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Looking for the Lowest Bid? Expect some Big Headaches!

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Keeping up with the Joneses. It’s a great American pastime. We look to our left and see fancy new cars, and we look to our right and see beautiful new homes. The next think you know, we’re at the dealership and we’re talking to a realtor. This is the point where things may get a little sticky.  The Joneses may have a little more budget than you had expected. What do you do next? If you’re buying a car, you let them know your maximum monthly payment. “No problem. I’ll talk to my manager and finance guy,” the salesman states with a smile and a wink. He knows he can meet just about any monthly payment. You may just have to pay for the rest of your life. You may go to a different dealership and try to negotiate a better deal, but there isn’t a lot of wiggle room in the price of anew car unless you change the trim package. In building a custom home, however,there are a lot of ways to affect the price, and it’s not just in the trim.

Building a custom home

The process for building a home can be long and arduous but it should also be fun and straight forward. Two typical custom home building processes are design-build or competitive bid:

Design-Build or Negotiated Bid:
1. You meet with your design-build team (the architect and general contractor) and they listen to your hopes, dreams, likes, dislikes, and family dynamics.
2. Your new design-build friends walk your lot to get the lay of the land, paying attention to sun and wind patterns and other unique attributes.
3. The architect and building contractor collaborate with each other to develop a comprehensive set of plans that include the home layout, and also the specifics of material grades, product selections, and special labor needs.
4. Your design-build team coordinates with you to ask additional questions and revise this plan to perfection.
5. We submit your plans to subcontractors for hard bids. (Not all contractors go straight to the tradesman, but instead choose to use estimating software)
6. The contractor keeps you apprised of status along the way.
7. Your beautiful new home is ready on time and on budget.

Competitive Bid:
1. You determine which builders you jive with the most (an important detail some overlook); we suggest this step first to assist in keeping bids to qualified contractors
2. You ask for construction bids based on the specifics laid out in your plan (designed by your architect and/or designers).
3. Builders will submit questions for answers to items that are unclear or require additional information from the client.
4. Builders may also use this time to submit alternates to plan specifications.
5. You carefully examine the presented bids to make sure the specifications are outlined in their proposals.
6. You select a builder or general contractor and the project begins.
7. The keys to your custom home are handed over.

Skipping steps to save time and money

Start by choosing the construction process that is best for you. These steps are likely going to take quite a bit of your time so it’s natural to try and skip a few. The most commonly rushed steps are in the pre-construction phase. Everyone is anxious to start construction and thinks they will have time during construction to make choices. You may bethinking we just gave you a great tip but beware of cutting things too quickly. 

There are a lot of discussions to be had and decisions to be made for building your custom home. Potential home builders think that a competitive bid is the most cost effective method and initial bids assist with this perception. However by the end of the process, Design-Build provides a higher quality product at a more accurate cost point. The more defined the project is before it goes to bid, the fewer change orders you’ll have during the construction process, the closer you’ll be to your desired budget, and the more likely your home will be built on time.

Lowering construction bids only to pay more

If you walked into a Porsche dealership and saw the newest model on the floor for $35,000 would you say “woohoo! I’ll take that one!,” or would you be more likely to wonder why that car is so much less than the others? Was there a safety defect? Is the interior shoddy? Has this car been wrecked? Something must be wrong with it, right? The same thought process should go in to your custom home bid. Ask your contractor these questions: 

1. Were materials proposed in accordance with the plan specifications; if not,
2. What alternates were provided and why?
3. If your property does not have city inspections, does the builder have a private inspector? This is a state requirement.  
4. Will I be able to see receipts of materials purchased?
5. How many change orders do you receive, on average?
6. What contract type do you like to use? And why? 

If your bids are based on the same architectural plan and include the same materials, the costs should be similar.If one of them is drastically lower, it’s likely corners have been cut and you want to make sure it’s not in the bones of your home, hidden within the walls.

Comparing Apples to Oranges to Potatoes

We’ve been building custom homes and commercial buildings for 45 years, and working on construction sites even longer. We’ve seen a lot. One thing that has remained consistent and is truly frustrating is the wide range of clarity (or lack of) and pricing our customers see in their construction bids. It’s no wonder they get frustrated and confused. Sometimes it doesn’t even look like the bids are for the same project.  

Ask your contractor to outline as many details as possible. If you receive a bid that looks very transparent, ask the others to include the same amount of detail. Several customers fall into the trap of asking if one bid includes everything the higher bid includes - the spoken answer is always yes, but in reality it’s usually no.  

Several construction contractors purposefully bulk price or provide you with a fixed price. They claim that it’s easier for you to get loan approvals but what they may be doing is providing themselves with room to short change the project and find wider profit margins. If you select a fixed price bid, look closely at the itemized costs throughout the construction process, and consistently ask for project receipts.

Changing Course Mid Stream 

Spending time in the planning phase will save you lots of heartache and money in the construction phase. If your contractor doesn’t have a clear plan for the project and understanding of your personality, you’ll likely find yourself wanting to change things along the way. The lowest bid does not usually have room for change orders in the budget.That means that you’ll have to go back to the bank to ask for more money. Unfortunately, in our experience, most banks are not going to provide the cash so you’ll have to come up with it out of pocket.

You may be thinking that if you’ve done all your planning right, there shouldn’t be many change orders. That is true, however, if you never know what brilliant and beautiful idea you may have, or what challenges may pop up in the middle of your construction project. It’s best to be prepared then to be blindsided.

Ending Up With A Million Dollar Money Pit 

Do you remember the 1986 Tom Hanks and Shelley Long Movie, Money Pit? It was hilarious but I’m fairly certain you don’t want to be the one falling through the ceiling and putting out electrical fires. These tragic endings are not just in the movies. We’ve seen them happen here in Central Texas and around the country. There are brand new million dollar homes built around crooked foundations, low grade studs, and shoddy wiring.  

If you’re building a custom home, whether it’s downsizing for retirement, up sizing for a growing family, or moving the the hill country for a better quality of life, it’s important to take the time to make sure your plans are as detailed as possible, and your bids are too.  

Here are additional steps to ensure you’re choosing the right contractor for your custom home. 

1. Call previous customers.
2. Ask local workers and architects
3. Look at homes they completed more than 5 years prior
4. Ask your banker if they are familiar with the contractor
5. Check financial references