How do we price renovations? Part 2
In part one, we dug into the philosophy of how we price renovations (Reassurance Pricing, read here). But now to the practical of how we price renovations. We’ll answer these in two ways:
What is your process in putting together estimates?
What is your cost structure for renovations?
What is your process for putting together estimates?
Our goal in pricing renovations is to provide a couple checkpoints to ensure that our pricing aligns with your budget. The first checkpoint is ballparking. Ballparking relies on costs from previous projects, standard pricing for materials (like the cost per square foot for tile and standard costs for an appliance package), and price guidelines from our subcontractors. This includes considering how much different items will cost based on size, like the price per linear foot for cabinetry installations. At this stage, we don't need formal plans; we're just looking for a rough estimate. Our goal is to create a list of line items with broad price ranges, including some extra room for unexpected costs. Once we've reviewed and confirmed these preliminary estimates with you, the next step will be to move into more detailed preconstruction planning to finalize the project’s design and budget.
The second checkpoint is formal estimates. At this point, plans have been completed, and all relevant discussions have been held with vendors and subcontractors regarding pricing. If the client has preselected certain items or if we engage in interior design consultations, we will adjust the allowances accordingly. The final deliverable will be a formal quote outlining the full scope of work, including any necessary allowances. If the client approves the quote, we'll be ready to move into the construction phase. The next step is to accept the quote or request revisions as needed.
The final checkpoint would be any estimate revisions. Often, there’s the desire to create some savings, and now that formal estimates have been created, we can have an informed conversation about what we can adjust to land in the budget range you’re looking for. As a brief aside, we always encourage clients to expect to spend 10% above the contract price on things they will inevitably add during the project and potential discoveries in the renovated space that need to be addressed or repaired.
What is the cost structure for your renovations?
Any project is structured in one of two ways: cost plus or fixed fee. Fixed fee projects include a contract price that does not move based on labor or material fluctuations. Only change orders initiated by the client or contractor will impact the contract price. The benefit of a fixed fee is that it gives a client peace of mind that costs will not change. The cost to the client for a fixed fee contract is that the builder must build contingency funds within the estimate to protect from these fluctuations, meaning the client could end up paying more than the project could have cost. If a client prefers a fixed fee contract, we default to a minimum 10% contingency added to the final contract price.
Cost-plus projects allow for fluidity in labor and materials throughout a project (although due diligence and a detailed quote are provided on the front end), and each line item of the project reflects a vetted estimate for the project's cost. At agreed-upon points throughout the project, the client is billed for all costs, along with the disclosed contractor markup. Cost plus is the preferred cost structure for our projects. As the client, you only pay for exactly what the project costs, no more, no less. This frees up the client to add to the scope if desired without creating confusion due to a fixed fee already set for the project. It also frees us up to focus solely on delivering the best product and experience we can without constantly worrying about the cost of materials.
Conclusion:
No one likes to be surprised by a huge number at the bottom of an estimate, particularly after you’ve waited weeks, or sometimes months, to get it. We focus on key budget checkpoints, transparent pricing, and healthy management of expectations to ensure you feel informed, empowered, and confident moving into your project.