faq’s of renovation: estimate and budget

We’re back with another round of the FAQ’s of Renovation!

If you haven’t read the rest of our posts in this series, make sure to go back and read them here: Contractors and Designers 101 + Getting started + Working with a designer & reality check.

We’ve loved hearing from you and answering some of your questions – we’re slowly but surely whittling away and can’t wait to address them all as we go.

Today we’re going to tackle everyone’s favorite subject. Cue Abba…because it’s MONEY, MONEY, MONEY.

This is one of the hardest subjects to tackle, because everyone wants to spend the least possible. We get it.

But sometimes, if you spend the least possible up front, it costs you a whole lot more on the back end. There is nothing cheap about renovating a space or home. But at the same time, you probably don’t own a yacht to toss money off in the direction of the plebeians.

So how do you walk the fine line of estimates, money, and quality work?

We’ve briefly touched on the budget/estimate in the “getting started post” and you might be wondering why we are coming back to this in more detail? Well, it’s because of you, our fave people. We had a few people wanting a little more insight on this phase and so, we aim to please!

Let’s recap the choosing the contractor part, and dive a little deeper into money.

Remember, we don’t think the estimate or money should be the deciding factor on who you work with. Yeah, we know. It might not be what your granny’s great aunt Beatrice told you to do, but trust us on this one. (And read our Contractors and Designers 101 post.)

If you read nothing else today, read this: One of the absolute biggest mistakes people make, is picking their contractor based on a piece of paper.

How about them Apples?

Rarely are you comparing apples to apples when looking at bids from contractors.

You may think you are, but ask yourself this question… were you sitting at the computer when they worked out the cost?

Did they all use the same formulas?

Account for the same overages?

Same grade of lighting, fixtures, etc?

The simple answer is no, so if you think all bids are alike, well, as great aunt Beatrice would say, “Bless your heart, honey pie.” They simply are not.

One contractor will see things one way, and account for the expense in that manner, while another sees one another way and accounts for expenses that way. So which one is right? Both. Hence why you shouldn’t make a choice by paper, alone.

If you’re taking multiple bids from contractors, which is a good idea, you’ll get a range of the project cost.

Once you have that range, ask yourself this simple question: Which contractor did I like the best, and do I feel like would work hardest for me?

It might be the most expensive bid, and that’s okay. Because it is just a bid, not a bill.

A bid isn’t a bill.

A common mistake people make is believing that the bid/estimate given to them is the bill. We even have people ask if they have to pay everything up front. (We’ll talk about that in a minute.)

A bid/estimate is just that. A cost projection of your project, but no one knows the final cost until the project is complete. We aren’t talking new construction here, we’re talking renovating a space. And there are a lot of variations that come into play. So don’t treat those pieces of paper as your bill and the amount you’re responsible for.

Now you might find a contractor that says, I’ll do the project for X amount, bottom line. And he might, but what if he didn’t estimate that well and his profit starts to seep away as he approaches X amount? How motivated do you think he’ll be to finish? Will the quality of work be excellent? I’ve watched stacks of wood sit for months on these types of projects because the low bidding contractor won a higher netting job. People are people, and businesses are motivated by cash, bottom line. So again, you will get what you pay for.

The only thing more reliable is death and taxes.

{Side note: most people will quote smaller projects for X amount, but we are talking medium to large projects.}

Let’s also look at it from the other end. Imagine everything goes smashingly well and he saves on material and labor so the project costs less. This is a great thing…except for that one little issue: he saves, not you. Womp, womp. Do not pass go and certainly do not collect $200.

But back to the bid isn’t a bill: Most good contractors will work with you on what is called a cost-plus system. Which brings fairness to the contractor, and control to you.

Cost plus bids

Simply put, a cost-plus bid is the cost of materials, labor, permits, and inspections, etc. Plus a fee for handling the project.

So when you get a bid from a cost-plus contractor, then what you understand is that this is his/her best guess at the moment for what your materials, labor, permits and inspections etc., along with what his fee will cost you. ALL OF THESE THINGS ARE NEGOTIABLE AND CAN GO UP OR DOWN.

See why I say not to pick based on a piece of paper alone?

There are just too many variables.

Comparing the bids

If there is a contractor that was personally your favorite, get back in touch with him and present him with all the bids. Ask him to help you understand the difference in them. He may be able to show you the difference, and he may not. But his attitude about the process will show you more than any money ever will.

If you still like him after this little exercise, then reaffirm with him that he will be a cost plus contractor.

Why does this matter?

Well, you might find that his allowances are different for different areas of your home. You might simply find that his estimated cost of putting that beam up accounts for a few other things.

But in a cost-plus system, if you don’t need those few other things, then guess what? You don’t pay for them. Insta savings! So a bid isn’t a bill. The estimate might have included those things, but guess where they won’t be? On the bill. Winning!

If you still like him, it doesn’t matter if his bid is higher, because you’re confident he will do it right, and you’ll only be charged for what is actually done. Not the bid. Oh, and if his fee is 30% of the project cost, but another guy offers to do it for a 25% fee, you can ask to negotiate that. Doesn’t mean you should {because every situation is different} but you can.

Let’s line dance

Now that you have a better grasp on the whole bid thing and you’ve picked the contractor that you like, not the cheap one, it’s time now to really crunch those numbers, set budgets and dive into those line items.

This doesn’t just fall on your contractor. This is also one of the reasons we recommend using a design expert, or immersing yourself in design.

Your choices, or lack of education about choices, can really drive the budget up. And on the flip side, your understanding or hiring of a design expert can drive those line item costs down.

You’ll want to line item the entire project from framing to finishes. Your contractor will be valuable on the construction side, and there might not be a ton of wiggle room, but you’ll have control on the aesthetic side, and should be able to play with the budgets some.

