Accurately estimating construction costs lies at the heart of a remodeler’s long-term success. If an estimate is too low, you may win the contract but lose money on the job. And if it’s too high, the work might go to a competitor. To avoid either of these situations, being precise on your estimates is a science that one can perfect over time.
For Rob Mathews, CGR, president of Curb Appeal Renovations, Keller, Texas, “estimating was a thorn in my side for quite some time until I took others’ suggestions and applied them into my company.”
Like many remodelers new to the business or even those who have spent years in it, Mathews was in such a hurry to get proposals out to the clients to impress them on how responsive he was to their project, he found himself somewhat “guessing” what he thought was a fair price or what he would want to pay for a certain phase.
After several projects came in with only 1 to 3 percent profit, Mathews went back and performed job autopsies to find their shortcomings.
“One after one the cause kept pointing back to me and my quick and impressive estimating techniques,” says Mathews. “I finally had to change my ways fast and made some drastic changes overnight.”
As Mathews soon learned, each remodeler has to determine for themselves which type of estimating best suits their business model. Some choose to do fixed-price estimates while others choose approximate estimating. Either way, all estimates must consider labor, equipment, material, subcontracts or other direct costs, as well as indirect costs, such as insurance, permits and taxes. Omitted or incomplete items will result in inaccurate bids. In this article, we gather the advice of some longtime remodelers who have spent their careers perfecting the estimate.
1. Fixed pricing with subcontractors
Since many remodeling projects consists of more than one player, typically involving a few trade contractors and possibly even an architect, getting your trades involved with preparing the estimate can be beneficial. Vice president of Custom Design & Construction in Los Angeles, Randy Ricciotti, CGR, CAPS, says that taking the guesswork out of estimating is key to improving your margins.
“We are a design/build company and unlike many, we subcontract everything out,” says Ricciotti. “In this process, we are able to get a fixed pricing on each project from our subs. This eliminates any of the guesswork — it is not a bid or an estimate; it is a fixed price.”
Custom Design & Construction submits a complete scope of work, complete with construction designs to its subcontractors. From here, subs have full access and are encouraged to visit the project site and speak with the designer(s) on the job. With this information, the subcontractors send a fixed price for that specific project that Custom Design & Construction can enter into their final estimate. “If the scope of the project does not change, the price does not change,” explains Ricciotti. “If something does change from the original agreement, we only accept signed change orders.”
2. Order accurate amounts of material — including waste
When working on estimates that are done in detail and not catalog or unit cost versions, paying attention to ordering the most accurate amount for waste material can prove to save quite a bit of money for you and the homeowner. Mike Weiss, CGR, CAPS, GMB, says, “Waste is often a misused item and can sometimes be the reason for not getting a job.” One thing to help aid in this planning is to always ask a trade contractor or vendor who is furnishing materials to state the amount of waste that is included. For example, if a brick supplier furnishes 25,000 bricks for a big remodel including waste, three percent would be plenty. If you don’t know if he included any and you normally use 10 percent because of smaller jobs. Now you have included 3,250 extra bricks, which is way too much.
Not accounting for the accurate amount of waste material can result in paying a restocking fee — and that is if the supplier allows you to take back the product. Weiss says that “at $450 per thousand the cost of the brick can needlessly inflate the job cost” — potentially losing the job.
Debris removal is getting more expensive all the time. Haulers now typically charge a fuel surcharge and in some areas want debris sorted for recycling. Dumpster cost for a larger job can be significant so using an allowance for them will protect you profit — also keeps you from paying for cleaning out the neighbor’s basement.
3. Preprinted estimating form
Planning ahead is key to avoiding estimating errors. John Quaregna, CR, of JayQue Construction, North Bergen, N.J., says his company uses a preprinted form for each trade that includes everything possible in any project. “Whether we use each line item or not, it makes certain that we don’t forget the smallest item.”
The large buckets, for example, include: preparation, allowances, labor, administrative, demolition, foundations, lumber, insulation, siding, masonry, etc. Quaregna then includes subcategories for the remaining items:
- Home runs
- Ser. Chg/relocate • Electrical units
- Smoke Detectors
“This is a real life saver when it comes to estimating because in the past we would miss some items,” says Quaregna. “The architectural plans did not have some small details that are listed on the estimating form. Everyone should be using a form like this.”
4. Estimating software programs
Implementing software programs specific for estimating can be a huge time saver and can also result in savings to the bottom line. Many programs allow the estimator to estimate visually. For example, to estimate drywall, the estimator moves the mouse over the floor plan and clicks on rooms where drywall is to be placed. Another feature of these programs is allowing users to estimate with both existing and proposed floor plans. The estimator can show the customer how the building looks before the remodel and how it will look after remodel.
Charles Walker, estimator with Stegink Construction, Holland, Mich., says that by allowing the customer to see how the remodel will actually look not only helps sell the job, but also helps avoid costly change orders when customers see the real thing and decide it doesn’t look like they thought it would.
Walker says they are phasing out their old system, which included “a legal pad, pen and the latest edition of Hometech” and will only be using the Xactimate software program. “We can customize the prices lists to our own needs, get immediate updates with Quikbooks for our lead carpenters, and it is all very specific,” says Walker.
The Xactimate estimating program also has a built-in set of tools that analyze estimates for possible errors. For example, the system might discover you estimated 10 doors but only eight sets of door hardware. You may be reinstalling existing hardware on two doors but it may also be an oversight. The system will flag the issue and allows you to make the decision.
