Large gap between competing construction bids

16 Replies

Hi everyone! Hopefully I'm dropping this post in the right forum. I'd be happy to repost if it needs to go elsewhere.

We have 2 bids from companies for a small extension + backyard ADU project here in the San Francisco Bay Area. 1 is from a smaller shop that a friend who is a seasoned real estate veteran referred me to and the other is a Houzz/Yelp find that is well reviewed on those sites.

Friend's shop came in at $390K and the Online shop came in at $532K. The issue is that the scope of work for friend's shop is less than the online shop's because it doesn't include re-roofing the rest of the main house. Also being a smaller shop they won't be able to start until later and I would assume they'll take longer to fully complete as they juggle other jobs.

The online shop is including the roof remove/replace job (about 2400 sq/ft plus materials) and even including solar panel removal/replacement in his price. The online shop is also more of a one stop shop as they say they have fast access to subcontractors should we need them whereas the friend's shop we may need to shop around causing delays.

So being a newbie to the remodeling world ... what would cause a bid to be so much less? Are they leaving the starting bid low to get in the door and then charge much higher change order prices? The roof will be the first change order and I'm sure there will be more as we start doing demo. 

The online shop has been great to work with so far. They did our design and approval process for us is going to credit the amount we paid off their original quote. Other credits include a $12k credit for finished materials of our choice and another $5k credit just because. That brought their original quote of $572k down to $530k which is still a substantial gap from the potential $427.5k ($390k+$30k roof+$7.5k solar panel) of the friend's shop.

Any thoughts or recommendations on which way I should go for the construction bid? 

Are you comparing apples to apples? Are you sure? They are both licensed/bonded/insured? Did you check their licenses on CSLB.com? Maybe the friend is a newer licensee...

Most good GCs will come in around the same general price range. If one is substantially lower, that is a HUGE warning sign. $100,000 lower means something is missing or they are scamming you.

Maybe get another (3rd) bid and see where it comes in. In the meantime, do your due diligence and make sure you are comparing 2 of the same.....

@David B., Often the companies who provide integrated design-build services can seem higher priced initially, but turn out to be more accurate because they are more able to assess the specifications and potential challenges for the project upfront. The best thing you can do to get a better idea of accuracy is to source more estimates, three is really the minimum. Many of our clients source 4-6 proposals from builders for their projects before making a decision. We work with many ADU builders in San Mateo County, would be happy to refer you to a few builders we work with if you'd like.
@David B.

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It is tough to say for sure. Sometimes one business just has higher overhead. Here is three examples:

Years ago when I was looking for a landscaper, I got bids from several guys. One shows up in a brand new truck dressed nice. He has a fancy website and several work crews. He is the most expensive. Another shows up in a 20 year old truck and he is all dirty. No website and he does all the customer service and billing himself. He also drives the Bobcat and gets his hands dirty. He is the least expensive. Same scope of work and the difference is cost overhead of the two businesses. I will take the dirty guy.

I contacted six people to bid a roof job. Only four people responded to my request and only three actually bid. The first guy out was the least expensive bid. The most expensive bid was 25% higher and it came from a reputable company that advertises extensively in town. Materials were identical. I went with the cheap guy and it turned out great.

This summer I had cement edging installed around my house. The first guy that came out rambled on about how they "design" the perfect solution and showed me his fancy website. The second guy out just measured and gave a price that was 20% less. I went with the cheaper guy and he was shoveling concrete when they did the job. Both the guys were owners, but one was willing to get his hands dirty. The other tried to sell his higher price as "better design services". It is a cement edging, so I don't need some designer starring on an HGTV show, haha.

I would go with the recommendation from a friend that is inexpensive over a company that has good online reviews. The skills required to garner good online reviews are not required to do good work. I trust friends over strangers.

I am a Yelp Elite reviewer and businesses routinely contact me after bad reviews and try to bribe me into changing them. The businesses with really high reviews often give me free items when I check in. I also know from hosting AirBNB that the harder you push for good reviews, the more you will get. No problem with that. I am just saying don't base all your decisions on reviews.

Very difficult to say without seeing both bids, a third bid would be very beneficial here. I am going to guess that the two bids are not apples to apples so that is likely 1 reason for the difference. Assuming this is a flip since you are in the rehabbing forum, then time is a big issue too so the guy who is more but does it faster may in the end be less expensive once you account for saved holding costs.

Some contractors play the game of low bids and not include everything, then charge order you to death later so be sure your bids are inclusive of all line items you need. If you don't know each line item needed, you should get a trusted pro to look them over to be sure all bases are covered.

