Be Honest with Your Builder about Your Budget

Property owners hate it when the contractor asks: “What’s your budget for this project?”  Most homeowners want to keep that number secret, believing that the contractor will simply quote the job at the maximum budget.  On a sales call for my San Francisco contracting business, I once spoke to a small business owner who believed that contractors are all in cahoots, sharing a giant, semi-secret database of property and business owners and their budgets for projects.  The best I could do was laugh and assure her that most contractors aren’t that good at sharing.  In the end, we weren’t able to agree on terms for that job.

But it’s an understandable concern, and it’s true that the resulting quote often comes in quite close to the homeowner’s number.  Even so, don’t be afraid to tell the contractor the budget.   Why?

  • First, if you reveal your number, no harm should come to you.  Presumably you’re going to get more than one firm quote, and the contractors will cut their numbers to their minimum, in order to compete for your bid.  If you don’t like the resulting quotes, then don’t accept them.  There are plenty of contractors out there who want your business.
  • Second, it really isn’t suspicious that the quote often closely matches the budget.  Most homeowners have some financial skills and have done some research about the cost of work.  If you’ve done a good job with your research, then your estimate should be close to the contractor’s quote.  There’s a chance that the contractor has tailored the quote to your budget by picking particular finishes and designs, and you can always adjust the quote up or down by changing those selections.  You can ask the contractor for a detailed schedule of values (or SOV) so that you can see where the money is going.  If you get a detailed quote or schedule of values, it should include a profit margin or markup amount between 10% and 25%, depending on the job, the contractor, economic times, and other considerations. Be forewarned that more experienced contractors are less likely to provide a detailed schedule of values.
  • The third reason to reveal your budget is that you and your contractor should start any project with a conversation about expectations. About half of the owner project budgets I’ve seen were unreasonably low – champagne taste on a beer budget.  In those cases, the homeowner needs to be told,  “Plan to spend more money, or adjust your expectations.  This won’t work otherwise.”
If you just can’t bring yourself to tell your contractor your real budget, then tell him or her a number that’s 75-80% of your maximum budget.  Your contractor can help you specify features and finishes that will meet that budget, and then you can decide whether to add items for additional quality.
Just remember that if you start the discussion with a contractor with some honesty, you’ll have a good chance of continuing the relationship the same way.

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