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5 Ways Construction Projects Go Wrong – Not Breaking Down the Big Number

5 Ways Construction Projects Go Wrong – Not Breaking Down the Big Number

Many of my real estate clients want to renovate or modify their homes to their own liking. In addition to being experts in real estate, we pride ourselves on the depth of our construction and design knowledge.

Starting a home renovation is a monumental task. You’re likely not a construction expert, so you can be at a major disadvantage when dealing with contractors. They speak their own language, and you’ll need to become fluent to be sure you’re getting the best deal.

Being in the know about every detail of your project is key to a successful build. In this five-part series of articles, we’ll take a look at 5 Ways Construction Projects Go Wrong. The first is not securing a fair contract.

A construction contract is a legal document that outlines the goods and services the contractor will provide, as well as how he will be paid. The more detailed the contract, the better chance you have of preventing or successfully dealing with problems.

 

Know Your Rights

California state law says contractors cannot request more than 10 percent of the total construction costs, or $1,000, up front, whichever is lower. (Take it from the Contractors State License Board.) Many contractors will ask for more, so it’s crucial to know your rights under the law and have the payment terms in black and white.

While may contractors are reputable, some have been known to “take the money and run.” The most common scenario is when a contractor uses one customer’s funds to buy materials and pay sub-contractors for another project. To avoid this scenario, it just makes sense to keep as much of your money as possible in your pocket until the work is done. Be sure your contract outlines when the contractor will receive each portion of the payment.

 

It’s All in the Details

construction renovation checklist costsA contract that breaks down labor costs as much as possible is generally a better deal for the homeowner and the contractor. For example, when remodeling a bathroom, it’s prudent to break down the project into dozens of line items, such as demolition, plumbing, tiling the floor, installing vanities, installing shower fixtures, painting and installing hardware, such as towel bars. In fact, my designer and I break down the project over two hundred lines for a major renovation.
This level of detail makes it easier for the homeowner and the contractor to agree on the costs of each part of the project. If there’s a change down the road, such as adding tiled walls, the changes in cost can be contained to one specific line item.

Since homeowners often don’t know the ins and outs of construction, a contractor can easily pad a less detailed $25,000 budget with $5,000 in extra costs when part of the project is changed, while in fact the change order should be much less costly. A more detailed breakdown of costs is much harder for the contractor to manipulate. Insist on a detailed, line-by-line agreement about how your project funds will be spent, and be wary of any contractor who resists this request.

For instance, if your original contract has a line of $1,000 for 100 sqft of floor tiling work, you’ll know adding another 50 sqft of wall tile won’t cost much more than another $500 in labor. Suppose there isn’t a breakdown, one would probably think adding $1,000 for 50 sqft of tiling to a $15,000 bathroom remodel contract is a reasonable change order.

Know What You Owe

Just as you wouldn’t go to the grocery store and throw “some groceries” into your cart, then pay the bill without considering the costs, you shouldn’t simply throw items into your construction shopping cart without understanding how they’ll affect your bottom line. This applies to both labor and materials.

costs spending construction renovation savings money

A detailed breakdown of costs can help homeowners make decisions about which costs they’re willing to shoulder in exchange for particular features. Have you been dreaming of a large walk-in tiled shower stall with multiple shower heads and a large glass wall? Seeing a breakdown of the considerable material and labor costs might make you change your mind.

 

When you’re ready to get started on your remodel, one crucial tool to have is an experienced and knowledgeable design firm, such as 3E Design. They can advise you on how to talk to contractors about the benefits of securing a detailed contract.

In our next article in this series, we’ll talk about the construction document and how to be sure you’re getting a fair shake when it comes to paying for only the goods and services needed for your project.

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Lex Shan

Lex is a real estate broker, real estate developer, entrepreneur and technologist. He has started an architectural design firm, real estate development private equity fund and California's largest real estate 3D marketing company.

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