New-home construction activity has been on the rise lately, but for most of the past five years it was at historically low levels. As a result, many markets were flooded with well-intentioned builders who quickly discovered that new-construction experience doesn't neatly translate to remodeling, which has very different rules for business, estimating, and scheduling. It's akin to an accomplished New England custom-home builder moving to Santa Fe to build a 5,000-square-foot adobe — the finished product is the same, but just about everything needed to build it is different.
I know, because I learned the hard way that new construction and remodeling are not interchangeable. Remodeling requires more time for planning, estimating, and execution. Service and communication rule the roost. And the fact that the owner is living on the job site raises another set of accommodations and constraints.
So, how can a custom builder take on remodeling work and be successful? There's no substitute for experience, but here is a list of issues to keep in mind as you make the transition.
Markup and margin. These numbers are almost always higher for remodeling work. Experienced companies specializing in bath and kitchen remodeling mark up costs using a multiplier between 1.6 and 1.85, and consistently achieve margins between 30% and 40% or more. None of those companies do work at cost plus 15%.
Service. Interaction and communication with the homeowner is paramount. While some remodeling contractors are successful with a just-get-it-done approach, they're the exception. Remodeling projects are partnerships, and most homeowners want to be involved. That requires active, on-site supervision, which costs money. Home builders who want to do things on a remodel "the way we've always done them" won't last long.
Supervision. Remodeling projects are hands-on. Successful ones have a single point of reference for on-site supervision, management, oversight, and quality control — a lead carpenter, for example. The labor expense for this far exceeds that for supervision in new construction, but is necessary. Having someone on site to both supervise and perform work minimizes problems, because it preserves continuity. Even more important, having someone on site who has been part of all decisions — and knows what's behind the walls — can avert potential disaster.
Subcontracting. When home builders cost out trade-contractor work for a remodeling job, they typically base their estimate on the square-foot price of a comparable new-construction project. Using unit pricing for remodeling, however, often results in underpricing, because the scope of work cannot be as well-defined. For example, a drywaller might hang only nine sheets of drywall for a kitchen remodel. But he will return to the job five times to tape, sand, and texture, and the work may also involve re-texturing adjacent areas or even entire adjacent rooms to get a uniform finish. For this kind of subcontracted work, it's better to bid as either cost-plus or time-and-materials. When hard bids are offered, they should always contain "cushion money" to allow for the additional labor to handle unanticipated circumstances.
Overhead costs. Prep work, planning, and deployment logistics for remodeling projects can be challenging. Many neighborhoods have strict rules — about work hours, parking, and placement of equipment, trash bins, and portable toilets — that can throw a wrench into job execution. Other concerns — daily cleanup, protection of areas not involved with the work, oversight of a homeowner's pets and prized rosebushes, along with security and safety — add labor costs and an element of unpredictability. Even the delivery, unloading, and storage of materials can be daunting. Expenses for these and other tasks that are not part of the actual production of the project are often surprisingly high, and an estimator who is unfamiliar with remodeling projects will underprice them.
Contract, plans, and specifications. Good paperwork minimizes disputes and misunderstandings — construction documents should spell out as much detail as reasonably possible and anticipate potential obstacles and variances. Preparing thorough paperwork for a remodeling project takes at least as much time and money as for new construction, and probably more. Inexperienced contractors will often short-change the process, despite the possibility that a couple of hours saved in document preparation could lead to thousands lost defending a dispute.
So let's test your knowledge. A potential client calls about a screen door that needs replacing. How much will this cost you? I don't have a punch line. Make sure your quote doesn't provide one, either.
Dennis Dixonis a licensed general contractor in Flagstaff, Ariz., and a frequent contributor to JLC.
