Large gap between competing construction bids

[David B.]

Hi everyone! Hopefully I'm dropping this post in the right forum. I'd be happy to repost if it needs to go elsewhere.

We have 2 bids from companies for a small extension + backyard ADU project here in the San Francisco Bay Area. 1 is from a smaller shop that a friend who is a seasoned real estate veteran referred me to and the other is a Houzz/Yelp find that is well reviewed on those sites.

Friend's shop came in at $390K and the Online shop came in at $532K. The issue is that the scope of work for friend's shop is less than the online shop's because it doesn't include re-roofing the rest of the main house. Also being a smaller shop they won't be able to start until later and I would assume they'll take longer to fully complete as they juggle other jobs.

The online shop is including the roof remove/replace job (about 2400 sq/ft plus materials) and even including solar panel removal/replacement in his price. The online shop is also more of a one stop shop as they say they have fast access to subcontractors should we need them whereas the friend's shop we may need to shop around causing delays.

So being a newbie to the remodeling world ... what would cause a bid to be so much less? Are they leaving the starting bid low to get in the door and then charge much higher change order prices? The roof will be the first change order and I'm sure there will be more as we start doing demo. 

The online shop has been great to work with so far. They did our design and approval process for us is going to credit the amount we paid off their original quote. Other credits include a $12k credit for finished materials of our choice and another $5k credit just because. That brought their original quote of $572k down to $530k which is still a substantial gap from the potential $427.5k ($390k+$30k roof+$7.5k solar panel) of the friend's shop.

Any thoughts or recommendations on which way I should go for the construction bid? 

[Joe Splitrock]

It is tough to say for sure. Sometimes one business just has higher overhead. Here is three examples:

Years ago when I was looking for a landscaper, I got bids from several guys. One shows up in a brand new truck dressed nice. He has a fancy website and several work crews. He is the most expensive. Another shows up in a 20 year old truck and he is all dirty. No website and he does all the customer service and billing himself. He also drives the Bobcat and gets his hands dirty. He is the least expensive. Same scope of work and the difference is cost overhead of the two businesses. I will take the dirty guy.

I contacted six people to bid a roof job. Only four people responded to my request and only three actually bid. The first guy out was the least expensive bid. The most expensive bid was 25% higher and it came from a reputable company that advertises extensively in town. Materials were identical. I went with the cheap guy and it turned out great.

This summer I had cement edging installed around my house. The first guy that came out rambled on about how they "design" the perfect solution and showed me his fancy website. The second guy out just measured and gave a price that was 20% less. I went with the cheaper guy and he was shoveling concrete when they did the job. Both the guys were owners, but one was willing to get his hands dirty. The other tried to sell his higher price as "better design services". It is a cement edging, so I don't need some designer starring on an HGTV show, haha.

I would go with the recommendation from a friend that is inexpensive over a company that has good online reviews. The skills required to garner good online reviews are not required to do good work. I trust friends over strangers.

I am a Yelp Elite reviewer and businesses routinely contact me after bad reviews and try to bribe me into changing them. The businesses with really high reviews often give me free items when I check in. I also know from hosting AirBNB that the harder you push for good reviews, the more you will get. No problem with that. I am just saying don't base all your decisions on reviews.