Bidding Process: How to Be the Most Prepared Person in the Room
The bidding process is complicated. My previous post dealt with how you, as the homeowner, get to the point of asking builders to bid on your new home project.
Many people make it a more difficult task than it needs to be because they go out of order. You cannot choose the builder first then define everything and still expect the best price and best practice. It just doesn’t work that way. (You can catch up here: Bidding Process: Get A Ring On The Finger First)
Let’s assume you found me in time and you have gone through the process in a nice orderly fashion. Three qualified builders have your completed plans and your preference levels for allowances. What happens next?
Your best bet is to ASK the builder how long it will take him to get a complete, detailed bid back to you. Then hold him to that timeline. This can be a very good guide to how he will treat you during the construction process. Is he timely? How is communication? Are there too many excuses?
There are some pre-made formats out there that you could present to the builder and ask him to submit in this format. Personally, I don’t know any builders that would be open to this. And you run the risk of appearing like the very controlling client that nobody wants to work for. Let them present their information in their format and then follow my next step.
DISSECT & INSPECT
This is the most important step. If you make a decision on hiring a builder based on a bottom line number, you will be making a mistake. Anyone can make a bottom line number say anything they want it to say. It’s amazing how many times a client will tell a builder, “My budget is around $750,000.” Low and behold the bids come in right around $750,000.
While it's actually nice that the builder is listening to you and taking your budget seriously, the reality is that, beyond hard construction costs, any house can really cost anything. Your job (or the architect’s job) is to pull the bid apart and find out what the builder is giving you for this amount of money.
My recommendation (and what I do in my practice) is to pull the bids apart and put every line item into a spreadsheet. Include every line item for each of your three bids. Yes, this is time consuming. And yes, it makes me a little crazy to work with spreadsheets, but the information you glean from this exercise is incredibly valuable.
Not only will you see where the money is going, but you will be able to compare the builders. Apples to apples. This is where you start your project on solid footing.
After you dissect, then inspection should lead you to identifying these as hard numbers:
- Hard Construction costs: This number should be VERY similar for all builders in your area. Studs, Trusses, Foundation, etc.
- Overhead & Profit: There is some negotiation available here. Be careful that negotiating in this area doesn’t actually pull from other services or allowances.
- Services: Be sure you know what services the builder and his staff will be offering to you. Is there an interior designer available to you? Will someone go shopping with you? How many on site meetings are typical? Who manages the billing, draws and financial management?
- Allowances: It is best if you can give these numbers to the builder. Ask his input, but you need to know what you want.
After you have completed this basic analysis, then compare quality of what is being provided, for example:
- Size of interior trim
- Exterior Materials
- Interior & Exterior railings
- Crown moldings
- Audio & security system
- Outdoor lighting
This list can go on forever, just plug it all into that same spreadsheet and see what different options are provided by the different builders.
If you take the time to Dissect & Inspect the bids you receive, two things will become apparent:
What you are paying for and what is negotiable.
Knowing all of this information, it will become obvious what the bottom line prices were not telling you. With this information YOU will be the most prepared person in the room. Now you are ready for negotiations. Nothing adversarial or unfair, just honest preparation to get you the best price for the best work!
This exercise, more that anything else you can do in your building process, will prepare you for success. If you don’t know all of this information BEFORE you start building there will be significant discrepancies in expectations. This is what leads to most of the problems in the home building business.
Take the time to do it right. Or hire me to do it for you!
As Founder and Principal Architect of Springhouse Architects, Sheri’s mission is to lead Clients through the building process with the Clients in control and Springhouse as their guide, advocate and ally. With over twenty years experience in Residential Architecture, Sheri brings knowledge and confidence to your custom home project.