Estimate from Contractors

[Nick Rutkowski]

Hey BP,

How much do you budget when getting an estimate from a contractor? Once again, I’m in a situation where I’m spending more money on my contractor who is over his estimate. (Shocking, not.) I’m sick of being hosed by these guys and I expect every contractor to be wrong with their estimate. I want to be proactive for next time, I thinking of budgeting 20% extra on top of the estimate to cover myself from them. What do you guys think?

[Robert S.]

@Nick Rutkowski Good day, seems like there are a lot variables here that need some addressing. Let’s see if we can identify them and go from there. Do you use an architect to draw up plans? The reason I ask is that I work on a lot of large commercial projects(read projects in the hundreds of millions of dollars) and even those mega high paid architects and engineers miss things in their design. Unfortunately, they don’t pay for the things they miss, they have a line in their contracts that removes them from responsibility. Ask me about this super high end movie theater I built a while back, be more than happy to share that story with you some time down the road. Let’s get you out of the woods with your current situation first.

The contractors bid the prints, and anything that is not on them costs the customer more, not the architect or engineer.

So even on a single family residential project, I built homes from the ground up as well, if the architect misses something, the customer pays for the extra. Why? Because contractors bid what’s on the drawing.

If it’s a remodel/renovation, and you decide to not use drawings, which is very common, the contractors cannot bid what they do not see. So if you want to take out a wall, the contractor can only use an educated guess as to what is in that wall. So if something is in that wall that shouldn’t be there and was covered up with Sheetrock (like buried electrical junction boxes, this happens quite often with flips on older homes)this is considered unforeseen, and the customer pays extra to deal with whatever that issue maybe. These are risks that the investor takes on when they purchase the property, and even the most thorough inspectors will miss things like this.

Extras are a killer. Changing your mind, also a killer. Why? As an investor, you have a problem, you hire the contractor to solve that problem. The contractor gets paid for his expertise and time. If you present a problem to the contractor, i.e. - I bought this outdated house and I need it updated so I can sell it a profit, however I can’t do it myself, can you do it for me? The contractor will come up with a plan, figure out the logistics of implementing the plan and then execute the plan. If you change your mind or add something to the project that alters the timeline of that plan, it will cost you money.

How can you minimize these occurrences?

Create your own plan at the beginning of the project. Ask the prospective contractor(s) the best way to achieve that vision. Common rookie mistakes, having your painter do his job before the electrician. Why? Electricians often need holes in walls and ceilings in order to run wire from the switch on the wall to fan light combo you want installed in each bedroom of your flip. Those holes need patching by another trade. Best to have your painters and tapers come through and not call them back, more often than not, if they can fit into a day’s work, there is no price difference between patching 20 or 25 holes. One important thing you can do, educate yourself on the signs of trouble in the home you purchase. A good way to do this is to identify what caused the extra costs on past projects and examine how they could have been avoided. A case in point, during a basement remodel, the previous owner left a rather large cabinet up against a foundation wall. It was so heavy, one person could not budge it, so the home inspector can’t be expected to move it. Years later, when the new owners went to renovate the basement, they got rid of the cabinet only to find cracks throughout the foundation spanning the width of the cabinet. Lesson learned, sellers will do anything to hide things during a sale that will cost them money. Wholesalers, real estate investors are no different, and are probably better at hiding things than regular homeowners. Learn their tricks. The contractor who bid the job will charge extra to fix those cracks. Those cracks aren’t included in their scope.

There are literally thousands of these scenarios of why extra costs occur, those are just some that I came across in the past couple of years. If you can cite specific examples of incidents from your previous projects, I would be more than happy to review how and why they happened. Apologies for going all over the place on this post, tried to cover as much bases as possible. I hope this helps, best of luck in your future endeavors.