Getting Estimates –
Is the Low Bid Ever a Good Deal?
Low Bid Estimate or high? What one do you go with? As you decide to move forward with your remodeling project, you may wonder, where to start the process. In this post, we share a few guidelines to help you get started in making an educated decision on how to proceed.
Lets use the following example, let’s say you are in the market to replace your siding, windows and/or roofing. So you start calling around to local contractors to arrange a meeting to get several estimates.
As you meet with contractors and receive your estimates, you may begin to notice some of the contractors bids on your project see to be quite low in comparison to others which could very well you wondering why this is and evaluating to determine if they are truly offering a good deal. So why might some of the estimates so much lower than others? We’ll explain more about why this might be and some things to watch for below including what is often referred to as a “low ball estimate”.
“You Always Get What You Pay For”
Most, if not all of consumers in the U.S., have heard and/or used the phrase “you get what you pay for”, at least a few times in their lifetime… and this is certainly a good rule of thumb. Many of us have found this to be True through our own experiences, as we have not only through our business but personal experiences from the homeowner or consumer side, we can certainly confirm this a valid statement!
As simple as it sounds, history has proven this be true, even as we might not always listen and found ourselves losing money, time and saying to ourselves, “I knew it” or “I should have gone with my “gut’ feeling” . . . many of us have had this experience time and time again, and hopefully, at some point we figure it out, that we really do get what we pay for. I know I will never get a Mercedes -Benz automobile level quality for a thrifty price, it is simply not going to happen. The same is true what it comes to home improvement when the question arises, “is it a good idea to go with a low bid estimate?”
3 Ingredients of an Estimate Price
Each construction company has overhead which needs to be considered when preparing their price point for products and services. Some of the overhead may include expenses such as their office and/or warehouse space, vehicles, tools, electric, internet, phones not to mention the cost of marketing the business and cost of paying the workers. All of this combined makes up a company’s overhead. I think it a pretty good guess that for the most part, we all pay about the same as our competitors, the distributions are what we have found to vary.
Their is one exception to this, big box stores for home improvement have a bit of a different situation, these are stores such as Home Depot and Lowes. They actually have less overhead because the store is already in place and at some point they opted to add these products and services which don’t necessarily affect their overhead costs much, they simply add a department or kiosk to take orders. The big box home improvement stores also pay less for materials as they are able to purchase in larger quantities and store it. As homeowners consider this, it is interesting to find that an estimate from Home Depot for services or Lowe’s for services ends up actually being the highest priced bids.
Homeowners may often make the choice to go with one of these option without thinking due to trust as they are very familiar with the name and might think they are taking the easier route rather than getting several estimates at which time they can compare and see what other companies might have to offer including lower price for quality products and installations.
Installation crews get paid for the labor they provide to work on your home to install the product and paint if you are having siding work done. In the Houston Texas metro area, this cost is about the same from company to company for the most part. Although you might receive some lower bids, often times with the lower bids, there is a good chance the crews are the ones taking the hit and getting paid less. Something to consider, not only are these are the guys that are doing the hard work day in and day out often in hour hot humid Houston Texas weather.
Keep in mind that better paid crews are likely to do a higher quality installation as they are not in as much of a hurry to complete the project, more projects completed, more money. If the crew is getting paid better, they can slow down and do a better job because they are receiving appropriate pay for their hard work. Sadly, this is more often than not, one of the first ways the low bid companies cut their cost to save themselves money and bid the projects so low. As mentioned, one of the problems with this, is it can affect workmanship whether they are working too quickly or crews end up consisting of underskilled workers who will work for the lower pay.
Another area where a low bidding company can also cut back and save is in materials. I have witnessed this done in a number of ways. First of all, be aware that it is not uncommon for some contractors to actually use stolen or recycled building materials on their installations. This could be one of the reasons for contractor’s bid to be so much lower than all the other bids. By low-bidding, these companies make their money by quantity rather than quality so their goal is to get more home improvement jobs with a low price, versus offering quality workmanship and installation to homeowners, so this is how they make more profit. They bid low, get a lot of jobs and kick them out as quickly as possible paying their crews as low as possible leading to using less experienced crews who are often underskilled.
Asking for More Money
One of the most common experiences homeowners report with a low ball estimate from home improvement contractors is the contractor asks for more money after the job has started. As the project progresses they find reasons to increase the price so in the end, they end up not being the low bid. This doesn’t mean there are not legitimate things that were not included int the bid but it very well could have been deliberate, they got you! No matter what excuse they might find, this is very likely the case and they just did not bid the job high enough to begin with. Keep in mind this could be because they are inexperienced or very well could have been deliberate. This tactic is called a cost overrun. What homeowners experience is the company ends up asking you for more money to complete the job whether it be due to finding things they did not expect or revealing that they ran into more than they expected or your job is tougher than expected. In actuality, they should have bid higher in the first place and find various ways to increase the bill.
So, we should all take heed from this quote, “Price is what you pay, value is what you get” This is almost always the case with home improvement when receiving low bid estimates for siding, windows or roofing is often not the best value for your money.
What Happens if the Homeowner Refuses to Pay More Money?
