must have liability insurance coverage in an amount required by law to cover any claims arising from their work.
The third requirement is to maintain workers’ compensation insurance coverage with limits set by law.
The fourth requirement is that they must maintain fidelity bonds or other surety bonds as required by law to cover losses due to dishonesty or misappropriation of funds.
The fifth requirement is that builders must maintain a bond for completion or provide performance and payment bonds as necessary, depending on the type of construction contract involved.
Finally, builders may be required to register with other government agencies depending on their type of business and location.
However, the licensing requirements for builders in the United States are not uniform. In some states, a builder is required to have only a contractor’s license, while in other states, a builder needs to have both an architect’s and contractor’s license. A contractor’s license is insufficient for any work that might be considered structural, such as framing or roofing.
For example, it’s illegal in California to call oneself a “builder” without a license issued by the state’s Contractors State License Board (CSLB). In Rhode Island, builders are required to be licensed by the Board of Building Regulations and Standards (BBRS).
There are three main licensing categories for a builder in the US:
A Residential Builder License is required for anyone who constructs, alters, or repairs any building, structure, or appurtenance on land for sale or rent. The requirements for obtaining this license vary based on whether you have previously been licensed and the type of work you will perform.
The General Building Contractor’s License is required for contractors involved in building construction, alteration, or repair and installing windows or doors. It is not required for installing heating and air conditioning systems, electrical work, or plumbing.
The license is issued by a state agency and may be obtained through examination or by getting a graduate degree from an approved apprenticeship program. It must be renewed every year and can be revoked if the contractor commits any violations.
A Home Improvement Contractor’s License is required to work on residential properties. This requires an individual to provide proof of bond and liability insurance.
To acquire the license:
The US Department of Housing and Urban Development (HUD) requires all developers to obtain licenses before selling or leasing properties built with federal funds. This is done to prevent fraud, misrepresentation, and other illegal activities.
The process is long and expensive, but it ensures that the developer doesn’t scam people or put them in a situation where they cannot get out of their contract.
For a real estate developer to obtain a license, they must have at least five years of experience, pass an exam and have $500,000 in liquid assets.
A number of requirements must be met In the US before a real estate developer can start construction on a new residential or commercial building.
Moreover, a developer must seek approval from a city before building on any land within its jurisdiction.
Cities often impose their own set of regulations for developers to follow. For instance, some cities require developers to provide affordable housing units as part of their development plans or pay into an affordable housing fund in lieu of building those units on-site.
Confusing these three terms can be easy, but after reading this article, I am sure you’ll use these terms with far more clarity.
A buyer must understand that a developer buys the land and arranges necessary permissions for land use, builder plans the layout and constructs the building. A general contractor takes care of quality and sublets tasks such as renovation, plumbing, and electricity to sub-contractors.
A developer buys land and builds, renovates, or manages residential, commercial, or industrial properties at scale. They can be either private individuals or corporations.
Property developers identify land investment opportunities and make sure they purchase them at a low price to build and resell. Additionally, they ensure that the project is funded from beginning to end with enough cash.
Yes, developers can also be contractors. A developer buys a property, builds, and resells it. Still, he can be a contractor when hired to work on renovating a project such as a building or commercial complex.
The real estate development process begins with property acquisition and ends with selling the constructed property. The development process is extensive and takes months or even years to complete. A builder typically takes care of the complete construction activity, from planning a blueprint to finalizing it for sale.
Construction services are a broad subcategory of the construction industry they include building, remodeling, and engineering.