In this blog we talk about pricing, business models, vetting and considerations when hiring a renovation contractor.
Working With Your Renovation Contractor
Entering into a large renovation project usually means you are going to have a large time commitment. The client and builder relationship needs to be a good fit. Proper boundaries and expectations need to be set out in a polite a professional way. This project will most likely take a few months to a full year depending on the size of the renovation. Not establishing a solid plan or boundaries can compound many issues throughout a project. Concern, added stress, bitterness increased conflict.
Anytime I remotely think there may be a concern I schedule an emergency meetings and immediately resolve any stress or tension that I might be feeling. Even if my clients are fine I want to make sure that I am being proactive with making sure the client builder relationship is solid from start to finish.
Whoever your design build renovation contractor is you want to make sure there is trust and respect from the very beginning. I have been asked many questions from clients over the years and I encourage my clients to ask as many questions as they possibly can think of. I for the most part have an answer for them all. Your renovation contractor needs to be knowledgable.If it is a question outside of their expertise they should know someone or be able to find you the answer fast. Good problem solving skills is a something all good renovations contractors have.
Some people hire contractors based off of their years in business. What if this contractor never learns because simply it is just about making money and not about the client service experience? Leveraging the years in business is like saying you have the greatest marriage in the wold because you have been married for 20 plus years. Laugh. Out. Loud. There are many companies out there that are more focussed on getting bigger instead of focussing on getting better. You want to stay away from these large companies in my opinion. I list a few reasons down below.
Interviewing Your Renovation Contractor
Meeting #1- First Impressions
A great question to ask your renovation contractor is who will be managing the project. Will it be them or someone else? If they are the sales person and someone else will handle the estimating and then another person will manage the day to day tasks there are going to be multiple lines of communication. Multiple levels of work ethic and integrity. The common complaint with larger construction businesses is the sales person oversells or overpromises to land the job and the individual managing the job has to deal with unrealistic deliverables set out by the sales rep that the client now expects. This can range from budget to timeframe to general expectations.
So unless you are interviewing all of those people before you sign on with them you should take note of signing a large contract with a sales rep or a large company. It is not always a red flag but just be mindful of this. You will know from the start that if you like them and trust them that they will be dealing with you throughout the entire project. Not their project manager or someone else. Remember, it is the owners business and they have the most attachment to their reputation, quality and legacy. If they are running your project you can almost guarantee that your project will be well taking care of.
Small Business Vs Big Business and Cost Difference
I personally have always been fond of small businesses where the focus is on the relationships they form as opposed to how large they can scale their company. It ends up being a sales competition instead of a personal service. I have always had frustrating experiences where I am sold on investing in a product or service and once I pay or sign a contract I immediately start dealing with someone else. The service experience changes and many times the frustrations get taken out on the new person. This happens all the time. Think about spending 20% more on your project with a larger company to in return get a lesser quality service. That is exactly what you want to prevent. In some instances a larger company can be responsive because there is always someone on staff available. You need to carefully and thoroughly interview the company during the first meeting and ask all of these questions because this will dictate the overall value you will be getting. In other words, the best bang for your buck.
A Diamond In The Rough / Rare Find
I absolutely agree that finding these small business renovation contractors are hard to come by because remaining small means they can only take on so many projects at once. This means that if you do find one of these professional small renovation business contractors they are probably booked out. If they say they can start your project soon take that seriously because if you miss the opportunity and think about it too long they can book up for the next year. The expectation for a renovation contractor is for the client to sign and decide within 2-4 weeks at the longest after the proposal has been delivered. The day of the proposal is an obvious perfect scenario but we understand these large investments need some time to carefully review.
Any longer and the quote may have to be revised and their pipeline of work may now not accommodate your originally anticipated timeline. My advice would be to spend extra time with this type of contractor and highly consider their service. Review there proposal with your family or friends to get other feedback as they may have some good questions for you to ask the contractor.
Is The Renovation Contractor An Expert and A Leader?
