Every industry has a soft underbelly, and in ours it’s the guy we call the tailgater. He’s the guy who knows all the corners to cut, who can save you a lot of money. He’ll work cheap, for cash, and figures all these permits and licenses are for suckers. Unfortunately, he’s also the guy behind the handyman horror stories.
Tips & Cautionary Tales
Stories and candid thoughts about renovation from the folks at Litwiller
- Quotes & What They Really Mean
- Get it in Writing
- Tailgate Trouble
Quotes & What They Really Mean
“It’s unwise to pay too much, but it’s worse to pay too little. When
you pay too much, you lose a little money – that’s all. When you pay
too little, you sometimes lose everything, because the thing you
bought was incapable of doing the thing it was bought to do. The
common law of business balance prohibits paying a little and getting a
lot – it can’t be done. If you deal with the lowest bidder, it is well
to add something for the risk you run, and if you do that you will
have enough to pay for something better.” — John Ruskin
1. Comparing Mark Up rates
It is very difficult for the customer to compare quotes according to the Mark Up percentage. It is common for construction companies to receive “preferred client” discounts from their suppliers, and reputable companies will pass on this discount to their customer in the form of lower costs.
The discount percentage often varies according to the volume of business a company does with a particular supplier; thus, a smaller company or a ‘back of the truck’ contractor may not get the same discount as a larger company. The larger company, however, has higher overhead costs to consider. What does this mean to the “Cost” portion of a Cost-Plus project? If Litwiller passes on to you a ‘deep-discount’ cost, then marks it up 24% to cover our overhead costs, the overall cost to the client may still be LESS than another contractor who gives you a slightly-discounted cost and only marks it up 15%. The only way to compare estimates by price is to ensure each estimate is based on the same scope of work done to the same quality level, then compare each bottom line (overall project cost including mark up). Which leads to point #2…
2. What is included & what is not included in your estimate?
In comparing estimates it is also quite difficult for the customer to know what quality level is being quoted and what the actual scope of each estimate includes. If you have two estimates that vary in overall cost by more than 10%, it is quite likely that the estimates are including different scope of work detail & quality levels, but you may not have any way to evaluate this from the initial estimate; most contractors will give only a very basic scope of work with their free ballpark estimate. It takes several hours to research and price out a detailed estimate for a mid- to large-size project, and most companies will be reluctant to put that much ‘overhead cost’ into a detailed budget without getting some money up front from the client. Bottom line… a ‘back of the truck’ contactor quoting for builder grade materials & fixtures and an established larger company
The market today is shifting from a project based “fixed price” to a “relationship & service: based pricing model; the worth of a reputable construction company is becoming the “Value in the Service” and the importance they place creating a quality product in a reasonable time frame. Whether you are billed a cost+mark up price or a fixed dollars-per-square-foot price, the bottom line for you is the service you receive and the experience (positive or negative) you live through during your project. A reputable, efficient, experienced construction company will develop and complete your project with a minimum of disruption to your life, and with no end of project “surprises” when it comes to overall costs. These are the intangibles that must be considered when comparing contractors.
3. I can buy it cheaper than that somewhere else!
Consumers today are educating themselves through the internet. Although knowledge is never a bad thing, incomplete information can have the effect of creating pre-conceived ideas of what the cost of services & products should be, with no consideration of associated costs which may be incurred. As mentioned above, even though the overall cost to the customer is often less than retail, a general contractor realizes a profit from selling you a ‘marked-up’ product purchased from a supplier, then pays a tradesperson to install this product. The “price-savvy” shopper may find a supplier (local or online) who can offer the same product for 10% or 20% less than the contractor’s stated cost, but will likely pay a much higher “shop rate” for labour when hiring a tradesperson to do the installation: the installer is not receiving profit from the purchase of the product, and thus must cover their overhead from the installation price alone. Bottom Line… an overall price that is often no less – and sometimes significantly more – than the contactor’s quoted supply-&-install cost. Then add in the warranty consideration: the price-savvy shopper will usually not receive any warranty service on the cheaper product they found, other than perhaps a straight replacement of the product itself; so, if the product fails, the customer will pay to have the defective product removed and to have the replacement installed. A reputable contractor will usually remove, replace, & reinstall a defective product at little or no cost to the customer.
