Tell your contractor your budget?

15 Replies

I'm sure I am going to get a range of responses here.  I walked through the house we are rehabbing, came up with a detailed scope of work, and emailed it to a contractor I have gotten a bid from in the past (but haven't used) so he could look it over before our walk through in a few days.  He asked me what my budget is for the project today.  I don't plan on giving him my budget or what I think it will cost ahead of his bid.  I think this guy is going to cost a bit more but will reduce the amount of time I need to spend babysitting the project.  I don't have any bids back yet but should by the middle of next week.

So, the question is, do you tell a contractor what your budget is?  Why or why not?  

I will reduce the scope of the project if the current scope will eat up my whole margin but I feel like we did a pretty good job of estimating rehab costs on this project before we purchased.  However, I would like to see the contractors come in under our conservative estimate and giving them my estimate before they bid won't do me any good.  Thanks!

William Allen, Real Estate Agent in FL (#SL3330247)
850-483-1761

Just tell him you want to get pricing first before you finalize your scope and budget. You give away all leverage if you tell him your budget. Your budget is really your top negotiation number and you want to keep that close to your chest.

You can tell them your budget, but make sure you ask for more then it's worth. Then negotiate the work, not the budget.
The budget is the budget right?

This topic just came up in a conversation I had recently.  I'm on our local school board and they are developing a bond proposal for new athletic facilities, classroom additions, etc.  We hired an architect to develop a budget and it's absolutely crazy, especially the architectural fees.  The administrators told me that just because a bond is approved for a certain amount doesn't mean we will spend all of it because we will have multiple bids.  However, this building budget is a public record and I'm willing to bet that every contractor will bid within a few thousand of the budgeted amount and will use up the 15% contingency amount (I use 5% for my contingency - even the contingency budget is too high!)  This is why government projects are always about triple what they should be.

Short answer, no, don't tell him your budget, but that you'll take the best bid and will have lots of future work for the contractor who treats you right and that you always make timely payments. 

@Wesley Nye I agree and disagree with you. Right now the scope of work is the scope of work and that is what is being bid on. And my ARV is based on that SOW being completed. So, if all the bids come in high and I didn't do my rehab estimation correct then it will eat into my profit. I realize that and accept it. But if I am telling the contractor what my rehab estimate is, aren't I just bidding on my own job? I see no point in giving him that information right now, if I had done a bunch of jobs with him and we trust each other than that may change the scenario.

Curious to know what others do and how it has worked out for them though.  Thanks for the replies.

William Allen, Real Estate Agent in FL (#SL3330247)
850-483-1761

@William Allen  I generally ask that question to get a feel for what kind of work the owner wants. If I ask a customer what kind of budget they they have in mind for.... say.....the kitchen project we are standing there there talking about (for example). That tells me a few things. 1- If the budget is fairly high I can price out nicer counter tops and appliances etc. I do tell the owner if they don't like the price then it can be changed by downgrading finishes like appliances, crown moulding, back splashes, etc. 2- if the budget number comes in low in my point of view for that particular project that means its prob a person that doesn't really want nice cabinets and granite. They want it to work and they don't care how efficient the cabinet layout is... cheap cheap cheap. 3- if the number comes in really low that may mean the owner wants me to try and work with that budget, which I will if it is at all realistic, or they want me to hit an unreal number and that means they probably don't have any money. Which means they are wasting both of our time.

To help out your contractor I would tell him (when he asks if you have a budget) that you are looking for a really  nice bathroom to blow people away, or you are wanting to make sure everything works just to sell. You want cheap siding, like vinyl, or stain grade clear cedar. You don't necessarily have to give him the number.

@Cole Walker   Good points all around.  He may be a little more cautious since I didn't accept his bid on the last job.  But if I recall, he asked me my budget last time too.  The SOW I sent him was extremely detailed with specific finishes and types of materials too.  I'm pretty confident on my price of materials, just not on his labor and other charges.  Thanks for the input!

William Allen, Real Estate Agent in FL (#SL3330247)
850-483-1761

You should buy all the materials and just get a labor price and if the GC goes and gets the materials, they will get a GC discount, but they will not pass that along to you and why would they. A good GC is worth his weight in gold and should be paid a premium price.