Originally posted by @Bruce Woodruff:

Are you comparing apples to apples? Are you sure? They are both licensed/bonded/insured? Did you check their licenses on CSLB.com? Maybe the friend is a newer licensee... 

Most good GCs will come in around the same general price range. If one is substantially lower, that is a HUGE warning sign. $100,000 lower means something is missing or they are scamming you.

Maybe get another (3rd) bid and see where it comes in. In the meantime, do your due diligence and make sure you are comparing 2 of the same.....

Yes, both are licensed, bonded and insured per the CSLB site. The friend's is newer yes but still valid and I have visited another friend's home that the same person worked on. Both the referring friend and customer friend have nothing but good things to say. But again .. the price difference is a little worrisome.

Definitely not worried about scams with the referral. Something missing or not apples to apples, yes. I definitely feel something is off but we've talked it over and nothing obvious is missing to me. He did visit the house but he hasn't been involved with the project since day 1 like the other company has been so I'm the possibility of smaller details being missed is definitely there.

I didn't even mention it but I did receive 2 other bids:

$355k including roof replacement with lesser materials (original roof is tiled). The scope of work seemed very loose and generic compared to all other bids. No word of mouth or online reviews. Just a listing on Houzz that called me back after I blasted a handful of companies in the area. This one really felt too good to be true so I have put it at the back of the line. But I'm open to hearing from anyone who feels otherwise. 

$495k not including any roof work. Well reviewed on Houzz and Yelp also but it came out more expensive than the other option so I'm not considering them. 

Originally posted by @Patrick Collins:

@David B., Often the companies who provide integrated design-build services can seem higher priced initially, but turn out to be more accurate because they are more able to assess the specifications and potential challenges for the project upfront. The best thing you can do to get a better idea of accuracy is to source more estimates, three is really the minimum. Many of our clients source 4-6 proposals from builders for their projects before making a decision. We work with many ADU builders in San Mateo County, would be happy to refer you to a few builders we work with if you'd like.

We're still waiting for the plans to be approved so I wouldn't mind hearing from another builder. Please DM me the info!

The idea of the integrated services you mentioned does seem appealing to me. Fewer surprises, less wait for sub-contractor search and coordination, etc etc. I did get 2 other quotes which I detailed in the reply before this one. One is even cheaper which really set off alarms in my head. The other is more expensive and less inclusive so that's a no go.  To be fair to the cheapest company, he's trying hard to help me out. Calling into the city for me to check on the permit. Offering me to visit his existing project sites to see the quality of work etc. So I don't think he has anything to hide. Just that he likely is underestimating the scope of work.

Originally posted by @Joe Splitrock:

It is tough to say for sure. Sometimes one business just has higher overhead. Here is three examples:

Years ago when I was looking for a landscaper, I got bids from several guys. One shows up in a brand new truck dressed nice. He has a fancy website and several work crews. He is the most expensive. Another shows up in a 20 year old truck and he is all dirty. No website and he does all the customer service and billing himself. He also drives the Bobcat and gets his hands dirty. He is the least expensive. Same scope of work and the difference is cost overhead of the two businesses. I will take the dirty guy.

I contacted six people to bid a roof job. Only four people responded to my request and only three actually bid. The first guy out was the least expensive bid. The most expensive bid was 25% higher and it came from a reputable company that advertises extensively in town. Materials were identical. I went with the cheap guy and it turned out great.

This summer I had cement edging installed around my house. The first guy that came out rambled on about how they "design" the perfect solution and showed me his fancy website. The second guy out just measured and gave a price that was 20% less. I went with the cheaper guy and he was shoveling concrete when they did the job. Both the guys were owners, but one was willing to get his hands dirty. The other tried to sell his higher price as "better design services". It is a cement edging, so I don't need some designer starring on an HGTV show, haha.

I would go with the recommendation from a friend that is inexpensive over a company that has good online reviews. The skills required to garner good online reviews are not required to do good work. I trust friends over strangers.

I am a Yelp Elite reviewer and businesses routinely contact me after bad reviews and try to bribe me into changing them. The businesses with really high reviews often give me free items when I check in. I also know from hosting AirBNB that the harder you push for good reviews, the more you will get. No problem with that. I am just saying don't base all your decisions on reviews.

Thanks for the feedback. I'm usually more like you where I'll take the small mom-and-pop shop that works hard and charges less versus flashy expensive companies. But with this project, I'm leaning harder on wanting fewer headaches and complications. I'm just struggling to decide if $40-50k difference is worth that.

