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Question DetailsAsked on 12/3/2017

How much "wiggle room" is there in a quote from a general contractor? Do they expect you to negotiate down?

We are considering buying a house that needs significant renovation (new roof, new windows, new kitchen, 3 new bathrooms, some new flooring) and will have a general contractor perform a significant amount of the work. We have received two estimates so far. Our real estate agent said to consider the estimates "opening offers" and expect to negotiate down the price. Is that typical? How much of a discount should i expect to negotiate off the original quote?

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2 Answers

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I hate to say it, but I don't think the realtor is doing you any favors, but may be trying to convince you that the remodel will not cost as much as the estimates to try to push the deal through. Remember, the realtor is after a sale and commission, usually not thinking much of what your decisions and proposed purchase price will mean to you down the road after closing - so underestimating the remodel cost now is going to result in you overbidding for the house, paying more all told for it than you should have.


First - assuming these are "estimates" and not firm bids, those almost always go UP, 10-30% typically and frequently even more, between rough estimate and final project scoping and contracting. Yes you might get a lower bid from another contractor after you own it and are ready to go to contract, but if his bid is signficantly lower than the two you already have, it is likely the contractor is underbidding (hence, setting you up for a lot of change orders) or is not looking at doing as high quality a job.


Second - I would not be buying a house based on "estimates" of the remodel cost. If you are using these numbers to figure out how much the house is really worth to you as-is, you should be working from a firm bid, valid for contract signing for say at least 60-90 days after your planned closing date, so you have a firm committment to the price and know exactly what the remodel will cost you. And even then you need to bump it up 10-20% for unforeseen hidden conditions which will cause change orders - things like subfloor rot or such which the contractor did not inclulde in his bid because the could not see them till tearout. I generally tell people count on 25-50% end-of-job grand total cost over an initial rough contractor's estimate for major remodels of existing homes. (And don't forget his rough estimate probably or at least may not include permitting costs, any utility connection/relocation charges, and architect/engineer evaluations and plans.


Or instead of contractor bids (and most do not want to do a full takeoff and bid, at least not for free, on a house you do not even own yet), you could get an Architect to do conceptual plans and give you a conceptual construction cost estimate, including permits/fees/architect and engineer costs, and INCLUDING a hefty project contingency amount of typically 20-30% at that level of design.


Note also, working from contractor estimates, once you own the house he has you over the barrel, and can up his final contract cost knowing you are now committed - a big risk.


Bottom line - buying a house assuming you will do major remodeling (unless you are a professional, experienced, flipper) is risky. Plus many times the assumed improvements never get done, resulting in the homeowner (or at least one half of a couple, most commonly the wife) being very unhapy from then on about its unfinished or less-than-envisioned condition.


Also - consider what the remodel is estimated to cost (including all ancillary costs) and add something for the mess you will have during construction if you are moving in before it is done, and if not moving in immediately after closing then figuring in the financing and property tax and utility cost of holding the house unoccupied for say 6 months for the scope you describe - that alone is probably $10,000-15,000. Very commonly, you can put the same money into a newer construction or even brand new home with the features you wsnt and get a finished, pretty much ready to move in house for the same amount or little more, without the financial or move-in date risks. The move-in date risk is especially critical if you are committe to moving out of your current place by a certain datge or are moving to a new town, because you may land in a motel/hotel for month(s) if all does not go perfect.


And if it needs that much work, is putting a lot of remodel money into it going to make your eventual resale price (to at least recover what you put into it, plus the transaction/commission costs) more than the neighborhood can support. A lot of people do major remodels or additions and then find the house will sell for little more than they originally bought it for because there are lots of other houses in the area going for that cost, so they can never recover their investment in improvements. Ditto for high-end upgrades. You can google for typical recovery of improvement costs in sale price -commonly not over about 50-70% and for some items as low as 20% or so, and for high-end ones unless in a high-end are and very consistent with current in that area (not usually the case by the time you resell the house) sometimes you recover the maybe 30-50% or so which a NORMAL remodel would have gotten you, totally losing the added cost of the high-end upgrade.


