Mike Otto

The Difference Between a Feasibility Study and an Estimate

Last month I wrote an article called, “What your contractor doesn’t want you to know about his estimate.” I got a huge amount of feedback from all over the country on that article.

The most often asked question was, “What is the difference between a feasibility study and the free estimate from the contractor?”

Today, I want to share two stories that will show the difference.  They really can be black and white.

A story about the free estimate from the contractor:

Mary wants to remodel her kitchen. She contacts three contractors: Git’R’Done Construction, Lovely Spaces Remodeling, and Nice Guy Joe’s Renovations.  All three contractors come out, look around, give a few ideas and a promise to follow up with a price. Git’R’Done Construction, Lovely Spaces Remodeling, and Nice Guy Joe’s Renovations all think this is a nice kitchen renovation and would like do the project. All three contractors feel that price is going to be the most important factor in getting this project – so they all bid it as low as the feel comfortable doing. All three contractors give Mary their respective bids free of charge. Mary chooses to work with Nice Guy Joe’s Renovations because his price was in the middle and besides he’s Nice Guy Joe.

Fast forward about 45 Days.

Mary is super frustrated. Her kitchen is all open walls and bare studs. She just found out yesterday that the appliances she likes are $2000 over budget. She can’t find any tile that she remotely likes within the contractor’s allowance. It looks like tile is going to be $1800 over budget. Today, the contractor just let Mary know that he can’t run the plumbing where he thought they could. He needs to break up some concrete in the basement floor and re-think the plumbing.  And that will add $7800 to the cost of the project. Mary is beside herself. Her kitchen is torn up, she has no place to cook, and now she is $11,600 over budget. Everything Mary wants to do seems to generate a Change Order. She wishes she had never started.

How else could this story have developed?

A story about the Feasibility Study:

In this story, Mary still calls Git’R’Done Construction, Lovely Spaces Remodeling, and Nice Guy Joe’s Renovations.  She wants to find someone she likes and figures if she interviews a few contractors she might find someone. In this story, Lovely Spaces Remodeling suggests that Mary do a Feasibility Study to make sure the project is right for her. Lovely Spaces Remodeling tells Mary that it will cost $150 to $350 to have all the plumbers, electricians and all the people that might be working in the house come out and do a very thorough analysis.  This would include looking for possible problems and  less expensive ways to do the work – yet still do what Mary wants done. (In our company, we call this Value Engineering). Lovely Spaces also points out that when all the people involved with the project are in on this meeting, it will prevent finger pointing in case something was ever missed.

Mary agrees that this is a good idea and Lovely Spaces schedules a feasibility meeting with everyone involved.

During the meeting, the plumber points out some concerns that could cost extra money and Mary shares with the tile person what she is thinking about tile. Mary also lets Lovely Spaces know what she is thinking of using for appliances.

When Lovely Spaces Remodeling figures comes back to Mary to weeks later with a detailed Feasibility Study, Mary can see the project is coming in $11,600 more than she thought. Mary can decide to not do the project, or she can adjust her budget to get what she wants.

What she won’t have to do is be trapped into making decisions because no one has torn Mary’s kitchen out yet. Mary is in complete control of what she will or will not spend. She can make informed decisions.

So why wouldn’t Nice Guy Joe’s Renovations try to value engineer a renovation?  The answer really is incentive – what is the incentive to value engineer if Nice Guy Joe does a bid and gets the job?  Why wouldn’t Nice Guy Joe really try to find out what Mary really wanted ? Perhaps he was afraid the price would scare her away? Why was there no incentive to minimize change orders before the job started? Could it be that change orders were a way to make a lot more money on a renovation?

It has been my experience that a good Feasibility Study often leads homeowners to realize that the renovation is not the right thing to do. This is the case 30% of the time.

What is the incentive for a contractor to help you discover the project is not the right thing to do?

 Tell Us What You Think.

Mike Otto, Fair and Square Remodeling

 

 

3 responses to “The Difference Between a Feasibility Study and an Estimate”

  1. Reuben
    November 9, 2011, 10:30 am

    I find this article disturbing. The argument for a feasibility study is essentially, “Pay me a little to do a feasibility study, or else I’ll low-ball the estimate just to get the job and change order you later.”

    Or, if we’re giving contractors the benefit of the doubt that they aren’t intentionally low-balling, the argument becomes, “Pay me a little to do a feasibility study because I didn’t put much effort into the free estimate so it’s probably not very accurate.”

    Neither argument makes contractors look good.

    The feasibility study sounds like a way to get potential clients to start paying for what they’ve historically gotten for free (which is fine if that’s what the market demands, but let’s be transparent). I don’t see the distinction between a “free estimate” and a “feasibility study” other than that the contractor is putting more effort into the feasibility study.

    Why shouldn’t prospective clients be able to have confidence that a contractor has already identified potential problems before providing an estimate?

  2. DavidPopoffCT
    November 10, 2011, 9:13 am

    Here in my area most local reliable contractors who have been in business for a while already follow through with what you call a feasible study when going through the estimate.
    If homeowners are looking for the cheapest price and comparing apples to oranges then the first senerio applies. Remember you get what you pay for, there are no deals when it comes to home renovations.
    Good blog, I am going to recommend it to my clients.Thanks

  3. Mike Otto
    November 10, 2011, 2:55 pm

    I’m not sure if the argument for a feasibility study really is “Pay me a little to do a feasibility study, or else I’ll low-ball the estimate just to get the job and change order you later.” Or “I didn’t put much of an effort in this estimate, but if you pay me, I’ll be more careful”

    The truth is that there really are no free estimates… Someone has to spend time visiting the client and preparing the estimate. I suppose you could say that the next prospect that turns into a client “pays” for the estimating in the markup we charge. But there are no free estimates. Someone is paying to have the analysis done. We could argue about who pays, but someone is definitely paying for them. Maybe that’s a discussion for another article…

    But since it’s in any contractor’s best interest to try to reduce cost and get jobs, the simple reality is that it’s tough to fight off the temptation to low ball an estimate. Especially if it’s a new or hungry contractor facing the possibility of laying off 2 carpenters. But usually it’s not even intentional. I know contractors that have been in the business for 30 years and they humbly admit they always guess low. Even after 30 years of painful reality checks, they still can’t guess right. These are some of the top contractors in the country that speak at major events and write papers on remodeling.

    When my wife and I remodeled our kitchen some years ago, my guess at what the costs were going to be were$12,500 lower than what the actual cost was. My wife still occasionally brings that up when I tell her we should do something at the house and I think it will cost some amount of money.

    And finally, there are customers out there (not everyone, but many) that say “you get what you pay for”. They WANT to pay for a feasibility study so they can be sure they are getting value. Face it; it’s pretty tough to file a complaint with the Department of Labor and Industry or the BBB when you didn’t pay for anything. So there is a significant portion of the population that wants to pay a reasonable fee to foster a sense of reciprocity and insure value is received. And these are the people we want to work with.

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