Originally posted by @David B.:
Originally posted by @Joe Splitrock:

It is tough to say for sure. Sometimes one business just has higher overhead. Here is three examples:

Years ago when I was looking for a landscaper, I got bids from several guys. One shows up in a brand new truck dressed nice. He has a fancy website and several work crews. He is the most expensive. Another shows up in a 20 year old truck and he is all dirty. No website and he does all the customer service and billing himself. He also drives the Bobcat and gets his hands dirty. He is the least expensive. Same scope of work and the difference is cost overhead of the two businesses. I will take the dirty guy.

I contacted six people to bid a roof job. Only four people responded to my request and only three actually bid. The first guy out was the least expensive bid. The most expensive bid was 25% higher and it came from a reputable company that advertises extensively in town. Materials were identical. I went with the cheap guy and it turned out great.

This summer I had cement edging installed around my house. The first guy that came out rambled on about how they "design" the perfect solution and showed me his fancy website. The second guy out just measured and gave a price that was 20% less. I went with the cheaper guy and he was shoveling concrete when they did the job. Both the guys were owners, but one was willing to get his hands dirty. The other tried to sell his higher price as "better design services". It is a cement edging, so I don't need some designer starring on an HGTV show, haha.

I would go with the recommendation from a friend that is inexpensive over a company that has good online reviews. The skills required to garner good online reviews are not required to do good work. I trust friends over strangers.

I am a Yelp Elite reviewer and businesses routinely contact me after bad reviews and try to bribe me into changing them. The businesses with really high reviews often give me free items when I check in. I also know from hosting AirBNB that the harder you push for good reviews, the more you will get. No problem with that. I am just saying don't base all your decisions on reviews.

Thanks for the feedback. I'm usually more like you where I'll take the small mom-and-pop shop that works hard and charges less versus flashy expensive companies. But with this project, I'm leaning harder on wanting fewer headaches and complications. I'm just struggling to decide if $40-50k difference is worth that.

 I understand. There is also value in the larger organizations. We used to use mom and pops for plumbing and HVAC, but it could be hard to get someone there quickly. Now I use a larger company with many service techs. They cost more, but they are easier to schedule and more reliable. The other factor in this market is finding material and labor. It may be easier for a larger company to get priority. It sounds like you understand the trade offs. Good luck!

Originally posted by @Bruce Woodruff:

It's important that you get a very long and detailed Scope Of Work from each company. Compare and contrast.....

Make sure that everything is in writing and priced out in specifics.

Bruce, mind if I PM you regarding scope of works? 

Originally posted by @Joe Splitrock:

 I understand. There is also value in the larger organizations. We used to use mom and pops for plumbing and HVAC, but it could be hard to get someone there quickly. Now I use a larger company with many service techs. They cost more, but they are easier to schedule and more reliable. The other factor in this market is finding material and labor. It may be easier for a larger company to get priority. It sounds like you understand the trade offs. Good luck!

Thanks Joe! I appreciate your feedback and taking the time to talk a newbie through some thoughts.

I would say that the cheapest one is working to earn your business. You could look at adding in the other work that the more expensive one is looking to provide and see what that looks like from a price perspective. You could also negotiate the terms such as " change request can't exceed more than 20% of the original negotiated price. Anything above 20% is at contractors expense" That could help keep you within budget while also ensuring that the contract does the work that's specifically outlined in the SOW (scope of work). 

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Originally posted by @David B.:
Originally posted by @Bruce Woodruff:

It's important that you get a very long and detailed Scope Of Work from each company. Compare and contrast.....

Make sure that everything is in writing and priced out in specifics.

Bruce, mind if I PM you regarding scope of works? 

 Feel Free.....

That depends on how urgent you want to have it done and payment methods.  2400 sf roofing and teardown does not cost much with asbestos. Is underlayer wood to be all removed to make room for a redone. I will go get another quote as something is missing.

Hey @David B. ,

There's just too many ways contractors come up with bids.  The way I've removed any ambiguity is to actually write my own scope. Takes some time to write up, but saves a lot of back and forth with GCs. I present this to my top 5 contractors and I go through the scope with them as we walkthrough the property either in person or virtually. If you're a newer investor, this also shows that you're a serious client. 

Originally posted by @Jayson Cain:

Hey @David B. ,

There's just too many ways contractors come up with bids.  The way I've removed any ambiguity is to actually write my own scope. Takes some time to write up, but saves a lot of back and forth with GCs. I present this to my top 5 contractors and I go through the scope with them as we walkthrough the property either in person or virtually. If you're a newer investor, this also shows that you're a serious client. 

 That’s a great idea! I could start a spreadsheet and list out what the higher bid has and ask the lower bid to make sure he’s covering all of those bases.