I have seen so many cases where someone upgraded a house - after they bought it or even preparatory for sale - only to have those improvements given zero value or even torn out by the new owner. We had one neighbor put $35,000 in improvements into an about $290-295,000 value home prior to resale - ended up getting $302,000 for it, losing roughly $30,000 on the deal. I remember one Beverly Hills mansion case decades ago, bought by celebrities or investment bankers, which I worked on three separate times for consecutive owners - each time they tore out and redid high-end entries, baths, etc - including interior finishes like marble running in the $50-100/SF range. That house even went from olympic size pool to tennis court and back to a kidney shaped pool in the same place over the course of those remodels. In each case the upscale improvements added nothing to the sale price of the house because they were unique or glitzy enough that the normal person did not see them as an attraction, so its sale price actually went down from sale to sale even weith the celebrity name attached to it. This is a major risk in higher-end remodels of bathrooms and kitchens in normal houses as well.


Also - on the negotiating thing. The contractor allowing you to negotiate him down on an estimate means little or nothing - he can just crank the numberr back up when it comes time to sign a contract, saying he found items not in the original estimate. Even if it is a bid, he put down what he thinks he needs to do the job with reasonable profit - try negotiating (unless scope of work or quality of materials or such is also being proportionally reduced) and you will raise his hackles, and change the relationship from a presumably initially friendly, cooperative feeling to an adverserial one where he feels you are trying to nickle and dime him or that you are cheapskates trying to take advantage of him, so his natural tendency from then on is likely be to give you nothing for "free" instead of initiating change orders for every minor change, and to add back what you took away (and probably more for spite or as protection against future nickle-and-diming) in future change orders. I just don't recommend doing it unless you find something really out of whack in his bid which you can point to - a numerical error or something he just threw a WAG at and the actual cost should really be much less. Or by rescoping the job to lesser scope or less fancy materials to get the cost into your budget range.


BTW - sounds like an older hosue - don't forget to get septic/sewer and well evaluations, if applicable, and if real old consider whether utilities need to be upgraded. You also did not say anything about utility upgrades - for that major a scope you would usually have at least some plumbing, electrical, HVAC upgrades at the same time.


Also, bear in mind in many areas if you spend over 50% of the cost of the system you have to by law upgrade the whole system (electrical, HVAC, plumbing, etc) to current code. And if improvements end up totaling (or in some area are initially permitted for) over half the value of the house (which might be less in their figuring than what you pay for it) then EVERYTHING in the house has to come up to code, including in some areas energy/insulation codes and such. Architect can clue you in on those type issues.

Answered 11 months ago by LCD

0
Votes

On the wiggle room thing, bear in mnd the contractor is usually a person, not a corporation - at least operationally. So consider how you would feel if your customers came into your place of business always asking for a discount - or if you are an employee, if your boss asked you for an estimate on how long ti would take to do a project, then always tried to negotiate you down - or said, well Joe, how about today you work for 10% less than usual.


Your loyalty and working relationship would go to heck - the same thing happens when you try to haggle with contractors without good cause, you can discuss scope of work modifications to bring it into your budget range, and of course if you have multiple quotes for the same job you can ask the higher one(s) if they are sure of their pricing because you have lower quotes. I consider it fair game to, if you prefer one contractor over another, to mention you have lower quotes and ask him to relook at his figures for any errors - especially if there is a big difference. I (and most contractors) do NOT consider it fair game to show a contractor his competitor's actual bids or the exact amounts, but telling him he is high bidder (or at leat not low one) and suggesting you are considering the lower one is, to many people, fair games if you tell him (honestly) you prefer him as a contractor but the price is an issue. Course, if a commercial job tht is commonly a nno-no, especially if under a public bidding process. There is a fine line between giving your preferred ("warm fuzzy feeling") contractor a chance to relook at his bid knowing it may price him out of the job, and "price shopping" - which pretty much all contractors hate and causes them mto lose respect for the customer who does it.

Answered 11 months ago by LCD




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