Walker says you can create “templates” of the common remodels you do and then do “exception” estimating in these software programs. In other words, “when estimating a kitchen remodel, you match it to a stored kitchen remodel already on your XactRemodel system. As you estimate, you only worry about items that are different from the stored scope.” If a light fixture will be replaced with a fan light, you note that exception. But if the cabinets, floor covering and electrical all match your stored scope, you quickly move past those items.
Fortunately, estimators don’t need to take the time to create scopes of common remodels. Once they complete a common type of estimate it can be stored and used the next time a similar remodel is estimated.
5. Plan an onsite visit
Estimating a project blindly is like purchasing a used car without “test driving” it, let alone not even seeing it in person. Setting up an on-site visit provides a better understanding of the total scope of the project — and your “professional” eye might see many situations the plans might not have caught. For example, the plans might indicate “needs a floor set new,” but in actuality you find structural problems, which adds a whole new dimension to the original estimate.
Scott Sevon, CGR, CAPS, GMB, Sevvonco, Inc., Palatine, Ill., plans a visit to all of his potential projects and also requests the homeowner to be there as well.
“We have found the on-site visit along with owners’ questions and knowledge can really assist us in forming a much more realistic contract pricing with very few major changes or adds,” says Sevon. Some typical questions he asks include:
- How does your HVAC system work?
- Where are your sewer and water lines?
- Are some rooms harder to cool/heat than others?
- Does your basement leak?
- What shape are your other windows as they are not noted on the plans?
Questions such as these can help in preparing a more realistic estimate, avoiding the hassle of change orders or even losing the job.
Other areas to note when visiting a site are the logistics that relate to the exterior of the home. For example, Sevon points out that being certain there is enough room to get tractors or trucks in when digging additions, finding storage for materials and pinpointing power lines, fences, landscape and trees are essential for a complete estimate. Adding extra costs such as special landscape or neighbor protection can really boost the final estimate.
6. Add an ‘inflation clause’
We have all witnessed firsthand the effects of things such as natural disasters and how it impacts the cost of material. With projects that have longer lead times, Riccotti suggests incorporating an “inflation clause” to your contracts. The clause prevents surprises to the homeowner when prices skyrocket because of unforeseen situations.
“I’m working on a project right now that was agreed upon in 2005,” says Riccotti. “We will begin construction on January 1, 2007.” With the inflation clause intact, Riccotti says he will revise the 2005 estimate with new material costs. “Since this was already predetermined, everyone is aware of the adjustments.”
Rob Mathews, president of Curb Appeal Renovations, echoes Riccotti and says he uses a similar clause and will include a specific time frame on when the estimate is valid. “Due to volatile material prices, make sure you have a statement such as ‘This proposal is valid for 14 days,’ ” adds Mathews “This will protect you incase of price increases.”
7. Be specific on your estimate
The relationship a remodeler builds with his or her clients is important to the overall success of the project. While a few decide to be ambiguous when writing their estimates, Rob Mathews, president of Curb Appeal Renovations, Keller, Texas, says being extremely detailed in this estimate has proven to be well worth it. “When it comes to the actual estimate, I make sure that every detail is clear to the client,” says Mathews. “For example, today I gave a client an estimate for a bath remodel, and when it came to the tile work in the shower I used to state, ‘install tile in shower’; I now try to be very detailed.” This is how Mathews handled the estimate he was working on:
Tear out existing tile from shower surround, install 1/2-in. hardibacker and install tile per design: install 1 x 1 tumbled marble tiles on the shower floor, 3” x 6” tumbled marble tiles on a brick pattern two-thirds up the walls between shower valve and shower head; then a 4-row border of 1” x 1” tumbled marble tiles then back to 2 rows of brick tiles, then another 4 rows of 1” x 1” tumbled marble tiles; then finish the walls and ceiling with the 3 x 6 brick patterned tile. Grout with Haystack color sanded grout and seal after 72 hours of curing time.
8. Charge enough for labor
“What always seems to jump up and bite you is that good ole labor cost you did not think of or charge for,” says Mathews. This might equate to a larger reevaluation of your company and business model since reassessing how many employees is needed to run your business successful can affect the bottom line.
“I think labor is the No. 1 cause for slippage,” states Mathews. “I have known builders to figure their labor costs, mark it up 67 percent along with the rest of the project, then add another 30 percent to the top of the labor costs, and they still get burned on labor.”
Mathews says that exact situation happened to his company time and time again until they decided to slim the company, found some great subcontractors and stopped getting hit with all the labor overages, which overnight increased their profit 5 to 7 percent.
9. Use historical data
For many remodelers who have been in this business for quite some time, keeping a file of past projects can end up saving you valuable time in the long run. Todd Miller, AIA, president of QMA Design+Build, Ventnor, N.J., says he typically will use past project information when preparing estimates.
“If I’m doing a beachfront remodel and I need to include cedar shakes in the estimate, I’ll look into a past project that was very similar and use those numbers in the estimate,” says Miller.
The historical data that Miller uses comes from a standard job cost report from his QuickBooks Accounting Software.
10. Open communication between ALL players
Having an open, honest platform between you and your subs is a great business practice to adopt. Along with a healthy remodeler-to-subcontractor relationship, open communication can also end up saving you money.
“Face it: if a subcontractor delays your project or does not show up, we have to invest in more project management time to get the subs back on schedule,” says Mathews, “and paying our project manager several nonestimated hours really cuts into our profit margin.”
So keep tabs on what the plan for the week is and make sure all parties involved are on the same page and, more importantly, the same schedule.