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Homeowner
Construction Estimates
What is an estimate? What is included in this estimate and where do these costs come from?

Estimate - a list of material and other costs directly and indirectly associated with the construction of your home.

Direct costs will be items such as lumber, concrete, and labor. These items are things that will be permanent fixtures in the home, or such things that will have been done to complete the construction.

Indirect costs will be items that the builder charges to keep the business running. Indirect costs can be broken down into overhead and profit. Profit is what the contractor charges for their knowledge, experience, and management ability. Overhead will pay for the contractors' phones, power for the office, office staff, payroll service, etc.

Advertise

Typically, a homeowner will have gone to an architect to design the plans or gotten them from a plan service. I suggest using an architect as they will help you make changes to the plan and can assist in advertising for bids. Often, when advertising for bids, a listing in the local newspaper will be sufficient, but if several contractors in the area are well known you may call them and ask if they would like to bid on the project. In my honest opinion, this is the best method. This will give you the option to choose whoever you want. Also ask them if they can fit you in their schedule, this is important due to the fact that if they have lots of work, they will bid higher to cover the extra costs they will incur to complete your home. The architect should also provide you with a base cost for the project that you can compare with the bids for accuracy. Do not, I repeat, DO NOT take the lowest bid just because it's the lowest.

Interviewing

After receiving the bids, pick several of them based on track record, cost, and professionalism and then interview with them, interview all of them if you have time. One point to remember in the bid sheet, do not stipulate when or how the bid will be awarded, instead state something to the effect of, "Bids will be opened on Month, Day, Year and bids will be awarded after an interview process has been completed." You can get some good ideas in differences of building techniques and design during the interviews. Many times a homeowner will just pick the lowest bidder and end up with someone that they are incompatible with. This is very important, if you can't deal with the contractor you will not have a pleasant experience during construction. Do not cull a bid because it is more expensive than the others, they may have seen a problem area that the others did not see and are covering for it. This will usually become apparent during the interview process.

Accuracy

Another item when comparing the bids, make sure the contractor has bid for what you wanted them to bid for? Did they include your Viking model cooktop or did they substitute it for a lesser model or brand? The problem that arises when substitutions are made that you were unaware of is a change order. Change orders make for bad business relationships. Don't get me wrong, there will always be change orders but they should be kept to a minimum. When substitutions are made the homeowner does not get an accurate estimate of final project cost, it will be a final project cost without all the change orders, which add up quickly. This is how many contractors get jobs, they bid the lowest quality items and then change order everything back up to the original product. They show you a very low cost but when it's all said and done you end up paying just as much as if you had taken the highest bidder.

More discussions can be found at the Construction Management Forums.




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