A formal bid from two or three contractors does not need to be as detailed as the final contract, but it should give a good idea of the price, length, and quality of the work to be done. Price alone should not be your final criteria for hiring a contractor. Sometimes, an honest contractor who specifies a higher cost for a project, but who will actually come in close to that figure is better than someone who quotes a low price, but only completes half the job and comes back asking for more money later. Realize, though, that it’s typical for overruns on any building project to be about 10% over the original price.
There are several ways that you can arrive at an estimate for the cost of a home building or remodeling. A general comparative approach is to find out what it cost for the completion of recent equivalent projects. Typically this is accurate to within +/- 25%. A slightly more accurate approach is to estimate by square footage. There is no standard price for the square footage of a house; it varies by locality and the amount of time and materials put into the building. Ask around and find out what houses in your neighborhood have recently cost to build by the square foot and also what they’re selling for by the square foot. A good realtor or real estate lawyer should be able to help you with these estimates. However, even estimates by square footage are only accurate to within +/- 20%.
Another more reliable method of estimating a building job is “unit price estimating.” This is the method most general contractors use to come up with bids for a project because it most accurately estimates the final cost. Pricing guides and published labor rates are used to estimate each stage in the building process. For example, the actual cost of materials for a roof would be multiplied by the square footage of the roof, plus the hourly labor cost, to come up with an accurate number. Each component in the building process (the sixteen divisions) is analyzed in this way to come up with the final cost estimate. Again, however, you should expect that final actual cost could be as much as 10% greater than the estimate.
So, you’ve gotten a prospective pool of contractors, you’ve done some homework on your own to determine a rough cost estimate of the job (and you may have even started talking to loan officers at your bank), and now you want to get bids from three to five contractors.
They’ll need to know the size and scope of the work to be done, any plans you may already have, your schedule for completion, and a list of what you’d like to see included with their bid. You should not just receive a number back from a contractor. You’d like to see the base bid amount, but also a “schedule of values” that breaks that bid down into its components, i.e., how much for each of the sixteen divisions such as plumbling, electricity, and so on, and a schedule showing dates that meet your final completion date. Also, if the contractor can supply one, a list of proposed sub-contractors so you can feel comfortable with whomever the contractor will be hiring.
In selecting a contractor, you must decide between various experience levels. It might be better to go with someone with more experience, or with someone newer to the job, but who is looking to gain clients who would recommend them to other potential clients. Be wary, though, of contractors who have less than three years experience in the field. And watch out for “nuisance bids” by contractors who really don’t have the time for your project, but put in an outrageously high bid just in case you might bite at the high estimate. Be careful you have at least three to five bids so that you can see the variation in price range.
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