Money, Money, Money

Like a lot of other remodelers, Strong Construction in Fremont, Calif., can't afford to waste time with clients who want to push $50,000 where $100,000 should go, or who get fixated on some magic number for a project's cost. But co-owners Steve and Sandy Strong also can't afford to turn away good business, so they bring up the big, bad B word — budget — as part of the typical first phone conversation.

Talking about money isn't easy. “First, you have to get them to warm up to you,” Steve Strong says. He asks questions such as how old the house is and whether the client has had any other remodeling done (and thus whether they have some sense of the marketplace) before he asks about a price range or a budget. He wants customers to have a budget in mind by the time he visits, so there are no unpleasant surprises as homeowners get their hopes up for a project they can't possibly afford. “Screening the call [for a realistic budget] from the very beginning is the best way to avoid sticker shock,” he says.

Sometimes, callers don't want to say how much they want to spend. “They think we'll fill the estimate, so they give us numbers they know are too low,” says Sharon Bellamy, general manager of Bellamy & Sons Construction in Scotia, N.Y. To counter that approach, Bellamy will ask what the project encompasses, and details such as the size of the room in question or any added space — anything that will help him generate a more reasonable ballpark figure. “We try to give them an idea right away of whether their budget will work with the project,” Bellamy says.

Even before they get on the phone, Classic Homeworks, in Denver, makes it possible for homeowners to get a sense of the money they might need to spend on a project: Its Web site lists typical budget and scope of work for projects such as a complete bathroom remodel ($20,000 and up), a basic kitchen remodel ($55,000 and up), and additions ($200 per square foot). “Sometimes that's the only price they know,” says company founder Rick Pratt. The site also serves as a way to weed out tire kickers and people whose budget is too tight: A lot of people leave the Web site after visiting that page, Pratt says.

Classic sometimes — but not always —asks about budget. The goal is to qualify leads, Pratt says. “So many people have no idea how much it costs to remodel. We get people saying, ‘We've saved $2,000 or $3,000 to remodel our bathroom, and we're eager to get started.'” Warning bells go off in Pratt's head when callers say they saw the company in the phone book or a listing of contractors, especially if the kinds of questions they ask show an unrealistic sense of what the project might cost.

If Classic offers an estimate on the phone, it will gauge the response. “That's a very rough number and risky,” Pratt says. “Sometimes it's not the right thing to do,” and it's better to wait and talk numbers during the sales presentation when the salesperson can see the house and get a better handle on what the homeowners want done.

Indeed, some remodelers habitually wait until visiting the home to talk money. “We don't talk pricing until we meet with them the first time and see the site and the unique elements of that particular project,” says Roger Sirany, president of Plumbline Builders in Hopkins, Minn. At that point, “our goal is to clarify a budget.”

Regardless of when a remodeler chooses to talk about pricing, educating the homeowner should always be a goal. Each client comes with a particular set of challenges, but there are some general similarities. Acheron Construction, for instance, constantly fights the battle of the square foot. “The real estate market here in Dallas is driven by the square foot. So people know their home is valued at $145 per square foot. They will take the size of an addition and calculate the footage and thus the price,” senior partner Alex Dahlgren says. “There is no basis in reality.”

So Dahlgren advises that such clients immediately quit thinking in terms of square footage. Kitchens and baths, he notes, typically cost more per square foot than any other room in the house. Instead, he tells them that a good rule of thumb for avoiding overbuilding or underbuilding is to spend between 15% and 18% of the home's value on remodeling a kitchen and between 10% and 12% on the master bath. “That gets us to a starting conversation.”

Classic Homeworks also avoids talking about cost per square foot, except in the case of additions. Giving rough estimates isn't all that hard says Pratt, since “most jobs are for fairly similar work.” He tells clients that kitchens, for example, will tend to be in the $55,000 to $85,000 range. If clients say they want to land at the lower end of that range, Classic Homeworks will talk about reducing the project scope or using fewer high-end materials. “Or we might say that we may not be the right company for [that client],” Pratt says.

The next step is the design agreement —if it's worth getting to. “We make all kinds of judgments to decide that,” Pratt says. “We charge for our design, and we don't do any work without the design agreement. It saves us from wasting our time with someone who doesn't have the budget.” Included in the design agreement are a short description of the scope of work and a price range. However, the agreement does not commit a client to going ahead with the project.

That firm stance — telling clients they need to cut back in one way or another and then being willing to walk away from a potential job — saves remodelers time, frustration, and money. Some clients simply aren't worth taking on. “If they ask, ‘Can you lower the price?' we say, ‘Sure, what do you want to eliminate?'” Bellamy says. “Today, there's no room to just lop off $2,000. The price is what it is. We've itemized every line. We know what our material costs are.”

