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The Sermon On The Amount
I once knew a minister who rarely preached on the uncomfortable subject of money. Once a year, however, he would tackle the topic with what he called the "Sermon On The Amount". This being Sunday, I thought I’d step up to the pulpit and speak to the issue in his honor. Unlike my friend, I’ll try to keep this brief.
Money is a sensitive subject, especially in the construction business. It is not usually discussed in polite society, so both clients and contractors will delay talking about it as long as possible. Homeowners don’t like to discuss how much they are willing to spend, because they may not know what construction costs, and don’t want to appear uninformed. Some are afraid that their budget will influence the cost—that the contractor will take advantage of this strategic information. Nobody likes to discuss how much they can "afford".
Contractors hate to discuss money because they don’t want to embarrass the client, or be asked the dreaded question "how much is this going to cost?" Also, there is likely to be some "sticker shock" involved, and no one likes to be the bearer of bad news.
The contractor is also trying to build rapport, and talking about money is like throwing a bucket of cold water on the client. It’s as if a person meeting a blind date for the first time said, "before we start this date, let’s talk about how much this is going to cost, and who’s paying for it."
Although preliminary cost estimates are useful, contractors don’t like to give "ballpark prices", because they are merely educated guesses that will never be forgotten. When asked for one, the contractor is wondering if he should hedge on the low side to avoid scaring the prospect away, or on the high side to protect himself. Neither alternative is very attractive. An old joke in the industry defines a ballpark price as a wild guess carried out to two decimal places. Another rule of thumb is that a free estimate is worth what it costs.
These mutual fears result in a game called "Show me yours, then I’ll show you mine." There is an old adage about negotiation that "the first person to mention price loses." I propose that if the topic is put off too long, everyone will lose.
When contractors are reluctant to give preliminary estimates, they are not being difficult or evasive. They want to serve the homeowner with more useful information, such as an accurate estimate customized to the particular elements of the specific project. Since accurate estimates are time-consuming, they are rarely given away for free. It can take from a few hours for a very simple project to forty or more hours for a large remodel. Contractors who offer "free estimates" are likely to take shortcuts, yielding an inaccurate estimate—dangerous for everyone involved. Also, they will ultimately need to recoup the cost of the estimating by charging more for the work.
Homeowners considering a construction project may want to consider the following ideas:
- Establish a budget as soon as possible, and design to it. If the project is over-designed, no amount of efficient management will be able to bring costs back in line. Having the design in-synch with the budget from the beginning will save time, money, and frustration. Get detailed cost estimates from the beginning from a design/build contractor, or by forming your own team of architect and builder from the beginning. It is no fun to scale-back an over-budget project after drawings are complete and you have fallen in love with the design.
- A good cost estimate is time-consuming, and as valuable as good design. Expect to pay for it.
- Be honest with the architect or design/build contractor from the beginning. If you are willing to spend more than you admit, you may miss some exciting design features. Likewise, don’t give the designer free rein if you have a limited budget.
- If your contractor doesn’t include a contingency budget to allow for unforeseen circumstances, make your own allowance of 5-10 per cent of the total estimate, as budget insurance.
- Lending institutions have their own rules. Homeowners who will be financing their project should get the bank involved up front to save time and misunderstandings. The contractor and the bank will need to come to terms regarding payment terms and conditions, and these matters should be settled early.
I know some of you are nodding off already, so I’ll stop for now. Just drop some money in the collection plate, and we won’t talk about this for another year.
