AMA – How Do I Process This Quote?
Welcome to the Real Estate Espresso Podcast, your morning shot of what’s new in the world of real estate investing. I’m your host, Victor Menasche. Today’s show is another AMA episode—that is, Ask Me Anything. I love to answer your questions and if you have a question you think is going to be of broad interest, send it in. I’ll answer it live on the air. Send your questions to Victor at victorjm.com.
Today’s question comes from Mark, who writes: “We received a quote from a general contractor that’s way above the averages for the actual square footage of the building. Attached is a copy of the quote and the drawings of the building. I’d love to get your thoughts on whether I need to readjust my expectations for what this project will actually cost to build.”
Well, Mark, this is a great question. I did review the drawings and the bids from the subcontractors. I’m seeing a number of things in the quote that simply don’t make sense to me when I look at the individual line items. Getting a proper bid is an exercise in paying a lot of attention to details. Whether you get a number from your contractor that you like or not, you still need to dig into the details and make sure the scope of what’s being quoted is really what the building needs.
Sometimes the subcontractor will give you a number you like, but then list a whole bunch of exclusions that they’ll charge extra for if these items are required within the scope. Then a low number simply doesn’t help unless the subcontractors respond with the correct scope of work. It’s very difficult to comparison shop.
Now some of the numbers that I’m seeing in the quotes simply don’t make sense, and this is where we rely on comparable metrics for similar buildings that we have experience with, and for similar scopes of work. For example, I’m seeing a single plumbing quote when I would expect to see three bids for each scope of work. The plumbing quote is nearly double what I would expect for a building of this size.
The quotes for framing are anywhere from 50 to 80 percent above what they should be on a per-square-foot basis. There’s a very high cost for exterior cladding that frankly is insanely high for a building of this size. There’s numerous steps in the way construction is specified that requires trades to start and stop in an alternating fashion, which makes for an extremely inefficient construction process.
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