Professional Renovation Contractors:
- Maintain a well organized and professional office where all important paperwork and invoicing is kept current and accurate
- Tend to work with like minded, reputable & reliable trade partners
- Carry liability insurance, Worker’s Compensation coverage, municipal & provincial business licenses, and are usually bonded
- Regularly attend educational workshops to keep up to date with current construction practices & bylaw issues
- Do not receive “commissions” from trade partners
- Provide a detailed written estimate and submit written notification of any additional costs which occur during the project due to unforeseen circumstances (i.e. – mould remediation, hidden structural issues, etc.)
Get it in Writing
A Cautionary (and true) Tale When Jim and Sue Smith (all names have been changed) purchased their home in Eastern Canada, a major renovation was an important part of their plan. When the Smiths hired Mr. B as their renovator, they thought they had done everything right. Over the next eight months, they learned that even a seemingly well-planned project can go wrong, especially if important details are not completely clear and written down in a contract.
The house the Smiths bought had previously been a duplex and required major changes to convert it to a single-family home. Structurally it was in good shape, but it needed updating from top to bottom, including tearing out some walls and a lot of plumbing and electrical work.
Jim and Sue started their search for a renovator while in the process of buying their home. They interviewed three contractors, got customer references from each one and checked them. They also contacted the Better Business Bureau and the local Home Builders Association. Mr. B had a look at their new home before they finalized the purchase agreement and provided a ballpark estimate for the renovation work that was needed. The Smiths chose Mr. B because “we felt very comfortable with him and thought we’d work well together.” Mr. B’s customer references were also positive about their experience with this contractor.
Once the Smiths had completed the purchase, Mr. B gave them a written estimate for the planned renovation work. The estimate was not highly detailed, it simply listed various areas of work such as plumbing, electrical and specific alterations, and an estimated price for each area. “We assumed that this was the contract, this was the price we were going to pay”, explained Jim. However, neither the contractor nor the Smiths actually signed this document.
Mr. B also gave them a “sample contract” which spelled out some of the responsibilities of the homeowners and the contractor, as well as other information that made reference to “the detailed contract”, reinforcing their impression that the estimate was the contract.
Once the renovation work got underway, Mr. B submitted invoices every two weeks, each with an itemized statement of time worked, subcontractor charges and the materials used. Invoices were not tied to specific construction milestones, so it was difficult for the Smiths to know if their budget was on track.
Initially, when the work appeared to be going well, this was not a concern. However, as the job progressed, they became increasingly uneasy with this arrangement.
“About two months into the job, we began to get a bad feeling”, noted Sue. “I wasn’t sure why, but we began not to trust him. Some of the workers seemed to take forever to do things and some days there was only one worker on the job. When we brought up problems with Mr. B, his reaction was always that things were going very well. Later on, he started to knock money off his bills anytime we expressed concern”.
Over time, the Smiths found that they had a growing list of problems with how Mr. B operated his business. When they wondered about full drawings for the construction work, they ended up with design drawings, but not a complete set of working drawings.
When a major load-bearing wall was removed, they were told that they didn’t need a building permit and that a “friend” who worked for the City would come by to see that the work had been done correctly.
At this point, the work had been going on for four months and the project was supposed to have been completed. The Smiths had moved into their home. However, a great deal of work remained undone, including painting, doors, trim, new stairways and a third-floor dormer. Their roof was also partially covered by a tarp. The Smiths figured that two-thirds of the work was done, but they had spent their entire budget.
Alarmed with their contractor’s inability to provide satisfactory answers to their questions and concerns, they held a series of meetings with him. He became increasing hostile and eventually stormed out of the house. Work on their project came to a halt.
The Smiths contacted a number of other contractors in an effort to find someone who would complete their project. None were willing to consider the job until there was an engineer’s report on the house and all the required building permits were in place. This was a frustrating and stressful time. “We didn’t even know if the house was going to come crashing down around us”, noted Jim.
The engineer’s inspection determined that while there were many deficiencies in the work that had been done, the home was structurally sound. The engineer also arranged with the City for the Smiths to obtain the various permits and inspections required to make their project “legal”.
With the engineer’s report in hand, the Smith’s hired a well-established renovation contractor to correct the mistakes and finish the work. Their experience with the second contractor was extremely positive. “We had a signed contract, so we knew what we were looking at”, said Sue. “We appreciated the contractor’s knowledge and expertise and we could really work with him. Anytime we had an idea, we were able to sit down with him and talk about it. And any changes we made to the original plan were written down as a change order and signed by both parties.”
