Armchair Builder

How to Build a Home, Step 15: Negotiating

At this point in the process to build your dream home, you have reviewed your bids and have decided which trades and suppliers appear to be the best fit.  Remember, you want to review all kinds of items before hiring contractors…not just price.  So now that you have an idea of which companies you want to work with, it’s time to negotiate the prices.  Here’s an inside look at how a professional builder works with subcontractors to get the best price possible.

Meet in Person

It’s always good to meet face-to-face when conducting business as important as building a home.  This is one of the biggest investments you will make in your lifetime so you want to make sure everyone is working from the same playbook.  It also helps to add a personal element to the process.  Sending emails back and forth about price can lead to frustration by both parties and ultimately, may sour the relationship.  You also don’t want to send the message that price is the only consideration.  Obviously quality, service, and schedule are all very important as well.

Do Your Homework

Before meeting with each company, be sure to do your homework.  You will want to review all of the bids for a given activity prior to meeting with the potential candidate.  Look hard at the estimated quantities and compare them to the other bids as well as your own calculations.  If you aren’t sure how to estimate quantities, ask your builder consultant to give you a quick course.  Make notes of any errors in the calculations.  Remember, waste factors should only apply to material, not labor. You will also want to shop around for material prices to see if the breakdown provided on your bid sheets are accurate.

Take for example the roof bid.  You can double check the actual cost for asphalt shingles by checking with local suppliers.  Keep in mind, most trade contractors that do any volume get discounts from material suppliers.  It’s similar to the frequent shopper discounts you get.  By sending your business to one company, they want to reward you for coming back.  This is even more true with contractors.  From roofing to plumbing and lighting supplies, the suppliers want these high volume purchasers to keep coming back.  So keep in mind, the pricing you are quoted from suppliers will be higher than what the contractor bidding your work pays for the same material.

Bundle Material in Contracts?

The age old question in home building is…Is it better to purchase the material yourself or include it in the contractor’s price?  For example, should you purchase the asphalt shingles and have them shipped to the job site or should you include this in your roofing contract?  If you check with local suppliers and find out the trade contractor is marking up the product too much, you may decide to go ahead and buy the material yourself.  There are several reasons many professional builders avoid this…

  • Theft – When your roofing contractor buys the roofing material, they are responsible if it is stolen prior to installation (make sure this is in your contract)
  • Waste – When the trade purchases the material, they are more careful with waste…Do you have any friends in the construction business and if so, have you noticed any extra building supplies around their house?  Ask them if they paid for the material…most likely it was “leftover”…which means an unsuspecting customer paid for it.
  • Product Failure – if your trade supplies the material or product there is no question who is responsible…when you buy it, you are obligated to go back to the store to deal with it…and then pay for the labor to remove and replace.  Ask your favorite home improvement store if they will reimburse you for labor if a product fails…most likely, they will not.
  • Management Time – Managing roofing, siding, plumbing…any material for that matter, takes time.  You need to order the right amount of material…not too much, not too little.  And there are other small items that go along with the big stuff.  For roofing you have things like flashings, underlayment, drip edge, nails, vents,…etc.
If you have done your homework and determined the typical price for the product, you can use this as a tool for negotiation.  Tell you contractor that you know what the retail price is and that you know (s)he gets a discount.  This should help you get the price down to a more reasonable level.  If not, you may want to consider dealing with the extra issues mentioned above to save a few bucks.
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Ask for Cost Saving Ideas

One very effective method for lowering your costs on a new home building project is to ask your contractors to provide some cost saving ideas.  It probably sounds too good to be true, but coming out and asking for ideas for saving is one of the best ways to lower costs.  Here are some typical cost saving ideas that trade contractors can help you with…

  • Products – As mentioned above, trade contractors do more business with certain suppliers and get volume discounts because of it.  If you are requesting a shingle manufactured by “XYZ Company” but the contractor doesn’t normally work with them, you may be able to switch to a different manufacturer to save.  Things like furnaces, faucets, cabinets, windows….etc. all have significant volume discounts.
  • Efficient Methods – You might find that your contractor or supplier has a more efficient way to build the home.  Take for example the floor framing material.  You might be able to switch to engineered floor joists to save over the traditional 2×10′s shown on your house plan.  Just because the architect put them on the plan doesn’t mean they are the most efficient way to build.  In fact, most architects aren’t that familiar with the latest costs.
  • Payment – If your contractor is a small operation, you might be able to help them with cash flow by paying more quickly if they will lower their price.  Be sure to check with your bank to make sure you can deliver on your promise.  You don’t want to get caught in a situation where a bank inspection takes weeks longer than you anticipated.
  • Sign – Maybe you can help your trade contractor by placing a sign in the yard or by providing a letter of recommendation.  If you have a big community with a club house, you could even ask to place the company business card on the bulletin board.  Or how about a YouTube video of you describing the great service and showing the contractor’s quality work?  All of these things can help your trade contractor get more business and potentially help you lower your price.  Of course, the agreement will be that you provide great reviews only for great service.  This may help you get a better end product.
  • Cleanup – It doesn’t make a lot of sense to have an expensive trade contractor clean up after themselves…unless they have a laborer with them.  The reality is, most residential contractors are small operations.  I once had a union electrician who worked by himself sweeping out houses when he was done.  At $60 per hour, this really doesn’t make sense.  See if you can handle part of cleanup to lower your overall contract costs.
When negotiating pricing with your trade contractors and suppliers, keep the discussion positive.  It’s never good to take an adversarial position where it’s me versus you.  The good companies will work with you to help lower your costs.  For more information about negotiating and hiring your trade subcontractors, check out this Armchair Builder video…Finding Quality Subcontractors.  Do you have any other ideas for negotiating negotiating with contractors?  We would like to hear them…Contact us.

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