Originally posted by @Account Closed:
It sounds like you are reporting RS means is for consumption by the general public and includes a mark-up from wholesale to retail pricing. My understanding is it's used by a wide variety of construction professionals for cost engineering and estimation. Many of the tools include a separate line item for GC mark-up. Given this mark-up is included as a separate cost, it would seem reasonable to assume the material costs are just that-- costs, and not retail pricing including a margin for a contractor (reported separately).
The comments are useful if you have observed different costs in practice. My observations in my particular market is RS Means closely approximates actual costs to build; I am not a GC but work with an experienced custom home builder on a cost-plus basis. $150/sq foot may seem high for some on a custom home, but it's consistent with the quality of construction of homes built in my market. And there is still plenty of gross profit in a market that commands $300/sq foot for finished construction. The dirt is not cheap though! Thanks for the comments I will use this tool with a bit more skepticism.
I know many General Contractors who will use RS Means (or similar tools) to put together a bid when they are unsure of the cost for tasks related to specialty trades (electrical, plumbing, HVAC, siding, roofing, etc). But, those are the costs if they were to hire out trades-people from the phone book -- meaning larger contracting organizations with a relatively large amount of overhead.
If I were to hire the individual trades (which I typically do), I'm not going to hire the guys who have Yellow Pages ads, a fleet of trucks, customer service reps who answer the phone, etc. They will typically be smaller outfits (sometimes just one person) who don't have a lot of overhead, are accustomed to working with investors and who charge as much as 50% below what the larger guys will charge.
The reason they can afford to charge less is because, since they are working for investors, they typically won't bid jobs they don't get -- no tire kickers -- and they typically will get repeat business from the same investors. So they have essentially no marketing overhead and no overhead in giving wasted bids. They also don't have a management structure to support. In my experience, they are often netting close to the same as the big guys, even though their prices are much lower.
RS Means prices assume cost overhead built-in, and therefore the prices are more geared towards what these larger outfits would charge.
To your direct point, I have definitely seen different costs in practice. If I were to GC a spec build with these larger, turn-key contractors, I would likely pay about 20-40% more than I would building the same project with the subs I typically use. That assumes similar quality, material finishes, and reliability.
I don't know too many experienced investors who would disagree with the above...
