Saturday, May 14, 2011

Why pricing your project is NOT about finding the lowest price!!!

Pricing your project. Here is a simple thing that a lot of people seem to screw up. The scary thing is that if you get this wrong then the rest of your planning for your project could all be for not. Pricing a project sounds like it would be a simple thing, but a lot of people don't understand the reason that you price a project out to multiple builders. There are several reasons to price a project out to multiple builders.
One of the main ones is to see what the cost of your project will be. Pricing the project is NOT for finding the lowest price. This might sound strange to people that are used to looking for the bargain, but in the construction industry there is no such thing as a bargain. Remember what I just said, there is no such thing as a bargain. It is more important to trust the builder and the quality of his work then it is to find the lowest price. Remember the old addigh “you get what you pay for”. I have talked about this before but people need to understand that is true.
If you were to price out to a house to 10 builders you could get prices from $800,000 to $500,000. Now your probably sitting there saying how is that possible? Why would I pay $800,000 when i can get the house built for $500,000! If you asked 10 builders to price it then there is no way that you did proper research on all 10 builders.
It should take you a long time to pick your builders, you should check out there website (if they have one).
Ask for references, call the references, make sure that the project that was done for them is relevant to your project. As in if all the references are for renovations and additions and your pricing a house then that is a red flag. You should disqualify this builder from the bidding process.
Have the builder take you on a tour of houses that he is already built so that you can see the quality of home he builds, what type of home he builds and were they are (city or rural). You see if the houses are small and your looking a large home then you should probably disqualify this builder. Also if the builder has only built in one setting like the country or city then you could have problems because each setting has different challenges that could arise. Also if a builder has problem getting permission to show you houses that he has built, then that should be a red flag that maybe the builder does not have a good relationship with his client after the project has been completed. A lot of new homes can take over a year to build,so if you can't get along with your builder that is a long time to have to put up with him. It also can create a lot of unneeded stress.
Check the Tarion warranty website, this is the new home warranty program website. If a builder has had a problem with a house in the first 7 years of it being built and never came back to fix it then Tarion will come in and fix it and post it on there website. The more times that the builder is listed on the website the more problems the houses that he has built have had and he hasn't warrantied them. Most good builders will not have even one, because they stand by there warranty.
Find out what other services the builder provides. A lot of time a good builder will include in there price the designing of bathrooms and kitchens so that you don't have to go out and hire an interior designer.
Check where the builder is from, you should always hire a builder that lives within about an hour drive of you, the reason for this is that then the builder will usually use local trades. This allows having any problems that arise in the future to be fixed quickly.
How legitimate is the business the builder is running? Is he working out of the back of his truck, does he show up to meet you and is dirty or un kept? These are clues to the kind of product that puts forward. You are spending a lot of money, you want someone that is going to give you a professional job, not just the building of the house but the estimate as well.

So after going through all of that background information and detective work you should be able to get down to just a couple of builders.
If you after all of that are still at 4 or 5 builders then let me give you a couple of things to think about.

A professional builder will give you a professional estimate. That means that it will be a very large document and will list everything that you get. It will explain everything you get in simple to understand terms. If the guy hands you a single sheet of paper with the amount on it, walk away. You are spending a lot of money and you need to know everything that you get for that price. Think of it like buying a car. You can go to a dealer and ask for a price on a car and the dealer doesn't just tell you the price, he gives you a list of everything that is in the car, the options and the warranties. This should be the same as your house quote.
The way some builders keep there quotes low to win the bid is that they under value a lot of the higher ticket items in your home. What builders do in estimates is that they give you a allowances for certain parts of the house. For example one builder will give you a quote of $500,000 and will not give you a lot of detail, then he has given you low allowances for things as kitchens, bathrooms, flooring, lighting and plumbing fixtures. These are the things that can really add up in a house, good builders in a estimate will give you a proper value for these things while others will under value them to get the job. Then when you get your kitchen designed fully he tells you that he only gave you a $10,000 kitchen allowance and your kitchen you want is $40,000. That is one room of the house and you are already over budget $30,000. Pricing flooring at $1.00 a sq ft and you picking $6.00 a sq ft, in a 3000 sq ft home adds up to a $15,000 add on. So it doesn't take long to add up to hundreds of thousands of dollars.
So if you have more then two builders bidding on a house, how can you possibly figure out what you are being getting?
If you have to have 4 bidders and you get the quotes, they should all be close to the same price if you did your background checking on them. If there is a builder that is a lot lower then the rest, I would discard this builder right away.
To put this in perspective I have bid on a 1.4 million dollar house and me and another builder were only $10,000 apart. The other 2 bidders where $200,000 cheaper. We were awarded the house because we had a opening in are schedule that aloud us to start immediately.
The only other thing you do need to find out from the bidders is when can they start? So builders will be so busy that you could wait up to a year for them.

Remember that builders do not charge for estimates, it costs builders money to give you a proper quote, so don't think that your being nice when you allow a builder to bid on a house when you know that you will not award the house to them regardless of there bid.
A good builder will ask you how many bidders there and usually will refuse to bid on it if there are already 3 bidders. They understand that they will be one of the higher bidders because they are giving you a superior product and that with so many bidders you wouldn't be able to figure out the great from the poor. So they will choose to focus there time and energy on a bid that they believe they can win.

If you have questions about getting estimates, or you want an estimate on a project call me at 877 866 3202, or email me at

Rob Abbott
Operations Manager
Village Builders Inc.

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