Why contractors bids vary so much - how to get an honest estimate

Why Contractors’ Bids Vary So Much – How To Get an Honest Estimate

I have estimates for the identical project from three different contractors. The thing is, the bids vary by over 40 percent!

Why do their costs vary so greatly? Unsurprisingly, most people find this puzzling. We do not expect the price of the identical garden hose or flashlight to vary drastically between stores. Why does the cost of the identical renovation vary so greatly?

Occasionally, the disparity between contractor estimates might cause a homeowner tremendous concern. They believe that the low bid must be “missing something” and that the high price constitutes extortion. People frequently choose the middle option because they do not know what else to do.

Four primary reasons why contractor bids vary so widely

  • Effect of Overhead/Costs on Estimates by the Contractor
  • The desire of the contractor to win the job
  • Evaluation by the Contractor of the Project 
  • The Rest of the “Stuff”

Contractor Overhead and Soft Costs

There are numerous sorts of contractors in the building industry. They range from one-person operations to major corporations with hundreds of employees. Some operate from expensive corporate offices, while others work from their homes. Some contractors spend hundreds of thousands annually on advertising and promotion, while others rely only on referrals from satisfied customers.

Also, larger firms will have numerous layers of ‘managers’ that increase their expenses. As you may understand, all of these “overhead” costs will have a significant impact on the profit they hope to make on each contract, and this will be represented in the bid/estimate for your project.

There are many other advantages and disadvantages to both small and large contractors. Often, while working with a small contractor, you will work directly with the owner. Whereas with a larger company, a team of individuals may be available to assist you during your renovation.

The Desire of the Contractor To Win the Job

Whenever a contractor is experiencing a slow spell, they seek more work to keep their staff occupied. In order to win the offer, they are likely to be more “aggressive” with pricing possible projects.

In contrast, if a contractor is flooded with work, they will frequently submit bids that are on the high side. In essence, the contractor is saying, “I’m too busy for this task right now, therefore I’m bidding high since I don’t need it. If the homeowner is willing to pay this price, I will find a method to complete the task because it will be highly lucrative.”

It is essential to keep this in mind because a contractor who is overworked or “stretched thin” will not be able to deliver superior service.

Evaluation by the Contractor of the Project

Although you normally know what you want from your renovation and attempt to communicate this to each prospective contractor, they each have their own ‘concept’ of what is required for the project. Since the cost of goods, such as kitchen cabinets, can vary substantially, a contractor’s estimate of the materials to be used can have a significant impact on their proposal.

Some contractors want to be extremely thorough and include the costs of potential unexpected difficulties (such as restoring ceilings that aren’t perfectly level), so their quotation may be higher than average. 

Some will provide simply the bare necessities, and their bid will likely be on the low end. Yet, they are likely to request ‘change orders’ or ‘additional charges’ during the project for any unanticipated complications, so increasing the total cost.

When a homeowner chooses the lowest estimate because they believe it to be the best value for them, this is a very typical problem in house renovations. They become enraged as the contractor continues to impose more fees during the duration of the project.

Variance in Bid Structure

Due to the fact that every contractor uses a different structure for their proposal, it can be incredibly difficult to determine precisely what is ‘included’ in the contractor estimates. But, there are a few things a homeowner can take to obtain more accurate prices.

  • Giving a written scope that is as comprehensive as possible.
  • Giving estimated cost estimates (allowances) for each of the project’s primary materials.
  • Asking the contractor specific questions regarding what is and is not included in the scope of work and what types of items will necessitate a change order.

Some contractors employ their own construction employees (crew), while others use many subcontractors to execute each project. Due to the fact that each subcontractor is a separate business, they will each require their own profit margin for each project, hence increasing the final cost to the homeowner. This is a critical question to ask a prospective contractor: “Will you be using your own team or subcontractors to complete the work?”

Despite the fact that hiring a contractor with their own crew is generally less expensive, it is crucial to ensure that their employees have experience with each sort of work required for the job, including plumbing, electrical, and tiling. The worst case situation is when the contractor lacks an expert tile installer (for example) and instead uses their roofer.

Believe me, the outcome will be catastrophic. You can also study your prospective contractors by reviewing their license and insurance information on the CSLB website. If their profile states that they are excluded from carrying workers’ compensation insurance, it is likely that they do not employ a crew but instead rely on subs. By law, contractors with employees must carry Workers’ Compensation insurance (crew). A huge red flag should be raised if a contractor has their own employees but is uninsured.

The Rest of the “Stuff”

When a contractor visits your home, you evaluate them based on their looks, personality, and communication abilities. It’s in our nature. Yet, they are judging you as well. They are evaluating whether you will be a desirable client.

Are you prepared? Do you have a detailed written description of the renovation, or do you frequently change your mind? Do you have reasonable time and money expectations? And this may come as a surprise, but others are evaluating your home and community.

If you reside in a luxurious home or area, it is a strong indicator that you can afford an expensive renovation.

How To Get an Honest Estimate

When meeting with contractors, you must be organized and prepared so that you can describe the exact renovations you need and your anticipated budget. When meeting with a contractor, the more you know about your renovation and budget, the more likely you are to receive the most accurate quotation. In order to avoid being taken advantage of when the estimate arrives, it is equally vital to know how to identify a dishonest contractor – check out the rest of our blogs on this site to learn how to identify and avoid a shady contractor.

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