Despite the size, complexity and sophistication of the industry, however, some professional renovators get a failing grade in one of the most important and basic parts of the renovation process – estimating what the job will cost in the first place.
To the homeowner, the estimated cost of a renovation job is probably the most critical influence on the decision as to whether the project is undertaken or remains on the wish list forever. As well, the actual cost of the renovation in progress is critical to whether or not the job is done the way it was contemplated – with all the bells and whistles hoped for – and even to whether the job is completed.
One third of homeowners say their renovation projects went well above estimates and the CMHC didn’t survey how many renovation projects were abandoned in mid-stream because of cost overruns. With so much riding on it, one would think every professional renovator would know how to cost each job down to the last penny. This is likely why the typical homeowner simply picks the contractor who provides the lowest quote for the job. That homeowner thinks everything is equal in the pro renovation world.
Not so, says Lou Frustaglio, President of the Canadian Renovators’ Council who is advising professional renovators to learn more about costing jobs to protect both themselves and the homeowner. “Picking a contractor because he or she provides the lowest estimate for a renovation is not, necessarily, the smartest thing to do,” according to Lou, who owns his own construction company, Dreambuilders, in Toronto. “The contractor who supplies that low bid may be honest, well intentioned and competent in building,” Lou says, “but he or she may not be well trained in costing in the current, very busy, market environment.” One major error being made by contractors today is failing to account, in the estimate, for subcontracting some of the work if a contractor gets too busy to handle all his or her jobs, says Lou. He points out the renovation industry is so active today, contractors may be hard pressed to finish all the work they undertake without calling in help.
A contractor may cost a job intending to supply all the labor only to have to farm out part of the work later in the project. Original costing, in many cases, doesn’t take into account the added and unexpected contingency of importing labor. This added cost, of course, plays havoc with the original estimate causing the contractor to ask the homeowner to make up the added cost, to take the loss himself, or to cut corners to offset the unpredicted cost of outside labor. As well, renovation companies and especially smaller, more customized renovators, may not include all costs when estimating a job.
For instance, says Lou, contractors may not build in a project management charge including overhead such as insurance and workers’ compensation premiums, office equipment, paper, automobile expenses and a host of other hidden costs the contractor must pay to run the business. “A contractor may figure materials cost this much and my labor is this much so the total is this much,” says Lou.
“This basic formula may result in the lowest bid but it isn’t realistic in terms of business accounting.” Consumers may hear about costs such as $150 per square foot for construction, says Lou, but this is an average cost for building a new home. A real cost might be $50 for a hallway which has little or no trim and $500 for a kitchen with cabinetry and all the trimmings. Lou says a homeowner or contractor can’t cost renovations by the square foot, only by the individual project and by all the actual costs the renovation company accrues to carry out the work.
The best advice for the contractor, says Lou, is to take training on costing to ensure estimates are done properly and include all contingencies such as being forced to sub contract work. If contingencies do not occur, the contractor may find the project coming in under budget. If this happens, says Lou, the contractor can lower bills to the homeowner or provide extras – “perks” – to the homeowner.
“Being under the initial quote,” says Lou, “is a heck of a lot better than being over budget.”
The best advice for the homeowner facing a renovation project, says the Renovators’ Council president, is to demand an itemized estimate and not to accept the lowest quote from a professional until ensuring the contractor has included room in the budget for all costs like possible subcontracting, project management, consumables, plant, and so on. Don’t take it on faith that the contractor has done all the complex work required to produce a realistic quote – many pros will but some will not.
Lou advises, “If the quote looks like materials plus labor and nothing else, be aware the estimated budget could go up considerably or corners might have to be cut once the job begins. It might be smarter to choose another contractor – one who knows how to properly cost a renovation project in the first place.”