More often than not, we are asked to price a project with little to no details. We may get a question like "How much will it cost to build a 2,500 square foot bungalow?" or "How much to renovate my kitchen?" If we're lucky, the best plans we'll get are plans that say Issued For Pricing which have very little detail to actually get accurate pricing.
It's impossible to give an accurate price without a full set of drawings and complete set of details and selections. In renovations it's even more difficult as we often don't know what we're going to uncover until we get into the project.
So why set this expectation? Why risk setting yourself up for disappointment?
As a homeowner, we understand that price is important and that it is difficult to commit to a contractor without seeing a price. On the same hand, if one contractor is quoting $250,000 for a project and another is quoting $300,000, this is likely a mistake somewhere and going for the cheaper option is likely not going to pan out in the end (nor does it guarantee that the project will actually be cheaper).
This post is meant to open your mind to a new way of thinking about your project. It's not meant to convince you to work one way or another, it's simply information that you can use so that you can make a conscious decision about what is best for you.
Two Types of Contracts
In our years of construction, we have used a variation of contracts but they have all worked into two different categories:
The Cost of Business
Before we get into the differences between the two contracts, it's important to understand that there is a cost to doing business. That means that it costs money in order to be in business.
For example, if you work in an office, there's a cost to keeping that office running as well as keeping you as an employee. On top of paying your salary, the business also needs to pay for your benefits, the lease and/or maintenance of the building, the utilities, the computers, the desks, the chairs, the cleaning, insurance, taxes, loans, interest, vehicles, software, hardware, supplies, subscriptions and so forth.
That means that your "cost" (meaning the cost to the company) may be $35/hour but the company also needs to recoup all the other costs that are associated with keeping you paid.
As a contractor it is the same. There is a cost to being a contractor in business. There are things required in order to stay in business and continue to deliver outstanding quality and service.
(Yes, there are a lot of contractors who do not understand this but that is why a lot of them go out of business. And that's not good for the industry or for the homeowner.)
Now, whether those costs of business are hidden in the Fixed Price Contract or out in the open of a Cost-Plus Contract is up to you to decide what makes you feel more comfortable.
Here are some differences between the two different types of contracts. Whether or not they are pros or cons are up to you to decide.
Cost-Plus is financially transparent for the project because all financials for that project are shared with the homeowner whereas a Fixed-Price Contract does not require the contractor to share any financials. As an example, if a toilet costs the contractor $400 and the fees in Cost-Plus Contract work out to total a 30% markup, then you know that toilet will be $400 + 30% which equals $520 (plus applicable taxes). In a Fixed Price Contract there is no requirement to share the cost of the toilet so the contractor could charge you $700 (plus applicable taxes) if he chooses to. Ultimately that 30% needs to be worked into the price somewhere. Whether it's hidden or out in the open is the difference.
As part of our contracts, we offer a 3-year workmanship warranty (New Homes have a 7-year Tarion warranty). Outside of the workmanship warranty, there are also products that will have warranties. With Cost-Plus you will have a copy of every receipt and invoice for everything for your project. With a Fixed Price you will not receive any of those receipts or invoices. Any product issues you have will need to go through the contractor as they will have the original receipt.
Cost-Plus may seem as though the financial risk is on the homeowner, however, if the Fixed Price Contract does not include everything or anything is unclear, there is the risk of Change Orders for an undetermined amount. If the contract is tight and the work is very clear, a Fixed Price Contract could be the best option. If there are a lot of uncertainties or things are not detailed extremely accurately, the Cost-Plus Contract may be the best option.
It may seem like a Fixed Price Contract has the most incentive for the contractor to stay on schedule in order to hit milestones and receive payments, however, there is no benefit to a contractor taking longer for a Cost-Plus Contract either. It's always beneficial for any contractor to get in, do the work as quickly as possible and move on to the next project. Whether it's a Fixed Price or Cost-Plus, there is usually a fee for the project management and taking longer on a project is not necessarily going to increase this fee which means lost money to the contractor in either case.
Which Contract Does TCB Use?
For the last couple of years we have only used the Cost-Plus Contract. Does this mean we would not do a Fixed Price Contract? No. We would be happy to do a Fixed Price Contract however we would need a lot more details than what we usually get at the beginning of a project.
That being said, we understand that homeowners need to see a price. It's hard to understand how a 2,500 square foot home will cost $900,000 until the price is broken into categories. Knowing this, when we are contacted at the early stages, we can put together a rough estimate which shows where costs could go depending on the final design, details and selections. This, to us, is the starting point. From here decisions need to be made in order to address as many of the project priorities as possible.
Which Contract Is Best For You?
That's up for you to decide. No matter which route you go, you want to make sure you feel comfortable working with your contractor. Whether it's a Fixed Price or a Cost-Plus Contract, there are going to be unexpected costs due to changes and/or site conditions. It's a reality of renovating and building custom homes. It requires a lot of work and the lines of communication need to be open between everybody involved when these things happen.