When a contractor asks for more money for work which was already bid, in most cases one or more of the four things noted below could happen:
- The contractor may stop your job
- A lesser grade of material may be used on your home
- The crew may receive less pay which can often lead to a lower grade of workmanship (the crew will want to get the job done quickly to make more money by getting onto their next job as soon as possible, quantity vs quality).
- The contractor tells you something was replaced or completed but it really was not and was just covered up.
These types of things have been experienced by homeowners who chose to go with the low bid estimate contractor, what a tough lesson to learn. Now they know next time to think twice before choosing based on lowest price alone! At Texas Home Exteriors, we have heard about and been shown these types of experiences as homeowners are sharing and reporting these types of experiences and information with us. One big recommendation we have for you is to always try to get at least three estimates. Certainly, you are anxious to get your new project under way and really don’t have the time to get three contractors to your home to look at your project, but really is necessary so you can get comparisons which could very well help assu save you a lot of grief in the end.
Get Several Estimates
Some things to watch out for in your potential contractors as you are getting estimates are that they are professional, courteous, responsive and punctual. Make sure there is a great line of communication between the two of you. By getting at least three estimates, you can get a pretty good idea idea of the price range and a feel for the contractor (you may very well see a huge difference from one to the next). Make sure that you and your contractor know the exact work to be done and it is specified on a written contract.
Don’t be afraid to ask when the job will start, about how long it will take to finish and be sure he puts it on the contract (estimated start date and project duration). It is very important to get the estimate in writing making sure all of the work to be done is listed along with the price he will be charging to complete that listed work. Consider your project and what you it might consist of, what you would like done and included in the project. It is a very good idea to do some homework before contacting a contractor so you have a general idea what you are wanting, ideas of materials and maybe even some questions you may want to ask during the appointment.
Be sure to ask each of the contractors if the estimate or bid includes the price for such things as permits which may be necessary, if the price of labor and material are both included in the price, this way you will be less likely to have surprises at the end of your project. If you will be paying by credit card, you might ask if they charge a fee for this which may not be revealed until the end. Also, if you are considering a financing option through your contractor, make sure they outline the exact cost of your down payment, your monthly payment, the interest rate and number of months or years the contract is for as well as if there will be a penalty for paying off the financing early.
It is also important to make sure that the contractor can provide you with verifiable proof of insurance and bonding before you consider to hire them to start your project. You can also ask your friends and neighbors who they used and if they can recommend a trusted contractor to you. But still, don’t just take their word for it and don’t be afraid to ask the contractor for additional references of their past work so you can contact tham and personally ask about their experience. You can also try doing some of your own research on them as well. Good places to look are Angie’s list, Google, and the BBB to see if the company has a bad or long history of upset customers.
Highest Bid vs Lowest Bid
Now you are at the point where you have done your homework and have your three bids in hand. Of course you are going to find that one is always going to be the lowest and another one is going to be the highest bid, so now what to consider? Keep in mind that being the lowest bidder does not necessarily mean that that company is always the wrong choice. Here are some specific things to consider as you review the bids and contractors.
1. Do they have a lower overhead?
2. Are they using cheaper materials?
3. Are they using a subcontractor or are they doing the work themselves?
4. If they are using a subcontractor, did they get a better rate from them than the others?
5. Did they leave some necessary items out of the bid?
Having a lower overhead is not a bad thing for a company. What is bad is if they give you a low bid and then end up having to go with lower quality products that cost less, cheaper materials in order to stay on budget and make some money otherwise they will be coming to you and asking you for more money to complete your project as we mentioned earlier. Make sure that all of the quotes came with the exact same materials and if they don’t make sure to ask questions as to what the difference is (different companies often use different brands or options so something else to consider). Be aware of taking underbidders offer and the headaches that come with dealing with the lowest bidder.
Sometimes they might give a low bid just in order to “get the job”. They may see a way to get more money out of you later or get your trust and make it up with higher pricing on a future project. Contractors such as these will bid the project way lower (under bid it) just to get your business then later come back saying that there is more damage than what they originally thought and change their bid amount or add additional after the work has been started, this happens all the time and homeowners have no choice but to pay them to ensure their project gets finished.
Another suggestion is to ask the low bidder, the one who rendered the low estimate, for a financial statement to make sure they have the financial backing to complete your job. You can always ask for a meeting with the owner or manager of the company instead of the sales person and ask them how they are able to provide a bid that is substantially lower than any of the other bids you received.
After considering all of these factors and if you decide to go with the lowest bidder you can always ask for a provision that he provide a performance bond for the project. This type of bond typically costs between 2% and 5% of the contract price. This will give you a little more peace of mind in two different ways.
If a company has the money to provide you with this then it typically means that they are experienced and financially solvent. The second way is that if for some reason the contractor defaults then the bonding company will step up and pay for the job to be completed by another contractor.
We should consider this quote from John Ruskin:
“It is unwise to pay way too much, but it is much worse to pay too little. When you pay too much, you lose a little money … that is all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the things it was bought to do.
The common law of business balance prohibits paying a little and getting a lot … it cannot be done. If you deal with the lowest bidder, it is well to add something for the risk you run. And if you do that, you will have enough to pay for something better.”
Please feel free to post your questions, comments or experiences below, we always like to hear from you!