Renovation Coach: Right Price vs. Low Price

Jesse MoradoBy Jesse Morado

I recently advised a homeowner on a remodeling project and recommended that she not hire the lowest priced contractor because the contractors cost breakdown and timeline to complete the project appeared to be unrealistic.

She had four bids, one low, two that were relatively close in price, and one that was higher than all the rest. She stated “I am confident that I can manage this contractor to perform to the right price presented and get him to complete on time.” She elected to move forward with the low-priced contractor, contrary to my advice.

Eight weeks later I received a call from this owner in tears. She was terribly upset that her project was only 30 percent complete and had exceeded the scheduled completion date. She was also in trouble with her boss for taking so much time off of work to focus on her project. She told me that her contractor was a nice guy and listened to her concerns but just never executed or did what he said he would do. She was at the end of her rope and decided to terminate the contractor and begin searching for a new one for the project. She confused “right price” with “low price.”

Today’s economy has really brought low price top of mind. Many of us today are much more sensitive to what things cost and are looking for discounts or mark downs where we can. Our buying behavior has changed and we are making more sacrifices to keep our financial house in order. This is great and I am all for saving money today but we also must be aware of risks that come with accepting the lowest price. This is highly important when it comes to home improvement projects.

Contractors today are being asked to cut margins, discount materials and shave labor costs to get the project down to a number the owner wants to spend.  Owners today are talking to five, six and yes even eight contractors (two to five more than you really need) looking for the best price.

In getting this low price do they know what the contractor has given up or failed to include for the sake of landing the sale?  Will they be comfortable giving up quality due to the contractor hiring unskilled labor, performing substandard construction applications, and installing used or second hand materials?  Do they still expect the contractor to be on site every day to keep their project moving, clean up, protect their home, and be responsive to questions or concerns?

Who is discounting the contractor’s rent, phone charges, truck payments, gas, insurance, license fees, utilities, etc.?  Cutting margins puts the contractor’s business at risk, which in turn puts the project at risk. When a project is abandoned, compromised in quality, messy and unsafe, under staffed and lags on forever, the contractor will only bear the bad press for the customer’s negative experience.  The decision to hire the lowest priced contractor by the owner who chose to accept the “lowest price” and the contractor who compromised his pricing model for the sake of landing the job have been forgotten at this point of the project. The focus now is how they are both going to settle their differences. Unfortunately, no one wins in this scenario.

A good solution is to select a contractor who can meet your customer service expectations and quality standards and then to discuss how you can work together to value engineer the project to meet the budget you have in mind. Discuss material and product options for your project to determine where you may be able to save.  Look at efficient space saving design approaches to manage square footage and labor intensive details. Also consider providing some sweat equity for tasks like demo, site protection, and even clean up to keep your project costs down. Working with a reputable contractor who can assist you in achieving your goals, meeting your timeline and producing the project for an agreed to budget is a much better approach. Be careful today and don’t become a victim of the low price, make sure you have a contractor who can deliver for the right price.

Jesse Morado, CR, CAPS is owner of Renovation Coach, Inc. a residential construction consulting firm that advises homeowners and mentors and coaches contractors.

  1. Great post

    So often in today’s market the contractor drops his price to his peril. When the job falls apart the homeowner and contractor both lose. There is one other loser: the residential construction industry. The current homeowner perception of the industry is poor. Homeowner’s will often take a chance, on the low ball contractor when money is tight, who has no clue on how to price his business. The best way to change this is to educate the contractor on the proper way to run a business. The need for coaching contractors to run their businesses properly has never been more important than now. When homeowner’s hire the low ball guy and get a bad job they always are potrayed as the victim. Even if they beat the desparate contractor down so badly that the contractor dropped his price below his breakeven point. The industry needs to find a way to educate contractors properly. In addition the establishment needs to do their job and enforce the laws on the books.

  2. Great Article. My clients often have trouble with this issue.

    My husband has been an installer for over 30 years and rag tag
    contractors undecut him all the time and are a blight to professional laborers everywhere.

    We’re giving this article to all our friends and family and will leave them with potential clients from now on.

    The reality is everything cost something…the article shows how even when you’re convinced you’re getting deal you may still wind up paying.

  3. Excellent article! Jesse really hit the nail on the head!
    I have been in the industry for the better part of my life,and if their is anything I have learned it is that true Quality is not cheap! Even a skilled group of contractors cannot deliver a good product unless the budget has been properly calculated and at times although painful; adjusted.
    Their will be adjustments,changes,recalculations,but it will be worth it!

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