Homeowners who get multiple bids on the same work are often amazed at the range of bid prices.  It is not uncommon for high bids to be 2x the low bid. This leads to considerable uncertainty and decision anxiety for the homeowner.

The homeowner is left with important, but complex questions. Why do bid prices vary so much? Can I trust the low bid for basic quality? Can I trust the high bid for value?

By understanding the factors behind price variation, the homeowner is better able to identify risky or predatory pricing in the bid process.  The common factors that drive price variation in home services include:

Bidding approach – There is no standard way to estimate job prices for custom work, but many service providers use a cost plus approach.  Variations in the costing and markup will create significant job cost variations. Some service providers use material and labor costs from recent, similar jobs they have performed.  Others estimate from a standard cost/productivity reference book (e.g. R.S. Means).  Others may have portions of the work bid by a subcontractor(s). Once a cost total is estimated, the “markup” or “profit” (usually in the range of 10% – 20% of the costs) is added to create a bid price.

Work Scope – Not all bids assume the same materials  or work tasks. For example, surface preparation for an exterior paint job may mean a quick “powerwash” to one painter and extensive scraping, filling and sanding to another painter. Unless all work tasks are called out explicitly, the ambiguity in work tasks – and materials used – will often lead to wide price differences.

Contractor Costs – In some cases, some service providers may have access to lower costs for material or labor.  In some cases (but not all), this is a result of lower grade materials or unlicensed/uninsured labor.

Installation Quality – It is often the case that a craftsman will require more time to create a quality result than is required to do acceptable or marginal work. If no quality requirements are specified, there will likely be price variances due to varying grades of installation quality.

Motivation – Popular, reputable service providers don’t need additional work and may price significantly higher than the market to maximize profits. New or unknown service providers who  need the work may price at or below costs, hoping to profit from fast work.

By breaking down cost estimates and understanding the details behind the bids, you can often understand the reason for significant price differences.

As we discuss in other posts, it is even better to  structure your bidding process to understand and eliminate these sources of price variation.

How much should you expect to pay for home maintenance expenses?

It depends… on factors that include:

• home size
• lot size
• type and quality of interior and exterior finishes
• methods of home construction
• complexity of home systems (electrical, plumbing, HVAC, etc)
• current age and remaining useful life of current systems and materials
• homeowner expectations or requirements for level of acceptable working order

There are two types of expenses involved in home maintenance

Direct Expenses – direct expenses that are typically  “small”, but  incurred on a frequent basis. Examples include yard care, plumbing service, window cleaning, pest control and appliance repair. Direct expenses are necessary to maintain a house in good working order.

Asset Depreciation Expenses – asset depreciation expenses are associated with wear and tear that reduce the utility and market value of a home – and that over time represent substantial replacement expense liabilities. Examples include roofing, paint, landscaping, bathroom fixtures, lighting, cabinetry and built in appliances.

Here, we assume that the annual cost of home maintenance is the total cost necessary to maintain the home in condition of the home at the beginning of the year. The annual cost of home maintenance is the average annual direct expense plus the average annual asset depreciation expense.

The annual direct expense is simply the sum of typical recurring expenses over a typical year. Direct expenses include:

• lawn service
• tree service
• exterior and window cleaning
• fencing, deck maintenance
• pest control service
• furnace, A/C maintenance and repair
• chimney service
• roof and gutter service
• plumbing service
• appliance maintenance and repair

The average annual asset depreciation expense is the sum of  the expected replacement cost divided by the expected lifetime for items including:

• appliances
• cabinetry
• countertops
• wall finishes
• flooring
• electrical wiring
• lighting fixtures
• plumbing piping
• plumbing fixtures
• water heating and softening systems
• heating, ventilation and air conditioning systems and components
• doors, molding and millwork
• windows
• roofing
• gutters and downspouts
• hardscaping
• lawns and landscaping
• fencing
• decks
• outdoor structures
• swimming pool and spa systems
• irrigation systems

Although any of these costs considered separately on an annual basis is not prohibitively large, the total of all applicable costs for a typical home is substantial.

Even if you don’t perform the home project work yourself, there are a number of ways to save money on your next home project. Here are popular, proven methods to save up to 50% on home project costs.

1. Detailed Plan – A recent survey by  the National Association of  Remodeling showed that over 53% of recent home projects exceeded original budgets by more than 20%. In most cases, delayed or changed material choices were a major factor behind big budget surprises. Because most projects involve a number of decisions, the best way to set and hit a budget target is to consider the cost of EVERY decision before the project begins — and stick to the plan through completion.
2. Refurbish vs. Replace – If materials and components are structurally sound and reasonably energy efficient, refinishing or refacing is your most economic and eco friendly option. In some cases, you replace a portion of the item to achieve a like new appearance (example: in cabinet refacing, new box veneers  and new doors achieve a new cabinet look for less than 25% of the cost of new cabinets).
3. Get Vendors to Compete – If you have a clear, detailed specification for your job, let multiple vendors compete for the work. Budget several weeks to shop your project around and let finalists have one last chance to deliver the low bid.
4. Negotiate – Bundle your purchases and ask for a discount. This won’t work at big box retailers like Lowe’s or Home Depot, but many specialty suppliers still offer contractor discounts of 10%-15%. Be creative — in some cases, you may not be able to get a price discount, but you may get an upgrade to better merchandise or extra work.
5. Shop Online – If you are knowledgeable, persistent and resourceful, there are some amazing deals to be had on the internet.  Savings of over 50% are possible.  There is usually a catch – you may have to buy in large/odd quantities,  buy a scratch and dent floor models or arrange for special shipping.  www.craigslist.com, www.ebay.com and www.builddirect.com are useful starting points for your online shopping.
6. Returned, Discontinued or Floor Model Discounts – Most retailers will have sell returned items or unsold special order items at significant discounts. You need to be patient and flexible on what you will purchase. Offer less than the asking price for a better deal – particularly if the merchandise has been displayed for more than one week.
7. Off Season – Trade labor will be in greater supply once school begins and weather begins to cool. By scheduling work during these slow seasons, you will get a better price and the bonus of undivided contractor attention.