The Smiths also decided to pursue Mr. B to recover the costs involved in correcting his construction mistakes. However, as they were about to go to court, Mr. B declared bankruptcy, making it highly unlikely they would ever collect a settlement. They subsequently dropped their case.
So what went wrong and what did the Smiths learn from their experience? They believe that Mr. B “got in over his head”, taking on too many jobs in an overheated renovation market. They also speculate that the project was too large and complex for him. Jim added that, “we know now that the project wasn’t planned properly from the beginning-the work wasn’t spelled out in detail, there should have been blueprints and specifications so the work could be properly costed out and a realistic schedule developed. We had lots of paper, but nothing definitive and we never actually signed anything with Mr. B.”
In the end, the Smiths are very happy with their home – they got what they wanted. And having their project completed by a professional renovation contractor provided them with valuable insight into how a well-planned renovation project works. Their advice to other homeowners is simple – it’s OK to trust a contractor, but verify what you discuss and get ALL the details in writing.
Every industry has a soft underbelly, and in the renovations industry it’s the guy we call the tailgater. He’s the guy who knows all the corners to cut, who can save you a lot of money. He’s the guy who’ll work cheap, for cash, and who figures all these permits and licenses are for suckers.
Unfortunately, he’s also the guy behind the handyman horror stories. He’s the guy who disappeared with the money before the job was finished, and left the homeowner with a lien and a big bill at a lumberyard. He’s the guy whose accident on the job got a homeowner embroiled in a liability claim. And the permit he didn’t get was the reason your insurance was null and void after the potlight he installed set your attic on fire.
And he’s the guy who makes it hard for legitimate handymen. They find themselves tarred with the same brush. And they find themselves answering the same question over and over again – “How come your estimate is so high? I’ve got a guy offering to do it for half that much.”
An experienced, qualified handyman provides necessary services at the kind of reasonable costs you associate with small, low-overhead, personal-service businesses. I don’t know how a city like Calgary could function without handymen. They’re the guys you call when a window or a door needs to be repaired, or you have to install a vent. They take care of your tile problems, and repair drywall. Some of them tackle furnaces and water heaters, and repair carpets. They build your closets and install the kitchen cabinets you bought at Ikea.
The problem begins with the fact that a really good bad guy looks pretty much the same as a good guy. First impressions aren’t always reliable. He may drive a BMW because he’s extremely successful, or because he’s ripped a lot of people off. He may drive a highly experienced old van because he’s constantly broke, or because he’s successful and careful with money. Honest people look you straight in the eye and seem like nice guys and gals. So do a lot of crooks.
How do you know who to call? And how do you know who to hire?
The best way to hire is to call a handyman who has previously done a good job for a friend or neighbor. Tap into your network and ask for referrals And when you’re talking to a potential handyman, ask for at least three references. Throw him or her a tough one – ask for a bad reference, a client whose job didn’t go well. You can learn a lot about someone by finding out how they act when a job goes bad. If you hear “All of my jobs have been perfect,” my advice is to hold onto your wallet and walk away, fast.
There are warning bells you should listen for. The loudest is the word “cash.”
Legitimate handymen are generally no happier about taxes than anyone else, but they pay their taxes. They have real businesses, with bank accounts, and bookkeepers, and they have credit with their suppliers. They work from written agreements and they use invoices and receipts, because they know there has to be a paper trail. When a handyman suggests you pay under the table, remember “cash” is a four-letter word, just like “risk.” If there’s no paper trail, there’s no recourse. Even a canceled cheque isn’t enough if there is no paper trail and you find yourself having to prove something.
The second loudest is the word “handshake.” Of course you have to trust your handyman, and in everyday life, people are always giving each other the benefit of the doubt. It’s easy to say that a job is too small for a written contract. But a handyman who objects to a written agreement may be doing so because he’s been making promises he’s not sure he can keep.
If you’re hiring someone for a quick, small job, if the handyman is well known among your circle of friends and has a reputation for being competent, honest, and above board, and if the amount of money involved is not large, that’s one thing.
But if you’re dealing with a stranger, no matter how persuasive and presentable, no matter how small the job, you are well within your rights to require that the details be in writing:
- (1) who will do what;
- (2) what exactly is to be done;
- (3) when it will be done;
- (4) how much money will be paid as a deposit, as progress payments, and at the end of the job (including provision for any holdbacks); and
- (5) who will be liable for accidents.