Providing cost estimates in construction projects can lead to costly mistakes.
Learn the risks of giving early cost estimates in construction projects and why detailed quotes are essential for successful projects.
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Duayne
There is no way possible at all that you can give someone an estimate or a figure over the phone.
Why Builders Should Avoid Preliminary Cost Estimates
Amelia
Duayne, I know you’ll be familiar with this. An architect or a designer is working with a client. They either have some drawings or they’re thinking about a project. They give you a call, and they say, “Hey, I’ve got this project, could you give me a preliminary estimate? Could you give me a price for this project?”
Loads of builders do this. They’ll then go, “Okay, well, I think it might be around X.” Why should builders avoid giving a preliminary price or an estimate when asked by clients, architects, or designers?
Duayne
This is a massive recipe for disaster, and it’s another big reason our industry has such a bad name. There is no way possible at all that you can give someone an estimate or a figure over the phone.
There is so much, especially when it comes to custom homes. Every single product is completely different. I try to explain to people when we very rarely get in this situation, but you could have the exact same house here and here, and how that house is finished could change that property by the build cost by 500, a million, or $2 million.
So for someone to ring up, and again, it is something that used to frustrate me, you’ve got to understand that a client is asking that question because they’re not educated. So if you get in those situations where people ask you, clients, designers, architects, like, “Just give me a ballpark. I’m working with this client. It’s just the normal three bedrooms, two bathrooms, two garages, oh, you know, 200 square meters. What do you think?”
Why Preliminary Figures Lead to Disappointment
You cannot give a figure on that if you don’t know the details. And if you do, you’re setting yourself up for disaster.
Amelia
It’s so true. And understandably, clients, architects, and designers will ask this question. But it is an opportunity for you to educate them about a better way to get that information that is more applicable and relevant to their project.
Unfortunately, when builders give this information over the phone or in very early initial conversations, I know clients often won’t necessarily go to an architect or a designer first. They’ll think, “I need my home built or renovated, so I’ll get a builder around, and I’ll talk to them about what I want.”
And then the builder will say, well, that could be this amount, or they could give them a range. They could say, “That could be a range of, say, $500,000 to $650,000.”
The client will always remember that price and won’t remember that it wasn’t informed with a lot of detail. And if you give them a range, they’ll always remember the lower end. Then, what they’ll do is then they’ll go off on their design process, making decisions on that basis and proceeding with a design process that could take six, 12 months, or even longer.
Then they’ll come back to you and say, “Hey, that project we were talking about that you said would cost around this much, I’ve got the drawings now. Can you do a proper quote for me? Can you prepare a proposal?
And you’ll look at it and go, there’s no way in the world this would cost that much. And all of a sudden, everybody is disappointed.
The builder looks like the bad guy and looks like a liar because they gave a price indication that was completely off track.
The clients invested all this money and time in creating this design they can’t afford to build.
The designer and architect haven’t built a process to help that client be more informed about the prices they’ve gone.
And everybody is sitting there going, well, this is just what happens in the industry.
Building a Better Client Relationship through Education
Duayne
I’ve got myself into trouble a lot of times in the past. Just being in that mindset of, I need the next job. Where’s it coming from? Oh, I’ve just had a call. I’ll tell this person what they need to hear.
And a lot of the time, it was also because I was in such a rush.
I could have been on the tools.
I could have been doing anything.
And you’re exactly right. They hold you to it, so a month, two months, six months, 12 months down the track, you would get a phone call or an email with a set of drawings saying,
“Hey, here’s that project you said would be $600,000.” And I would look at it for two seconds and go, what have I done? That is a million-dollar house every day of the week.
It all comes back to education.
I don’t get frustrated with those things anymore because, without education, people can’t understand what’s involved in a project.
It’s up to me, as a builder, to, if I do get myself in situations where people are asking for estimates or ballparks, first, it’s up to me to tell them, I don’t do that.
And second, it’s up to me to educate them on why. And my why is that without me knowing the type of person they are,
the type of site it is,
the level of finish they want,
does it have a pool?
Does it have landscaping?
Is it full hot tile in the bathrooms?
There are thousands of questions.
I think we’ve spoken before there are 15,000 decisions to be made when building a house.
Without knowing even the smallest detail, it is impossible to put an estimate, a ballpark, whatever you want to call it when someone’s asking you for it.
How to Stand Your Ground on Cost Estimation
Stand your ground, and be confident.
I think this is another one where it’s really important to know your numbers. We know of builders who have had these calls, and they thought that their projects were costing a certain amount of money.
They’ve felt confident in telling an estimate, but when they’ve gone back, and we’ve taught them how to review their data, they’ve realised, “Well, far out, like those jobs I’ve been building have been costing this much per square meter.”
It’s been a real eye-opener for them. And they’ve gone away from getting into those situations. So without having education from the designer or the architect or the homeowner about what they want, it is impossible for you to do that.
So stand your ground; don’t do it.
And number two, explain to them why it’s important that you don’t do it.
Because I guess in the long run, with this one, you’re not just letting yourself down; you’re actually letting the designer, the architect, and that possible client down because all of a sudden, they’re like, oh, it’s within our budget, so we’ll keep the process going.
Amelia
They start a process that can take two years based on misinformation. So even though it can be challenging to stand your ground because chances are they’ll be badgering you, pestering you, and asking you, and getting quite frustrated and disappointed that you won’t give them a ballpark price or a preliminary estimate, you are in a far better position.
If you can explain why you won’t do it and the reasons why you won’t, you will be in a far better position long-term and will also be doing them a much better service.
Then, you’ll avoid misleading and frustrating them in the future.
Check out our other blog posts about effective cost estimation and building trust with clients: