Elements of an Estimate: the integral pieces of developing an accurate estimate for your remodel or new build

Elements of an Estimate: the integral pieces of developing an accurate estimate for your remodel or new build

Construction estimating is the process of anticipating the expense of building a physical structure. Construction budgeting is the process of collecting bids to compile the exact costs of the project. While the estimating process is helpful in guiding a homeowner through the decision process, the budgeting step is essential, and one of the most crucial in the construction process.

 

Not all construction estimates are created equal

A construction estimate is a broad range number given early in the stages of pre-construction, which allows the homeowner to decide if the project is financially feasible. Many contractors will quote a lump-sum construction estimate shortly after looking at the project without validating its accuracy.  If you get an “estimate” like this, run the other way.  A better approach is for the contractor to spend some time, after the initial meeting, itemizing each job cost to explain how that lump sum is derived. While this approach is more time-consuming, it makes the homeowner feel more confident and comfortable with the integrity of the contractor.  An itemized estimate can typically be put together in a week or two.

When information and plans may not be complete, the estimator must blend known data, such as a building’s size and scope, with other details based on unit costs, assumptions, historical data, and best judgment. As the design is refined, the final budget is based more on solid information.

A construction budget may take months to compile numbers and all design aspects are needed before a budget can be created (i.e., architectural plans, engineering, and specifications). A budget needs to be as accurate as possible because profit margins (the livelihood of the contractor) are impacted if any budgeted costs for the project are off by even the slightest amount. Every successful project starts with a precise and accurate cost budget.

It is our goal to share the information in this blog post to inform clients, potential clients, and those interested in the home building and remodeling industry of all the elements and work that goes into each estimate and budget your contractor provides.

 

Types of Construction Contracts

In an estimate-style proposal, every labor activity and material in the project is listed in painstaking detail but is not validated for accuracy.  Rather than being billed off the estimate, the homeowner is billed for the actual materials used, actual hours worked, and work performed by subcontractors. The contractor’s fee is expressed in the form of a percentage of the project cost. This type of contract is also called a time-material or cost-plus contract.

These contracts are the most transparent since you will see very clearly how much profit the contractor is making, but these contracts can be very large and complicated, since they may list hundreds of different line items. Nothing will be left out—not even peripherals such as permits, roll-off dumpsters, and debris pickup.

The downside of the cost-plus contract is that construction starts based on approvals of estimates, rather than firm bids.  This means the total price at the end of the project may be far different from what you initially expected to pay.

An alternative contract is fixed-price or stipulated-sum.  Much like cost-plus, early-stage itemized estimation of the project cost is the first step in deciding if the project is financially feasible.  Step two, under stipulated-sum contracts, is to design the entire project from plans and engineering to final finishing touches.  This is done before construction begins and allows the contractor to create an accurate construction budget using real bids.  Knowing the final price of the project before signing a contract allows the homeowner an opportunity to organize funding sources and plan actual expenditures in advance. Specifying all of the finishes upfront also allows for the project to run more smoothly.

 

Why is the Estimate Important?

Accurate estimates win new projects and business for companies. In the bid estimation phase, construction documents, take-offs, and other direct costs are used to allow the estimator to determine an approximation of job costs. Customers and builders are concerned about the price of a project because of the financial impact of expenditure overrun and the failure of project completion. It is in the interest of BOTH parties to spend time researching and estimating the expenses. No one wants to lose money, and construction estimating provides a useful tool in project management.

At Timber Ridge Properties our main priority is communication. From our initial construction estimate to finishing touches we want you to understand every element of your project and feel as though you are great hands. There are quite a few contractors out there that will try to reel you in with an incomplete estimate that makes the deal look pretty sweet but in the end, there are hidden costs and fees that make your project even more time-consuming and expensive than it originally should have been. We believe in full transparency.

If we sound like your type of builder – give us a call!

 

The Building Supply Chain: good news around the corner

The Building Supply Chain: good news around the corner

If you’re ready to start a large-scale remodel, you may need to deal with the ongoing fallout from the coronavirus-related economic shutdown. While do-it-yourself (DIY) projects are enticing, working with a contractor will help to mitigate its impact.

The problem, as we all know, started in March and April of 2020. Some states and localities halted all construction, and homebuyers in other areas canceled or postponed their projects. The sudden drop in demand led to plant closings throughout the building supply chain, from lumber mills to window, door, and appliance manufacturers.

Housing starts bounced back quickly, thanks to a lifting of restrictions and 3.5% mortgage interest rates. The U.S. Census Bureau reports that August 2020 starts were up 22.6% from the previous month and up 23.4% from August 2019.

Unfortunately, the supply chain has been slower to rebound. Some manufacturers have two-month order backlogs, and others have been struggling to get parts. For example, most refrigerator compressors are made in Mexico, where factories also closed for a time and are still catching up.

Between April 2020 and April 2021, the National Association of Home Builders said the “price per thousand board feet” increased by nearly 250% — from $350 to $1,200. Prices then soared past $1,400 in early May and have continued increasing since. While material prices are slow to correct, there are ways to get your desired home enhancements without breaking the bank.

 

A Possible Solution to Your Supply Chain Woes

A contractor and designer can help discover creative solutions that may be overlooked by a DIY project. Making small adjustments that only minimally impact the way the home looks and feels—otherwise known as value engineering—can get you the remodel you desire with less of a financial impact.

The value engineering process looks for ways to economize without sacrificing amenities or quality. One obvious solution is to choose less expensive products, but you can also tweak designs. For example, simplifying the exterior facade on all or part of the home—reducing the number of corners and trim details—will save labor and materials without crimping interior living space.

A contractor can also help mitigate backlogs and material delays.  Current supply shortages include commodities like treated lumber, which is needed for areas that require moisture or termite resistance, such as deck frames and sill plates (the boards that secure the home to the foundation). Meanwhile, there have been delays in getting some manufactured products and options. For instance, some appliance companies are only making stainless-steel finishes at this time. Contractors who are continually ordering materials in large quantities may experience less of a delayed impact than a DIY’er.

One final point here: material prices, order lead times, and available options can vary from market to market, so a news story or the experience of a friend in another state may not apply. The only way to determine how these issues will impact you and your project—and what the proper response should be—is to discuss them with your contractor.

 

What to Expect Moving Forward

These unpredictable delays in the supply chain are expected to continue over the next few months, at least. Another way to mitigate the impact this has on your project is to make decisions fast and early. If you need to move into the house by a certain date, it’s more important than ever to speed up those design and product selections.

While the market turns faster than the supply chain, there is some reprieve on the horizon. According to the Wall Street Journal, prices for two-by-fours surged in May 2021 to more than twice their previous record, set three years ago when there were about 15% fewer homes being built. Now wood prices have since plunged back to levels resembling those before lockdowns cut supplies short and boosted demand.

July futures ended late August 2021 at $521.40 per thousand board feet, down nearly 70% from the high of $1,711.20 hit in May 2021, when wood-product supply lines were still being unknotted after the lockdown and before Americans began to shift spending from home improvement projects to vacations and dining out. More actively traded futures for September 2021 delivery settled at $612, which is $27 below the pre-pandemic high. This decline will benefit contractors, their clients, and DIY’ers.

 

Contact Us

If you have been holding off on your custom home or custom remodel because you’ve been hearing about the volatility of the building industry supply chain – things are looking up! Contact Timber Ridge Properties to move forward on your project. Remember, working with a contractor or designer will make the process easier and more cost-effective.