Money Pit: Construction cost savings that backfire
In the 1980s there was a movie starring Tom Hanks and Shelley Long called “The Money Pit”. It is about a young couple who decide to buy a “fixer-upper” home to save money. They experience one problem after another during their remodel and sink more and more money into the project. It’s a funny movie, but construction problems don’t seem funny when they happen to you. At The Kastrop Group, Inc. we hear about construction horror stories, and sometimes we are hired to try to remedy them. Most start with a homeowner or business owner who innocently decided to try to reduce costs on a project by relying on a non-professional or a self-interested third party. This blog article will briefly relate a few examples and give you advice on how to avoid falling into a money pit.
Buy it yourself: This is the idea that if you go and do your own shopping for construction materials—everything from lumber to lighting fixtures—you can avoid the contractor’s profit margin on these items. The fact is that most experienced and successful contractors already get special pricing, either because of volume discounts or because the suppliers give them a wholesale price not available to the public. Even with a contractor markup, the price differential may be very small and not worth your effort. But let’s say that you really can get a better deal than the contractor price on some of your supplies. What should you do? You should make the contractor aware of the deal (including store/supplier, address, phone number, and model number). Then ask the contractor to get the item at that price and pass the savings along to you. Why? Almost without exception, contractors will not warranty any item that they did not acquire and install themselves. They need to know that the item complies with the required specifications, is familiar to them, is a reliable brand, and is installed correctly. In California, the state requires the contractor to warranty their workmanship for at least one year. The manufacturer warranty against defects on many items is even longer if correctly installed. The risk of invalidating the contractor or manufacturer warranty is usually not worth whatever cost savings you may have discovered. Discuss these issues with your General Contractor if you are a bargain hunter or if you qualify for a specific discount that might be worth using.
“As is” property purchases: Whether you plan to live or work in a building, or improve it and sell it as an investment, “as is” sales should be approached with an overabundance of caution. A home we inspected on a hillside was literally leaning down the slope. The homeowner bought it “as is” because his real estate agent said that he could tear it down and rebuild it for “a couple hundred thousand”. It will cost more like $600,000 to $800,000 to rebuild the same size house on that hillside. Besides a good architect and an experienced General Contractor; it will require a civil engineer, a geotechnical engineer, a structural engineer, and a surveyor. The home will require a more expensive foundation than a similar residence in a more level/secure location. This homeowner relied on his real estate agent for information that the agent was not qualified to provide.
In another case, a home had a second-story that was built without permits and looked like an ugly box sitting on top of the house. The unpermitted upstairs rooms were disclosed to the buyer and the purchase was made “as is”. The city has strict ordinances and an Architectural Review Board must approve all second-story additions. The real estate agent told the buyer that the second floor could be “fixed up” and permitted, but in reality, it may have to be demolished and replaced according to current codes, resulting in much higher costs than the buyer expected. The best way to avoid being unpleasantly surprised in an “as is” sale is to have an experienced licensed architect view the building before you decide to buy. A consultation of this sort could be complimentary if you are planning to hire the architect for a remodel, or maybe cost a few hundred dollars for a professional opinion, but either way it is a huge savings in peace of mind and future cost avoidance. It could also give you leverage for lowering the purchase price on the building.
Inexperienced contractors: Here are a couple of cautionary stories about good deals that went wrong. A business owner had hired a residential contractor who thought he could do the build-out on their store improvements for less than the commercial contractor bids. He didn’t have experience with commercial building codes and was deficient on many requirements, such as the Americans with Disabilities Act (ADA) compliance. When the contractor realized that he was in over his head, he walked off the job, leaving the business owner with a half-built project that cost more to inspect and remedy than hiring an experienced commercial contractor in the first place.
In another example, an apartment owner got a really low price from a metal fabricator who installed handrails and guardrails on the staircases and balconies at the apartment building. Unfortunately, the metal worker did not make them high enough and installed them incorrectly, as he was not familiar with the ADA laws. The City came and “red-tagged” the project. An engineer had to be hired to do an inspection, and all the railings will need to be replaced and reinstalled to meet the codes. Failure to comply with the codes could result in a tenant injury or lawsuit. We recommend that you ask an Architect or a Certified Access Specialist to inspect your place of business before starting any changes to safety features or disability access. These inspections are cost-effective and can demonstrate to a judge that you intend to be in compliance with the law, even if you haven’t yet completed the improvements.
Your friend will build it for you cheaper: Friends and relatives who are do-it-yourselfers can be a blessing when you have a small handyman job that is within their skill set. It is risky, however, to rely on unlicensed friends to do major work on your residence or place of business without experience and qualifications, no matter how much money you will save. It is uncomfortable to tell a friend or relative that you are dissatisfied with their work or to be honest about something that needs to be fixed. Tearing substandard work out and starting over is not uncommon, and sometimes results in family feuds and ruined friendships. Our advice is to always get bids from three licensed General Contractors experienced with your type of project. At least one of them should be someone who your architect has worked with before and trusts. Your architect can compare the bids and help you get the best deal.
Acting as your own General Contractor: If you are experienced at construction, and know what you are getting into, then this could be a possibility for you. But if you are just a “good manager” and want to do it to save money, you may want to think twice. You will have to educate yourself on how to read the plans for details that are easily overlooked. You must spend a lot of time doing the coordination between the subcontractors. You will need to evaluate costs, change orders, and materials, trying to make sure you are comparing apples to apples. You will be in charge of setting the construction schedule to avoid work being done out of sequence or duplication of services. You will need to adjust the schedule when weather or suppliers cause unavoidable delays. You have to be present at the job site on a regular basis. Most jurisdictions require that an owner-builder provide workers compensation insurance for the project, pay payroll taxes for workers, and other employer obligations. Contact your City or County for details. Acting as your own General Contractor can be almost a full-time job, so if you already have a job and/or have only a little bit of construction experience we urge you to hire a good licensed General Contractor. It can save your sanity, and a lot of your time.
We hope that these examples will help you avoid similar problems with your project. There are ways to save money on construction projects without being penny-wise, pound-foolish. Don’t create a money pit! Obtain advice specific to your situation from an experienced licensed Architect and an experienced licensed General Contractor before getting started on your project. A good source for licensed architects is the American Institute of Architects at www.aia.org. Click on “Find an Architect” at the top of the home page. For a list of licensed contractors visit the Contractors State License Board or your state’s Department of Consumer Affairs. In California, visit www.cslb.ca.gov.
Good luck from The Kastrop Group, Inc. Architects!
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