A professional renovation contractor will have great systems in place and have great leadership skills. They will have solid relationships with their trades and lead the way in terms of expectations. They will have checklists and a detailed process throughout each stage of a project. They will be calm and show very little stress and deal with conflict or mistakes appropriately. They will spend time with you even if it is the end of the day on a Friday. Many contractors are always stressed through the roof and the reason is they have not figured out how to manage their business properly or run their projects. Or the employee who is managing your project wants to rush to get out of there because they have plans. If they owned the company they would put the company first and always tend to customer service.
Lowest Quote Home Renovation Contractor Risk
There is a reason why the cheapest quote renovation contractor is the one who is always yelling or stressed to the max. Renovation contractors that provide an estimate that make’s your eye’s open wide you should pay attention to and ask them questions about their estimate. If they are experienced and professional they will be able to explain all of their prices with no problems or hesitation. Most of the time that renovation contractor will tell you that they have been in this business for a very long time and your project requires special attention, professional trades and room for contingency.
They will be confident and certain about your project requirements. Too many contractor low ball the quote to land the job and then hit the client with additional extra costs not included in their contract. Also, when a change order is made (client changes something) the cost from the contractor is significant. Many contractors make most of their profit in change orders when providing a fixed quote so ask your contractor how they manage this and make sure it is written in their proposal.
What Is Reasonable?
The issue is that many homeowners think it is unreasonable or become hesitant and tend to “trust by default” the lowest quote renovation contractor more than the professionally quoted renovation contractor. I have had many conversations over the years looking into why this happens so often and here is the answer.
Many people think that the lowest quote renovation contractor isn’t “ripping them off”. They feel the highest quote renovation contractor somehow is. They then complain about the service and forget that even though the quote was the lowest they often do get ripped off on service and quality. In other words in a sense they are still paying a high dollar amount for a low quality and poor service. You always want to keep the end goal in mind. What are your expectations? What is the end result? Are you happy? What is the quality finish going to look like and what is the experience going to be like? What is the warranty service going to be like?
My favourite referral feedback is this: ” Yes they were expensive but they were fantastic”.
No one will recommend a cheap renovation contractor who delivered a low quality and poor service. Everyone will refer a 5 star renovation contractor who is “expensive”. And when people say they were expensive what are they gauging that against? The cheapest quote they received?
Most people today understand you get what you pay for. Do you want your project handled by not just one professional (the renovation contractor) but all professionals? (The subcontractors required for the project). Well, you are going to notice that on the estimate. If you thinking your contractors quote is high it is because the trades he uses are professional and they price for their service. You can’t have a low quote and expect 5 star service and quality. You can’t have it both ways. If you could, well, find me that renovation contractor I want to interview them.
What Value Are You Truly Getting?
I would never take my car to a cheap mechanic. I just wouldn’t. I could list 1000 reasons why. Last time I did that for an oil change they forgot to put the o-ring back on my oil filter and my engine lost oil on my drive to a job site and destroyed my engine. I had to go through insurance to get it resolved and it took weeks and so many hours of my time dealing with it. Even though the shop ended up covering the cost it caused a massive headache and there was still permanent damage done. It was never the same.
You do not want to run into these issues where there are constant fixes and repairs going on. A project should be completed correctly once. Think about the peace of mind you will get knowing your home was renovated by a certified professional who took pride in your renovation project.
Renovation Contractor Software and Systems
What about software? Does your renovation contractor use software to manage your project? A renovation contractor that wings it you can bank on having major issues with communication, quality control and the accuracy of your estimate. Real professionals have exceptional accounting, organized software and systems in place and to be frank, professional renovation contractors make good money, as they should. Their responsibility is extremely complex and detailed and it comes with huge risk and liability. These renovation contractors will not be the lowest quote. With that said they should provide a fair and reasonable pricing model.
Fair Renovation Contractor Pricing and What That Looks Like
I believe the best pricing model a renovation contractor can have is a blend between fixed pricing and cost plus pricing because it guarantees a certain percentage of a project and at the same time offers a fair (you pay for materials that are required) in the cost plus. Let’s take a deck for an example. What happens when a contractor loses money on a job? Well, unfortunately your proposal was next in line so that loss in many cases gets thrown into your proposal.