So once you get through the less-fun line items {like plumbing} you’ll dive into the more variable ones, like fixtures. Your contractor will have a general idea for all these, thus how he got his bid together. Your first job will be to rank the line items from most important to least. In other words where do you think it’s more important… to spend money or get the nice products? On a large renovation, would this be in the kitchen, or your spare bath? On a small renovation would it be the faucet, or the lighting?

Once you know this, you can start combing through the estimate to see if you want to adjust any of the line items. They could be too high or too low. You could rob some from Peter to pay Paul, but you’ll know what’s important to you, and what is not.

Once you work through all the line items, you should come to a more solid estimate of the project’s cost. Again it’s not the final bill, as you have a long way to go. But it’s one step closer to the actual cost, and more detailed than the bid.

Also, make sure there is an overage line item. We suggest 10% of the total project cost.

Pay Up

As we mentioned above, we’ve had people wonder if they had to pay up front. If you’ve never done a renovation, that’s a real concern. But if you ever have a contractor ask for the full amount up front, turn and run very far away. Because I’ll bet the farm they’re shady and dishonest.

I’ve heard of some contractors asking for 50% up front, but frankly, that always makes me wonder if they’re trying to fund another project with your money.

Some contractors ask for a good faith deposit, which in our opinion should range anywhere from 5-15% of the project cost. Personally, we think this is fair to everyone involved. It helps the contractor know you are vested in the project, and at the same time doesn’t expose you to that much risk.

The deposit will help the project get off the ground without the contractor having to finance it, or pay for it out of his own funds. And really why should he? Remember, it’s your project.

From there, expect to pay as the project is completed or after inspections. This really depends on the project and the project size. As we suggested, work this out in the contract. (See our getting started post.)

Hey Mr. Monoploy man

If you’re taking out a loan to complete your project, the bank will dictate all payment details. Bummer, but you and the contractor won’t get much say in this. Make sure you both completely understand your bank’s process.

Some contractors love bank loans, because they are predictable and secure. Others don’t, because some banks can be a hassle to deal with.

It’s not a bill… wait now it is

Once the project has started, that estimate and line items will start turning into real numbers, and your contractor will be able to present you with actual cost.

When he does invoice or bill you (depending on how often you decided payment would be made) the bill should include: Any cost associated with the work, the line item it will be charged against, and his fee. You should also be able to tell if you went over or under the expected cost on the line item. If there are no unforeseen circumstances or change orders, then you should hopefully be right at or under the budgeted line item.

If you are under, you now know that you have that money in reserve. I wouldn’t count it as your savings yet, because you never know when another line item will get out of whack. But at least you know it will be there if you need it.

Once you’ve reviewed the line item, understand it, and agree with the cost per the contract agreement, then you should pay it ASAP. Mainly because no one likes lazy people and because the less time the contractor has to worry about chasing you down for payment, the better your relationship will be. Remember, we said relationships are what make renovations go smoothly.

Your canvas

Because we are talking about money, if you do everything right, you should end up with a beautiful renovation and your friends and family will take notice. And guess what? They might want to follow your lead.

So, if you’ve treated your contractor right, ask him if he’ll give you a referral fee for anyone you send his way. Don’t expect to get rich on a referral fee… but it could be some nice cash in the bank.

Do it right

We want to wrap up this money section with one story:

Once there was this couple named Tom and Jane. They were a lovely couple. They were hard workers, loved their community, their neighbors, and had saved to get into their new-to-them home. After a few years, they wanted to make some changes to their home, as they were expecting a new little addition. They called several contractors and had them come talk about their ideas. Their budget was tight {because they were expecting a new little one} so they picked the contractor who could do the work for the cheapest, even though he wasn’t personally their favorite. They let a piece of paper make their decision.

The work commenced, and they had a few issues along the way. The experience wasn’t the best, but the job was done and their baby was due soon.

The seasons changed and things seemed off about their renovation, but they didn’t know why, and frankly, they didn’t have time to pay much attention. Eventually, whether they figured it out or it just became obvious, the ceiling was a little wavy. It hadn’t always been that way. It seemed to have happened over time.

It’d been a cold winter and another little one was on the way, which meant they needed more renovations

They called in the same contractors and again, the bids were similar. They asked the one they personally liked, but hadn’t used, why he thought the ceiling was wavy. After looking at it he said “Well it’s pretty obvious. The rafters are on 20-inch centers, not 16.” They really didn’t know what that meant, so he explained it more.

When they asked the original contractor about it {the cheaper one they’d used} he explained that he’d moved the rafters to 20 inch centers because he wanted his bid to come in lower than everyone else’s and he thought it’d be fine.

Obviously, it wasn’t.

So Tom and Jane hired the contractor they liked who’s bid was higher to do the new renovation, and in turn, fix the first one.

Tom and Jane learned a lesson. Tom and Jane want you to learn from them: don’t pick your contractor based on paper.

We hope this helps shed some light on the subject of money and bids.

We’re still only scratching the surface in the fun of home renovations and building, and we’ll tackle more related items in the next post.

As always, if you have any questions please leave them in the comment section below.

(If they’re urgent, because you’re about to begin, write ‘urgent’ and make sure to leave your email address in our comment form. We’ll email you an answer as soon as we can. Don’t worry the email addresses in the form – they only show to us, not publicly.)

Have an inspired day thinking about creating the home you truly love!

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{Pssst: If you’re  in the Nashville area you can hire us for our in-house design services, contractor services or both. This format creates an even smoother flow in the process in helping attain what you want in your home. We can help you with a simple room makeover, all the way to building your dream home. Contact us today if you’re interested… we can’t wait to help you love where you dwell.}