Joe Gore

@Amy A.  You are right in that government jobs cost probably triple of what the same thing in the private sector would be. Why? Many jobs have to pay "prevailing wages" to all those on the job. 

We have leased out space in our buildings to government agencies and built out the tenant improvements., We lived in Redding, CA, which is a 2.5 hr. drive north of Sacramento. Once they decided to lease the space, their architect had to draw the plans for the space. Every couple of weeks a group of 8-12 (sometimes more) state employees would drive up to check the job. In the lobby it had to have windows with bullet proof glass and sheetrock. (Sounds great for safety right?) The outside perimeter of the building had regular windows, so if someone really wanted to shoot someone they could have easily shot through those windows! Carpet had to be made out of nylon (which is extremely hard to find anymore because it hasn't been popular for years).  

My advice, any time you are getting bids for a government job, make sure all GC's are bidding the same job (type and quality of materials) try to get it so that you make your decision based solely on lowest bid! 

We had another job for a Social Security office and because they were moving from space that had a bluff top river view, they thought it was necessary to compensate their employees with high end finishes, and extras! (Nevermind it's tax dollars they spend) 

The government love to spend taxpayer's money, and I saw it first hand about 10 years ago when I submit a bid to the government, and I bid 40% higher than what the government budget was, and I got the contract because I was the only one that provides a demo showing what they will be getting. Did I feel bad not at all because the taxpayer is footing the bill?


Joe Gore

If it's a contractor I've worked with a bunch, I probably already know about where his number would be, so I'm comfortable throwing out a number first...this will often help keep me on the low end of his range.

If it's a contractor I've never worked with, I will stress the fact that I would like him to give me his absolutely best number (based on my detailed SOW) and that I don't plan to negotiate with him -- I'll either accept the bid or I'll go with someone else.  

Once he gives me his number, if I don't think it's reasonable, I'll simply say, "Okay, thank you, that's more than I wanted to pay."  Invariably, he'll ask how much I was willing to pay, and I'll happily tell him.  A reasonable percentage of the time, the contractor will say, "Okay, I can do that," at which point I'll point out that I asked for his lowest number upfront and that I already told him I wasn't going to negotiate.  For those contractors, I'll then say, "If you're interested in bidding on my next project, I'd be happy to try again..."  

If they are willing to do that, I can pretty much be assured that the next time I'll get the low bid right out of the gate...

J Scott has the right idea.  We sort of do the same thing but we always give out our price ahead of time with the SOW.  It saves everyone time.  The trick is knowing how much time & materials really costs. 

Absolutely - keep that number close to your chest! Depending on who you are dealing with if they get any sense there is extra money on the table you may find them 'creating' work and you having a tough conversation after. 

trust, but verify. :)

As a rehabber, and the owner of a GC company that works with lots of investors as well as high end homes. I can tell you it depends on the situation, your goals and knowledge, and most of all the quality of the GC you are dealing with. 

First and foremost there are TONS of crappy unreliable contractors out there, and generally as investors we might get suckered in as they often are also the cheapest. 

I would say give the GC the budget if  he has good references, you have prior working relationship, and he knows what hes doing. Generally this person is not the cheapest but with some investors we work with it helps them plan the most effective ways to spend their money.  We have helped clients see that if they didnt do X then we could instead do Y which might add more value or be more desirable. 

If you are confident in your scope of work and feel you have identified the improvements needed to bring the home up to required level of finish then getting an estimate for those items is most effective. When working for a new GC or if you are unsure of the rough cost of things an itemized estimate will help you compare different guys rates. Keep in mind cheapest is not necessarily best (but not necessarily worst either).

It sounds like you have a detailed SOW already with skews for finishes then let guys bid it out and see where their prices come in. 

nope, no need to tell him this....why? because it doesn't provide him anything necessary to providing an estimate.  so why would he ask then?. he asks because he is curious if he can come within your budget so he doesn't have to waste his time with an estimate...at best,....or because he is trying to gauge the most he can charge and get away with...at worst. Either way,  telling him can only hurt you.  

good example, car salesmen will often ask a customer how much payment that customer can afford per month.....then guess what? the "deal" they bring back to the customer as a result will ALWAYS be the max payment the customer says. Zero chance they are paying less. probably zero chance you will either.

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