Property Grunt

Sunday, September 24, 2006

The Cost of Construction

Below is an email from a reader regarding construction.

I just ran across your blog and have been enjoying your writing and take on things.

I ran across while searching for some information which I thought you might be able to point me to...

I’m shopping for a 1st apartment and am trying to get a handle on what it might cost me to redo a kitchen, put in new floors, rewire, etc. As I see apartments, I’m having trouble getting serious about places that I know will need work since I have little idea of renovation costs.

Short of establishing a relationship with a contractor so early in the game, are there any online sources that give rough estimates?

Any help you could give me would be appreciated!

Keep up the great writing.

Below is my response which I developed further for this entry.

Thank you for your kind words. I have touched upon construction before. Unfortunately I do not know of any
sources of where you could find rough estimates. My experience with construction is limited, however from interacting with contractors and seeing screwups there are certain rules you should follow.

1. Definitely get an early estimate.
2. Don't start any work until a contract is signed.
3. Talk to a lawyer about the contract and decide what incentives or penalties to
5. They will go over budget so figure how much you will need in reserve. Just don't
let them know how much you have.
6. Every job is subjective, so you might not pay the same price someone else has
even though it might be the same job.
7. Expect high prices with the high cost of parts and materials. Thank you China.
8. Negotiate wisely. If you pay low, you might get low quality. However if you pay
high, you have the leverage to scream at your contractor.
9. Talk to your super or doorman. Building staff are always doing freelance
construciton work. Just make sure they know what they are doing. The key
advantage of keeping renovation in house is that that the condo/co-op board will
most likely be more lenient or better yet may turn a blind eye.

The best group of people that know how to keep their construction costs down are real estate developers. It is imperative that they keep those costs down because any cost overruns will eat up their bottom line. Therefore they intitiate a request for proposal where they contact at least 3 construction companies and present a line by line item spread sheet of what they need and the construction companies who will return that spread sheet with their prices.

Upon receiving the spreadsheets, the developers will look over each item and determine whether the numbers are reasonable or unacceptable. A good developer will have a firm number in mind and will negotiate with anything that is objectionable in that spread sheet. A developer needs to be beyond meticulous with this item and not only question the high prices but also ones that are very low.

The average person can utilize the same principals in their own renovations by determine what materials and skills need to be utilized in completing the renovation. A simple excel spread sheet will allow you to organize that is needed.

Remember. Take your time and don't do anything stupid.