Every now and then, you stumble across a site that is uniquely valuable and informative.  Today, I came across a great one:

www. buildingscience.com

The site is the web presence for a consulting organization with deep expertise in architecture and the science that impacts the performance of building structures. The site has  some very insightful  reports and whitepapers. The material is somewhat technical, but it is very logical and well written.

At the site, you’ll learn about some of the more complex and important issues that affect home design and performance, including:

• Energy efficiency
• Moisture control
• Mold
• Green building and remodeling

Most homeowners assume “all is well” once they follow the often heard contractor hiring advice:

• get 3 bids
• check past references
• inspect completed work

This is good basic advice, and worth doing – but it often isn’t enough to keep you from getting burned. The cursory background check just doesn’t do enough to prevent serious, but entirely avoidable  cost, schedule and quality problems.

To avoid the project killing problems, there is more work required before and during the hiring process.  Ultimately, the more you know, the better and more detailed your overall plan, the lower your risk.  Set aside the time to prepare properly and avoid these five contractor hiring errors:

1. Fuzzy Job Requirements. If you don’t know exactly what you want done and can’t explain your quality expectations, you are vulnerable to a multitude of serious problems. Don’t begin the hiring process until you know exactly what you want- and have your requirements in writing.
2. Using the Contractor’s Contract.  It’s your money, so use a contract that protects you. Make sure the contract details all materials to be installed, work to be performed, quality checks, payment requirements and how changes will be handled.
3. No Change Order Process. Don’t let changes throw your project & budget into chaos. Make sure your written contract is crystal clear about how changes to the project are made and how cost and schedule changes are approved.
4. Prepayment. Don’t let your contractor be the middleman for purchasing materials. Never pay for work that isn’t completed to the quality standards you included in the contract.
5. Unverified Credentials.  Understand your contractor’s license history and reputation with knowledgeable home professionals in your community.

The biggest mistake that homeowners make when hiring a contractor is missing or vague job requirements.

Hiring a contractor with poor job requirements leaves an open door for serious project problems that include:

• Deceptive bidding practices
• Difficulties in tracking and managing project costs
• Disagreements between homeowner and contractor that lead to legal action or mediation
• Significant cost overruns
• Installation of substandard or inferior materials
• Significant schedule delays
• Inferior work quality

The following summarizes a series of events that turned a dream remodel ($70,000+ budget) into a big disappointment for the homeowner:

In a major renovation project, the homeowner listed two of the 30+ tasks in the project as:

• “Install better quality, double pane, low-e windows”
• “Install oak hardwood flooring in living room, to match existing hallway flooring”

The list was used to solicit bids from contractors. Fixed price bids were collected from several contractors.  The homeowner signed with a mid-priced bidder that had good references in the neighborhood.  One week after work began, the first problem surfaced.

The homeowner said she had finally chosen the type of windows they wanted – clad wood casement windows from Anderson. The contractor said that the window “allowance” in his bid called for a vinyl sliding window from a local manufacturer that he had used in the past. These windows were “completely unacceptable” to the homeowner. The contractor told the homeowner that there would be a $9,100 upcharge for the Anderson windows and $2,570 for labor – and – there would be an order delay of 4 weeks for the new windows. The homeowner was staggered at the $11,670 surprise; she also began to question the motivations and integrity of the contractor. A lawyer friend advised the homeowner that the vague window specification used in the written contract provided no support for cost concessions on the premium windows and the best she could do was negotiate the labor upcharge.

In a heated debate with the contractor, the homeowner won a concession from the contractor for the full amount of installation ($2,570). This left the contractor frustrated, angry and suspicious of being “grinded” by the owner on the rest of the project. He vowed to do the minimum work necessary to complete the job.

The second problem arose when the homeowner inspected the installed wood flooring.  The floor was “wavy” and had several soft spots. The contractor claimed that the floor was installed per  manufacturer’s recommendations and the written agreement.  Another heated debate followed. The homeowner was tiring of the tension, animosity and schedule delays. Legal action was considered, but ultimately not pursued. The homeowner wanted the project done and was willing to settle for the  “imperfect floor”.

Poor communication of requirements led to cost overruns and schedule delays. Perhaps most importantly, it destroyed the goodwill that is often the difference between an ordinary, average job and a job that is truly well done.

To get good work at a fair price,  and keep a productive vibe throughout the project, it is essential that:

1. All material and layout decisions be made before the contractor hiring process begins
2. The written agreement with the contractor spell out EVERY work task,  material  choice  and quality requirement. Make no assumptions!

Homewyse has a number of project decision templates to help you understand your choices – see the Kitchen Remodeling Guide for a sample project decision list.  Find quality checklists and specifications for a large number of specific home tasks here; these requirements can be included in written agreements to help you clearly communicate your quality requirements for a job.