Difficult Times for Small Projects: Contractor Bids per square foot way over average

By Lorianna Kastrop, Vice President, The Kastrop Group, Inc. Architects

We are seeing a disturbing trend when getting contractor bids for small residential projects in the Bay Area.  We want to raise awareness for those who may be considering a small project for their own home.  This is an example:  A 162 square foot residential bedroom addition, with 3 walls, 3 doors, 3 windows and a simple gable roof.  There is very little electrical and plumbing (just a few outlets and a hose bib).  No kitchen or bathroom work is involved in this remodel.  It really doesn’t get much easier than that for a residential addition. How much do you think it would cost to build?

Normally, we would tell the client to expect bids around $50,000 or around $300 per square foot.  That’s what we’ve been seeing in this robust Bay Area construction market.  But a few things have changed lately.  As we get into summer the contractors are very busy.  The market doesn’t show any signs of slowing down.  The subcontractors are in high demand and are pricing themselves accordingly.  Lastly, contractors have less interest in multiple small jobs when they can get better efficiency by doing fewer, but larger, projects.

So, what bids did we actually receive for this small bedroom addition?  One contractor that we know is usually on the low end gave a $75,000 bid, or $463 per S.F.  Another contractor gave an itemized bid that was a total of over $106,000 or more than $658 per S.F.  Holy cow!  That bid was enormous for what they were building.  This isn’t the Taj Mahal!

Digging a little deeper we found that this general contractor charges 12% overhead, and another 10% profit on the subtotal of the subcontractors’ bids.  That is higher than we expected.  In the past, overhead and profit (combined) ran in the 10-15% range.  This is a double-whammy for the client.  The overhead/profit percentage is higher than usual and the more the subs charge, the higher the number that percentage is based on.

Keep in mind that the construction industry suffered a heavy blow during the recession and some contractors are making up for lost wages and profits.  Some people even left the industry or left the Bay Area during that difficult time.  The aftermath is that general contractors have to make an extra effort to attract skilled framers, plumbers, electricians, etc. to the smaller jobs.

What can a homeowner on a budget do to control these skyrocketing costs?  The most important thing is timing.  The rule of supply and demand is in play.  Wait until the demand drops off.  That means starting construction in the fall, or even the winter.  Yes, you may have to deal with weather issues, but it will save you a bundle of money.  People build in Seattle all year around, we Californians have it easy by comparison.  A little rain is not the end of the world and reliable contractors know how to tent and protect their construction zone.  So, waiting until contractors are a little less busy will lead to more competitive bids.

Secondly, remember to check with your architect for the contractors that they know will bid lower than others—either because they have lower overhead, are willing to take a bit less profit, or because they have created efficiencies by combining several jobs in the same general vicinity.

Lastly, and this is important, do not be in a hurry.  Some contractors are willing to give you a great price if you are willing to be patient while they work on other jobs and they try to fit your small job in when they have freed up their sub-contractors from other projects.  The caveat to this strategy is that you need to negotiate a final deadline, so that the contractor doesn’t drag on forever and try your patience in the process.

We hope that this spike in construction costs is temporary and that they will normalize soon.  We are not trying to scare you off from doing the project that you need and want.  We believe that it is important for folks to understand what to expect in this hot market period.

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