How to Negotiate with Your Builder
In today’s economy with the big downturn in homebuilding and construction hurting every builder, negotiating can be more effective than ever. But some methods of negotiating can be more effective than others.
Don’t overplay your hand. You might be holding all the cards right now, since every builder is very hungry for work. But pushing too hard can cause the builder to dig in and not want to negotiate no matter what. Effective negotiations should always leave both parties, the builder and yourself, feeling each came out well and didn’t have to give up too much.
My advice is that when you are negotiating, you need to always give the builder a comfortable reason to adjust his bid without him feeling like he is simply changing his number. No builder wants to be seen as saying, “I was trying to charge you that higher amount, but now that you’re pushing me a little, I’d be happy to only charge you this much.” It makes it look like he was trying to gouge the customer in the first place. So my suggestion is to always change the scope of the project a little bit, or suggest the builder ask his subs or suppliers if there is any way they can reduce the costs of the work. That way the builder can come back to you and say, “Now that we deleted the fancy tiles the cost has come down…” or “I really pushed my subs and got you these savings…” This lets the builder be the hero in getting you a better price, even if part of the reduction actually came from their own anticipated profit. They never have to say they cut their price, even if they did.
One other good tactic is to simply say, “I have a couple of prices and we are going to make a decision tomorrow. Please give me your last, best price to help with the decision.” This opens another opportunity for the builder to trim his profit without setting a new precedent he may not want to be publicly known. But you’ll still get the benefit of the discount he quietly created for you.
Another good approach is to evaluate the price they gave you, determine what you think the price should be, maybe three to five percent less, and then say to the builder, “I need to get this price to “X” or else I can’t go ahead. If you can do something to tweak you price to “X”, I’ll sign the contract.” Of course, in this scenario, you need to actually be ready to sign the contract. Your target number needs to be realistic, too.
Some cost savings can come from simple changes that make the builder’s work easier to do or coordinate, yet still give you the end result you are wanting. I always ask the builder for his suggestions and ask him to identify any places we might be spending too much without a compensating benefit. I do this even if the price was below our budget. You never want to overspend unwittingly.
Negotiating with both parties interests in mind will get you a great price and leave the builder happy to have gotten the job. When everyone is happy, the work always turns out better.
Have you had success or an interesting experience with builder negotiations? Post a comment and share it with us.
Hi. I am a long time reader. I wanted to say that I like your blog and the layout.
How do you respond when homeowners ask you to trim your design fees? Do you lower your prices in those situations?
Mark – Because my fees are for a specified amount of work, I will reduce the scope of the work in order to reduce the total fee. For example, my usual, comprehensive services include my involvement with the entire process, from initial site analysis through final punchlist. If a client prefers to handle the construction administration themselves and save the cost of my time, I will reduce my time for that phase of the work and still be available, as needed, on an hourly basis. If the client only has the budget for a simple set of construction documents, I will reduce my services to providing the basic drawings needed for obtaining a building permit and reduce my fee accordingly.
Often, people will not understand the value of designing and documenting the project thoroughly at the outset. So I always remain available for more complete services, if the client feels they are needed as the project moves along. A good architect and a good set of drawings will save the client the cost of those services many times over. But often they don’t realize it until the end.
True. Work can be done easier and faster if you can negotiate well with your builder. Contractors are also human beings who have the need for something so they ensure the home owner also pay a good price. If you can settle a great deal by stating your condition, you both can agree on things you will like.