How to Negotiate with Contractors Before and During Projects

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Tips and techniques to negotiate contractors for home improvements or large purchases.

In light of the current recession, consumers are finding it necessary to keep costs down for renovation projects and large purchases. Contractors are also feeling the pinch as the real estate crash has created a plethora of new competitors that were forced to leave construction sites and head for scarce remodeling work.

While many contractors are trying to look out for your best interest, they are also trying to make a living. As a consumer, you need to be aware of tactics some contractors use to drive up the final cost of renovations, unit replacements, and additions.

Terms of a Contract

The best way to keep costs in check is to know exactly what you want and make sure the contractor gives you only what you ask for. These initial terms are the most important part of any work, whether it is a simple air conditioning unit installation, or a large addition. Having everything written down prior to the work beginning is a must; the days of a firm handshake are over.

How to Negotiate

The most common negotiating tactic for a homeowner is to ask a contractor to match a competitor's lower bid. The typical response by the contractor is to ask if the bids are comparable, or apples to apples. Even though two different contractors may bid on identical work, they may use different grades of materials or appliances, such as the difference between premium and builder’s grade. Some contractors may also receive steep discounts from favored suppliers, or swap the agreed upon unit for a comparable unit. They may say that the unit that was bid on will take too long to get, or has warranty issues and try to get you to change it for their selection. This is a common trick contractors use, so make sure that you get the unit you want and if they can’t supply it in a timely fashion, they are responsible for a cost overruns due to their delays.

Costs overruns may be due to equipment rentals, rescheduling other subcontractors, inspections fees, and even interest payments on home equity loans. Make sure you communicate any specific deadlines you need to hold to. This may increase the bid from the contractors, but it will save you a lot of sleep later on.

A better approach is to ask your contractor to help you understand why their bid is higher than a competitor's. The cheaper contractor may have left out an important component, and when it is found out, he may try to charge you extra for a “change.”

Make sure that they are aware of any unusual building components that they may have to work around or remove and relocate.

Although the rule of thumb is to always get three bids from comparable contractors, I think 4 or 5 may be a better option, and here’s why. The first time you have a contractor come to your home and you go over your project, he may ask a few questions. You will use this information from Contractor A and transfer that knowledge to Contractor B. Contractors be may then ask different questions leading to a more complete understanding of what is required in the project.

You will then transfer this new knowledge to Contractor C. This can go on for a long time, but Contractor A is unaware of the current situation and therefore his bid may not be in line with the other two. It may be lower and you may forget what was said to each contractor and you take his bid even though he doesn’t have all of the new information.

You also gain experience during the bidding process and at the very least, you should revisit the first two bids and meet with the contractors again. The pattern would be A-B-C-A-B, again to be fair you may want to meet with C again. This is basically like going through 6 bids for the project.

Once you have a better understanding of why the bids differ, there are a few ways to ask for a discount:

• Explain that you like the particular model of equipment they're offering, but that it is outside of your budget. Ask them if they can work with you to stay within your budget.

• Explain that you expect to be a customer for a long time, and that as long as you're happy with their work, you expect to pass their name on to friends and colleagues. But, price is important to you, and would they be willing to reduce their price by a certain percentage.

• Ask if they can reduce their price if you're willing to be flexible on when they perform the work or install the equipment. You can also offer better payment terms, such as payment in cash upon successful completion of the job, rather than waiting to be billed and receive payment in 30 days.

There are some items other than price that you can negotiate, especially for plumbing and mechanical installations. Another option with a hidden upside for the contractor is offering an extended parts and labor warranty to close the deal.

Two contractors reported that manufacturers often reimburse their dealers for extended warranties on higher-end systems. Contractors simply pass these savings on to the homeowner. They can also offer maintenance contracts at a reduced rate than if you were to get a service contract separately. You can also ask for options or accessories, such as high-efficiency filters, programmable thermostats, and the like.

Whatever you do, don’t make the negotiation process adversarial. You can’t ask the contractor cut his price to the point he doesn’t make any money.

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Posted on Oct 26, 2009