It may cost $3000 for lumber and supplies and $3500 hundred dollars for labour to build a deck. Meanwhile the renovation contractor provides you with a fixed quote of $10,000. In other words they just marked up their materials 200 or 300 percent.
I would rather know what the labor per day rate is and have a close estimate to how many days it will take to construct and then I pay for whatever the cost of materials are. No more, no less. That’s fair. If they are a professional renovation contractor their estimates will be close.
Now on the other end what about a renovation contractor that guarantees their labour quote. Say it is a 3 day job but they quote for 4 days but that is a locked in quote. You pay materials plus an agreed upon markup. Sound pretty fair to me.
Alright so there is an example for a very small project. Now let’s use the same example for a 1,2 or $300,000 project. Let’s use it for an $800,000 project. Think of what that fixed quote would be. It’s the amount of risk and liability on the renovation contractor to guarantee a fixed quote for a project of that size you can believe they are marking up the project significantly. Not only that there are many other issues that come with a fixed quote on such a large project.
What happens if they start going over budget in certain areas of the project? This is now eating into their profit. Most contractors will start hiring cheaper trades to save or replace or “offer” alternative products. Products that they get better discounts on to lower their cost of goods sold.
So What Is Fair and Reasonable Contractor Pricing Model?
So what would be a fair price if you were to hire a renovation contractor for a large home renovation or remodel?
A renovation contractor will have their markup which includes warranty and overhead expenses and then they will have their fee which pays them. Other renovation contractors will build their profit into their markup which is bad for 2 reasons. One, the client doesn’t actually know what the contractor is making. A lot of people think this is fair as people don’t need to know every single cost to a service. Almost all businesses out there do not show this information doesn’t matter what product you buy or service you use. So to an extent this is industry standard to not be completely transparent.
In fact, many people think it is rude who a client wants to know exactly what they are making. It seems to be common in the home renovation business which is why so many clients fail to realize that deciding on a contractor because of their markup amount is completely misleading. The second bad reason is that the renovation contractor has an issue predicting their profit on a job as it is all mixed into their profit. So this does not allow them to track their time on a job to be more accurate with their project estimates. Also, they can put in minimal effort and they are still getting the same pay. There isn’t necessarily anything wrong with this as a quote is a quote is a quote as they say.
I am sure you have heard this before. Client asks what it cost for the job and they want every single line item broken down including the contractors profit and take home etc. The contractor replies “it costs 10 grand to do the job and it costs 0 dollars to not do the job. There is my breakdown of your project cost”. Lol.
I agree with many contractors take on this I am just happy that with my pricing model we are able to break down all of these costs. We offer a planning estimate to plan your project construction costs and execution and estimate the project at the very beginning. There are so many details and hours that goes into custom home renovation projects which is why we plan to then build a much more accurate estimate of the project. This includes finding out what we can do and cannot do during the planning process. This includes our clients selecting certain materials and scopes of work that we can then narrow down the cost. We then complete planning and are able to provide our clients with a very detailed estimate of their project. This includes multiple fixed quotes for individual line items and estimated costs for items like lumber and supplies, management time and garbage runs etc.
We like to lower our markup so it just covers overhead, warranty and company profit (the company needs to profit separately from the owner/employee) and have our separate management rate. This is what pays us our salary or how ever the business is structured. We need to work in order to get paid. We estimate these hours based on your project size and complexity and if we don’t use all the hours then there is savings to our client. If we need to use more hours due to the amount of correspondence, supervision etc (because no one project is the same) this is fair. With that said a good renovation contractor will have integrity and know when hours should or should not be billed.
The problem with hiring a large company that puts a project manager on your project is that they bill for every single hour because they are an employee. They need to bill 8 hours a day so chances are they are always rounding up on your project. This amounts to thousands of extra dollars and even more on larger projects. You may even be paying for hours that were meant for another project.
Mavish Homes provides an exceptionally well though out renovation contractor service that offers high value and outstanding serve. If you are thinking of undergoing a large renovation project consider talking to us or referring us to someone you know that would appreciate our company values, ethics and value.