Remodeling Myth: The Three-Bid Rule

Remodeling Myth: The Three-Bid RuleHome remodeling is a maturing industry. That means that truly professional firms that specialize in remodeling are becoming the norm. Now homeowners can draw from a greater pool of reliable remodeling contractors in whom they can have confidence.

The shift to more professional remodeling firms, however, necessitates a change in how homeowners should best select a contractor. Specifically, the old practice of collecting three bids for the work and using the low bid to select a contractor no longer makes much sense.

The three-bid rule appears to work because it assumes everything to be equal except the cost estimates (or bids) from the three competing contractors. In other words, the underlying premise is that the three bidders have assessed and calculated the scope of work, blueprints, and specifications in exactly the same way so that the owner can compare ‘apples-to-apples.’

In reality, however, such assumptions are dangerous and rarely accurate. Every contractor, professional or not, analyzes a project and estimates costs differently. As a result, the three bids are not apples-to-apples comparisons. Some differences are subtle, but their existence means that bid comparison is deceptive regarding costs.

Even if all three contractors based their bids on precisely the same interpretation of the project, the three-bid rule still reduces each remodeler to a number, when the most relevant factors for the owner’s satisfaction are the builder’s skill, experience, personality, record of success, and ability to do the work.

For this reason, an increasing number of the best remodeling companies simply refuse to bid competitively, opting out of such opportunities because they know they will be evaluated only in terms of cost, rather than whether they are the best firm for the job.

Such remodeling contractors prefer a different approach: the negotiated contract. In that scenario, a remodeling firm is selected based on its abilities and its personality fit with the homeowner. Considering how closely contractors interact with homeowners during a typical remodeling project, these criteria are the best predictors of client satisfaction. The negotiated contract also takes the guesswork out of the project’s cost.

In this process, each of two or three contractors receives a budget from the homeowner based on what the homeowner wants to spend, not on what the remodeler thinks the project will cost. Sharing the homeowner’s budget not only removes assumptions and misleading comparisons of cost, but also builds trust and facilitates honest communication about actual costs. If necessary, the builder and homeowner can then negotiate choices and prices in order to match the project’s scope with the client’s budget.

Not only does the negotiated contract process result in a more accurate estimate of cost, it is also far superior to the three-bid rule in matching the personalities of the client and the remodeler during the negotiation process. The process also reveals the best match between a particular project and a contractor’s skills and experience. By first narrowing the field, and then by selecting one remodeling firm based on everything except the cost of the project, a homeowner can better ensure that the project will remain on budget and schedule. Both homeowner and contractor are on track for a finished project that meets or exceeds expectations.

As the remodeling industry continues to evolve into a recognized profession, it is adopting new and more effective methods of conducting that business. The negotiated contract reflects the new age of home remodeling to the benefit of every homeowner.

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2 responses to “Remodeling Myth: The Three-Bid Rule

  1. Although you should always protect yourself from shoddy contractors, the landscape is changing nowadays as more contractors are vying for certification and licensing. Part of the reason is because the competition in the industry is getting heavier.

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