Ask A Contractor "What’s a Fair Price?"
by Hoffman Weber Construction, on June 03, 2020
Everyone loves a good deal, but that doesn’t necessarily mean the lowest bid. So how can homeowners know they are getting a good value and fair price? We spoke with Mike Sample to understand how contractors price their services and what consumers can do to ensure they choose right.
Can you recommend an independent price guide I can use as a frame of reference for what my project might cost?
The Remodeling 2020 Cost Vs. Value Report probably is the best consumer “reality check” on remodeling costs. The authors use popular estimating software to calculate costs, and Realtors predict how much value the improvements will bring at resale. Keep in mind that the data are a snapshot that could have been taken up to a year earlier and that costs tend to increase from year to year.
I suggest you ignore the price guides on Angie’s List and HomeAdvisor. They are so unrealistically low that it is unlikely you will find a reputable contractor to match them. These services claim to help homeowners connect with reliable contractors, but the guides are a disservice to everyone.
How do contractors decide what to charge homeowners to replace things like roofs, siding, windows and doors?
Contractors may share rough ranges of what a project might cost. That typically is based on general experience history with similar projects. It’s helpful to determine if there is a big gap between your budget and your dream. Most contractors use software to prepare a formal quote. It contains the prices the contractor will pay for materials and labor and the mark up they need to operate a successful business. When they enter the scope of the project (such as dimensions, quantities and special considerations such as the steepness of the roof or site accessibility), the software computes the price.
If contractors use the same estimating software, wouldn’t everyone offer the same price?
Contractors use different estimating software. They don’t all pay the same price for products, materials and labor. And markups differ based on their overhead expenses and goals. This results in different prices for the same job. The software is just a fancy calculator. What really matters are the assumptions. Despite what you see on TV, contractors don’t pull numbers out of thin air.
If estimating is cut and dried, why don’t contractors itemize material and labor costs and man-hours so consumers can compare bids?
When you buy a new iPhone, Apple doesn’t break down what it costs to produce the device. Neither do contractors. Ultimately, you decide whether it is a sound investment and if the contractor appears to be a good fit.
Do contractors estimate costs differently if a project will be paid for through an insurance claim? In that case, does the insurance company decide what is a fair price based on its own estimating software?
Most insurance companies use Xactimate software to calculate costs. We use the same software on insurance jobs. We use our own software non-insurance contracts. Pricing is very similar.
How are costs for materials and labor changing and why?
Material and labor prices change independently. Labor is a commodity and follows basic supply and demand. After an extreme weather event, increased labor demand causes prices to rise. The more extreme the event, the greater the increase. For instance, we’ve seen labor costs increase by an average of 25% in the last two years in our markets due to severe storms.
Labor costs also vary based on the specialty or skill of the crew. Labor costs for James Hardie siding installers rose as much as 40% in the past couple of years. We expect labor costs to level off or decline unless more extreme weather again pumps up demand. Material costs are tied more to inflation, so we expect to see an average increase of 5 percent per year.
Read: Exterior Remodeling Leads ROI in 2020
When a homeowner gets three bids for a Hardie siding job, the difference in price is not usually for the material. It’s for the installers. That begs the question, why would one choose the supreme siding product and the lowest cost installer?
How does Hoffman Weber work to control costs?
Hoffman Weber buys direct whenever possible so we can pass on the savings. The supply chain for building products is quite complicated. Siding manufacturers sell to regional supply centers, which sell to local supply houses, which sell and distribute to contractors. Roofing and windows manufacturers typically sell direct to the local supply houses rather than to centers. For brands like EDCO and Lindsay windows, we are able to buy direct from the manufacturer.
We have a great relationship with local supply houses because we do so much volume. They provide us with better pricing and we help them move more inventory. They make most of their money off the smaller contractors who do low volume and place special orders.
If I get quotes from two or three contractors, can I assume the lowest bid is the best value?
Whether you buy your iPhone at the Apple store, Best Buy or a cellular carrier, the phone will be the same. Remodeling, window replacement and storm restoration are different.
You need to consider whether the windows will be installed properly so they remain weathertight and operate smoothly. Will the siding separate or bow in extreme weather? Will everyone up on your roof be properly trained and insured? Will they pick up all the nails from your lawn and driveway? Does the salesman understand how to work with the insurance adjuster to get you the best settlement? Ultimately, it also is about which contractor is going to be able to complete the project when they say.
Price is important, but you need to ask yourself why a contractor’s price is lower.
- How long have they been in business?
- What is their warranty process?
- Are their installers certified to install the high end products like Hardie, and can they back that up?
- How many employees do they have?
- How often are they borrowing to pay bills?
If I get a price from a contractor, is it firm or could it change? How long is a quote typically good for?
The price could change if the scope of work increases or you take longer than 30 days to sign a contract. Project scope can expand if additional work is needed that could not have been anticipated, such as water damage or structural problems that were hidden before demolition. Costs also will increase if you change your mind during the project or request additional work. Interior remodeling estimates sometimes contain “allowances” for things like tile and flooring. If you choose higher quality products than specified, the allowance may not be sufficient.
Contract pricing being firm for 30 days is just a general rule in the industry. Price changes are more dependent on seasonality. Every spring we get new pricing from suppliers, and that pricing usually is good for the season.
I like the simplicity of good/better/best when shopping. Does that apply to building products?
Yes. We offer good/better/best options based on your standards and budget.