On Wednesday, May 22nd, The Conscious Builder attended the annual Building Innovation Trade Show hosted by the Greater Ottawa Home Builders Association. This year had 30 plus vendors and 4 speakers.
The event is offered to members as well as invited guests and provides a great resources for education and development in the industry. This year’s theme was about Climate Change and its impact on the building industry.
Presenters included Tim Short from Enbridge Gas who talked about an exciting pilot program involving combination heating systems for residential construction involving electric and gas, Gary Martin from the Sprott School of Business discussed the sense of urgency and the need to adapt and change conventional practices, Dan Sandink who explained how the Insurance Industry needs to catch up to current climate trends including data collection efforts and Cory MacCambridge from the Engineered Wood Association talked about better framing products to provide higher wind resistance.
To learn more about the Greater Ottawa Home Builders Association visit their website at gohba.ca.
The final numbers are in for the 2018 Reno Tour. During the meeting we presented our charity partner Habitat for Humanity - Greater Ottawa with a cheque for $3,750.
On Sunday October the 14th, 2018, we were one of eight RenoMark Renovators showcasing our work across Ottawa. We were providing tours of our basement and bathroom makeover in Old Ottawa South. Participants were able to purchase tickets online or at a Habitat Restore for $10 with all the proceeds going towards Habitat for Humanity for current and future projects.
If you're looking for renovation ideas, interviewing contractors or just looking to support a great cause and get some exercise, Homes For the Holidays 2018 is a great choice. We sat down with Susan McIntosh, manager and director at the May Court Hospice in the Glebe, and volunteer, Sharon Lalonde, for a video interview and quick tour of the Maycourt in the Glebe.
Homes for the Holidays is a three day tour of homes decorated for the holidays by local decorators. The Ottawa Hospice provides compassionate and end of life care for approximately 1,500 people and their families every year. All funds from the tickets goes towards end of life and palliative care and services.
For more details about the Home Tour please visit hospicecareottawa.ca.
So how much does it cost to renovate? This will be a little more difficult to answer than my last post, How Much Does it Cost to Build a Custom Home? But we’ll give it a go so there are no surprises.
Below is a list of costs for budgetary purposes only and is for the Ottawa area. Please note that every homeowner, home design and existing home is different so there will be many factors at play for each project.
There’s no way to answer this question with an exact number nor is there a way to give you an exact per square foot number. The reason is because what goes into the square footage will vary from project to project. Here are some examples that may drastically change the price.
This would apply if you were doing an addition. One lot could have perfect native soil and another lot could have 3′ of rock that needs to be blasted or chipped away. Or, like in the case of my home, we had 6′ of peat moss that had to be removed and replaced with blasted rock and an engineered pad.
You could have a 1,000 square foot renovation of an open living space or you could have a 1,000 square foot renovation which includes a kitchen, 2 bathrooms and a wine room. Both have the same square footage but one will obviously be more expensive than the other.
Bathrooms & Kitchens
Your 1,000 square foot renovation could have an Ikea kitchen with laminate tops and one bathroom or it could have a $100,000 kitchen with two bathrooms complete with stone floors and counters.
You could have vinyl siding on the exterior, high end wood siding or masonry veneer. These all vary significantly in price.
Windows & Doors
You could spend $10,000 on cheap double glazed vinyl windows or you could go for Passive House Certified triple glazed windows with wood frames and aluminum cladding which could run you over $50,000 for the same number of windows. It’s not one or the other however this shows the significant price range.
Do you want vinyl flooring and carpet or do you want reclaimed hardwood floors and porcelain tile? Carpet stairs or hardwood stairs? Wood railings or glass railings? Full basement or no basement?
These are just some of the factors that will affect pricing for your renovation. I’m not saying you have to go to one extreme or the other, my point is that you can renovate 1,000 square feet with cheap finishes and no kitchen or bathroom OR you could renovate 1,000 square feet which includes a complete custom kitchen, 2 bathrooms and a wine room with expensive finishes. Both have the same square footage but they will be in completely different price ranges.
Budget to Renovate
Now that I’ve laid the ground work and hopefully clarified where some of the costs may go, here are some numbers to keep in mind when planning your renovation project:
I hope this has helped you and offered you clarification on this important decision. My goal here is to educate and inform you of what is realistic for your renovation. We are not in the business of “low balling” projects just to get a contract signed only later to hit you with surprise increases. Our relationships with our clients are most important to us and they are long term relationships. This is why we work with you in order to design and renovate your home the way you want it so that you and your family can create lasting memories.
Lastly, I need to thank Chris Straka of Vert Design Incorporated for helping with some of the numbers in this post.