Even if clients initially hesitate at a price, they may eventually sign on. “It may take their talking to two or three other remodelers to have that [reality] sink in,” says Jason Larson, president of Lars Construction in La Mesa, Calif. A number of clients suffering from sticker shock have come back to Larson after doing just that. “They come back and tell us that we're the most professional and informative.”

Given that most people don't want to tell remodelers what budget they anticipate and, at the same time, they somehow expect their entire wish list to cost a mere $10,000, Larson softens the blow by asking for two budgets: one they're comfortable with and a larger, “not to exceed” budget. “That gives me a range to hit within,” Larson says. “It really does work.” Nine times out of 10, he says, if Lars Construction comes up with a design within that range, it gets the job.

Sirany takes a tougher approach: “If they don't want to give me a budget, we're going to give them one.” Using his 20 years of experience and drawing on a history of job cost numbers tracked and recorded by software, he says he has a good sense of where the project will go. “Our goal is to give a realistic budget and to hit it. We educate the client at the outset.” Giving an unrealistically low budget to get your foot in the door gets the client excited, he says, but then you deal with their disappointment — or sometimes stronger emotions — when the actual budget soars.

Educating clients can even mean telling them to wait to do a project, Strong says. “If they really don't know the costs, I'll meet with them. If they're pushing the edge, I tell them they should wait and save the money to do the project [later].”

Whatever tack you choose, keep in mind something that Dahlgren has learned: “People get more upset about money than they do about anything else.” —Diane Kittower is a freelance writer based in Rockville, Md.

Saying Goodbye

If a client is absolutely determined to spend less than you know a project should cost, the only thing to say is goodbye.

When someone tells Alex Dahlgren, senior partner at Acheron Construction in Dallas, “I had a friend who had such and such done at such a price,” he responds by saying: “If you're happy with the work done for your friends and the price, you have found your man right there.”

If a potential client thinks the price from Denver's Classic Homeworks is too much, founder Rick Pratt says, “Sorry, those are realistic costs. I'm not sure you'll get the product or the service you want for less.” Pratt believes that anybody who has that conversation early on is a very price-conscious customer. “We're not looking for them,” he says.

Steve Strong, co-owner of Strong Construction in Fremont, Calif., says that he tries to get homeowners to honestly express a budget. Then, if they get bids of $58,000 to $78,000 from other remodelers and Strong comes up with a budget of, say, $75,000, “we politely back out if they scream. We're lucky to be small and to not need that much volume. Some larger remodelers who need volume would get a salesman to tweak the price.”

Changing the Changeable

Given that people change their minds, and hidden construction defects exist, change orders are bound to happen. They're a pain, but these three remodelers have processes in place to deal with them, making sure they don't lose money on that extra work.

Two-pronged approach: If the requested change warrants meeting with an architect or an engineer, Lars Construction in La Mesa, Calif., asks clients to sign an order for $500 to stop the job and do the research — a policy laid out before the project starts. If the change just requires phone calls to trade contractors, the remodeler presents the costs in writing and has the client sign off. “It either deters them or they say ‘OK,'” president Jason Larson says. “We've researched it and had people say ‘no thanks.' We give customers whatever they want, but we charge for the time and materials to get it done.”

Proper planning: People usually understand the problems that change orders cause because Acheron Construction explains early on how they affect the entire scheduling process, says Alex Dahlgren, senior partner of the Dallas remodeling company. “We spend a lot of time explaining about change orders from the beginning. They're usually the result of improper planning.” When, for example, clients belatedly decide during a kitchen remodel that they want to paint the entire room, Dahlgren details the painting process: how painting the cabinets and island will add a lot of time, the draping that will need to be done, and so on. He says something like, “If my painters are due at someone else's house in two days, we can't do six days at your house now. You'll have to go in at the end of schedule.”

Explain the details: The issue of time is one that Chuck Haeger is familiar with. “What do you mean it adds time?” is a refrain the project manager for S.N. Peck Builder in Chicago hears and knows how to respond to. “You have to be able to explain the trades that go into the work and the complexity of what they're asking for,” Haeger says. “Specificity helps. [Clients] don't understand the way we in the industry do. So if someone wants to straighten walls that were crooked, he explains that the work involves not just replastering but days of demolition, use of a Dumpster, the need for an electrician to upgrade the wiring — and he emphasizes the resulting increase in both resale value and enjoyment of the home. Offering details helps build trust, Haeger says, and that's key.