"But how on Earth can that be $150,000? Surely it's no more than $90,000!"
Shouted a member of the audience at an AIA event in New York.
The man had just finished describing his Manhattan apartment renovation and was venting his frustration about how his contractor "refused to admit" his project could be done for less than $100,000.
It's not an isolated incident - homeowners frequently get sticker shock from contractors and don't understand how their project can be so much higher than their expectations. Sometimes they feel they're not getting a fair price. Sometimes the contractor won't break down their price, which leads to the homeowner getting suspicious, and believing they can get a better deal elsewhere.
Here are the two major cost factors that influence any and every home improvement project.
It may shed some light on things.
Quality can affect the price by 225%
Not a typo.
Two homes can have the exact same layout, same facilities and features, but one can be remodeled using high quality materials and with the best of workmanship and be frice (or whatever comes after thrice) that of the one remodeled using inferior materials and workmanship.
Check out the graph below as an example. It is part of a Bolster FairPrice Certificate for a small kitchen remodel in San Antonio Texas that experts using our algorithm priced at $14,988. The ranges show how the cost to deliver the exact same scope of work (labor only - so no materials included in the bid) vary according to the expected quality grade (finish):
The difference between the guide price (green dot) for excellent quality and the same guide price (grey dot) for low quality is about $7,000. A full 45% of the project cost. Just for labor!
And this is just a fraction.
The standard quality grades used to determine the quality of homes in America go from "E" (cheapest quality at 55% cost relative to average), all the way to "SS" (Ultimate Quality at 275% cost relative to average).
That's a full 225% difference!
You are investing 50% in a General contractor
Hiring a tradesman for a remodel over a GC can be tempting, as it seems as though it’s going to be cheaper. After all, GCs typically charge a markup of around 50% (or should be if they intend on staying in business for the project) while a one-man-band tradesman may only mark up the project by 20%.
But hiring a GC starts to look like a bargain when you consider where the money is going:
- Workers compensation premiums - If a worker has an accident on your project, the monetary exposure to a lawsuit can be devastating, not to mention stop-work orders and fines. Having a GC with workers compensation coverage protects you from this potential nightmare
- General liability premiums - if your home gets damaged, or a family member hurt, by an accident during your project, you want the company you hired to be able to meet the cost.
- Office staff - GCs have a back office, meaning when they're on site or on the road, your project doesn't stand still.
- Project management fees - Let's face it, you don't have the construction management knowledge and experience required to rally multiple tradespersons. You also have very little leverage to get anything done. GCs have several projects on the go at any one time and employ the same tradespersons regularly. This gives them powerful leverage to get people doing what is expected of them.
- And marketing, and tools, and equipment, and transport, and training, and ...
Takeaway
The next time you do a bathroom remodel or a kitchen remodel, be mindful of just how quality affects the cost and be sure you are on the same page with your contractor about what "quality" really means to you both.
Also, best to avoid narrowing in on how the contractor has priced every individual line item. Instead, really focus on understanding and communicating your desired outcome and do everything you can to hire the best contractor - one that can actually do the job, pay their overhead and walk away with a reasonable profit.
That's the formula for remodeling success.