Did you know that even after signing a fixed price building contract, the price can still change? If this is true, then what does fixed price even mean? How can a builder charge variations if the price is fixed?
You’ve probably heard horror story after horror story of people’s budgets blowing out half way through the project wondering what went wrong, well we’re about to explain why!
If you have been talking to builders or doing your own research into your home renovation, you would have heard the terms “estimate” and “fixed price quote” being thrown around. However, most people don’t really know the difference..
Well here it is…
An estimate is a ballpark figure of what your project is likely to cost. It is an educated guess only, and likely will not involve any investigative work by the builder. There will be no quotes from subcontractors and it will not be a reflection of what you will ultimately pay on completion. The figure you receive is usually based on a combination of the size and difficulty of the project, past comparable projects that the builder has done and finally, this is the most important part, your estimate will be based on the level of quality that particular builder usually delivers.
A fixed price quote captures the full scope of work to be performed. It will include everything you want and everything that is needed for the job to be completed without variations. It will also include a detailed specification, documented scopes of work and a breakdown of all the costs and the final total – including taxes. Sounds amazing right?
Here’s where it gets a little tricky. A lot of builders will do an estimate of your project but disguise it as a fixed price quote. And this is not something that they do maliciously, it’s just how they’ve always done it. They estimate all the costs, plug in some provisional sums and PC items where they need to and come up with a number as quickly as possible so they can sign a building contract to lock you in. Then they hope it all works out and if it doesn’t, well, there’s always variations!
The reality is that to get a fixed price quote together takes a lot of effort and energy, and any builder who is willing to do this for free is kidding themselves. So, they don’t.
So how do you know if what you’re getting is worth the paper it’s written on? And if builders are saying they can do a fixed price quote for free, then why should you pay for one?
It’s All About Reassurance
Sure, you can shop around getting multiple free quotes, but are you really willing to trust your home to the cheapest builder? When you pay for a quote, you are buying a professional service. A service that allows the builder to invest their time to go through your project with due diligence. It will allow them to document everything they need to, ask any questions and capture the full scope of work so that you get an accurate, fixed price quote for your project, backed up by a guarantee.
Without a clearly documented scope of work, specification and selection schedule, builders will simply assume their client’s expectations. They’ll use provisional sums and allowances so they can present a low, desirable contract price and entice you to sign on the dotted line so they can avoid losing your job to another builder. Without detail in the scope of work, it leaves all the inclusions up for interpretation and this leaves you wide open for unexpected variations. Receiving variations after signing, what you thought was a fixed price contract, will destroy the trust you have in your builder and this is often where the nightmare starts.
A Quote Is Like Baking A Cake…
You need the right balance of all the correct ingredients!
The price you see on an accurate fixed price quote that you have paid for may come back more expensive than its free quote counterpart but, in the end, it will cost you the same either way – let us explain. You see, a quote is like a cake, made up of 3 different ingredients. There are the materials, the labour and the builder’s profit. Adelaide is a small city, and we only have a limited number of resources available here. All the builders in Adelaide are pulling materials and labour from the same pool of subcontractors and suppliers, now these costs will vary, but not by much at all. This means that the only way another builder is able to build cheaper is by making less profit. And a profitless building company means that you will be paying for your project with stress and anxiety rather than your money. That’s if the builder is even able to finish the project before going bankrupt!
The reality is that only two things can happen when a builder signs a contract on a job that is based on an estimate:
Option 1 – You get hit with variations and end up paying what it was always going to cost anyway, but now you don’t trust your builder
Or
Option 2 – The builder is not smart enough to realise they’re not making any money and goes bankrupt in the process, leaving you in a terrible situation. Trust me, this is the worst case scenario!
The Benefit Of A True Fixed Price Quote
A sure sign that you’ve got a proper fixed price quote is that it will not have any provisional sums or PC items. You will have a detailed specification documenting exactly what work is being carried out, down to what tap fittings you’re getting and the colour of your benchtops.
All the details of your job will be clearly written down so you know exactly what you’re getting and what you’re not getting. Everything that you need and want will be allowed for and there won’t be any need for variations which leads to the biggest benefit of a true fixed price quote. A fixed price guarantee!
A Fixed Price Guarantee Is The Builder’s Reputation On The Line
We may be telling you that you should pay for a fixed price quote but that doesn’t mean you should just pay any old builder! As the consumer, you want to get something for your money and this is where you need to choose a professional builder carefully and ensure that they back their price with a guarantee!
According to the 2021 APB SORCI Report (State Of The Residential Construction Industry), builders who charge for a quote have a higher chance of signing a building contract. This actually translates into – if you, as a consumer, pay for a quote, you are more likely to have your project built, and that is what you and a professional builder both want.
The other benefits of working with a professional builder who charges for a quote are as follows:
- The builder obviously has some systems in place and are an organised, professional company who will likely offer a superior building experience
- You will actually get your quote back and not just an excuse that “they are getting to it”
- Your quote will come with some massive benefits like a customised specification, fixed price guarantee and a proper project schedule so you’ll know exactly how long your job will take
The reality is, there are a million and one decisions to make when you’re planning a renovation and the last thing you want is the added stress of a builder asking for more money half way through the project.
You Get What You Pay For
At the end of the day, you get what you pay for. If you pay a professional builder to carry out a professional service, you will receive a professional document that spells out timelines, your project schedule, expectations, price, options and exactly how they will deliver your project with guarantees backing all of their claims. If you get five free quotes that all vary by tens of thousands of dollars, you’ll be left wondering who to trust, who has quoted properly and you won’t know what to expect for the build. You won’t see any value in their five page quote and you’ll waste the next few weeks or months trying to work out what to do next.
Make the decision of who to build with based on value. Who’s the builder that you think can deliver this job on time and on budget? Which one do you trust and which one has put the most amount of effort in? Look at how much documentation they have provided, how detailed is their quote? How are they going to deliver the project and how are they going to communicate with you? A proper quote proposal will detail all of this for you and will empower you to make an informed decision so you can actually look forward to your journey of renovating!
Finding the right builder for you is just one of the 6 Essential Things You Must Do For A Successful Home Renovation. Download our FREE guide to find out the other five!
