Tips

Is bidding the best approach to hiring a builder?

Traditionally, bidding has been the established way for homeowners to select a builder. But is it the best way? And if not, what should you do instead?

A builder talks to one of his crew while onsite.

A builder talks to one of his crew while onsite.

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“I don’t believe work should be bid out. Bidding is about getting the lowest price,” said Nick Schiffer, Owner of Boston, Massachusetts-based NS Builders.

“Bidding promotes a race-to-the-bottom mentality,” said Jake Bruton, Owner of Columbia, Missouri-based Aarow Building.

“We’re talking about a custom home that you’re going to spend seven figures on. Do you really just want to get three bids?” said Steve Tankersley, Owner and President of Sacramento, California-based Tankersley Construction.

So what exactly is the story? Is bidding still the best practice for homeowners to follow? For a variety of reasons, the answer is no. Bidding is now most commonly practiced in certain highly competitive market segments, like among luxury home builders in certain large metros. It’s more of a reflection of market conditions than a singular approach to hiring a builder. If you’re a homeowner, this could be frustrating news but don’t despair; there’s more to understand here.

What's the bidding process?

Bidding is the practice of sharing with various builders a plan created by an architect and asking those builders to price out what it would cost to construct the home. Often the architect who designed the plans will help vet the builders’ bids. As the homeowner, you get to see different proposals from a few different builders and pick the one that’s the best match.

In theory, this sounds like a great approach. In practice, however, there can be some challenges that come with the process, especially for homeowners who have never built before.

Here’s what makes bidding a challenge:

1. Comparing bids is tough for various reasons

“You really have to ask a lot of questions as a homeowner,” Bruton said. He cited the example of square footage. In some places, everything under a roof is square footage, including outdoor spaces like patios, but in others only the conditioned spaces (air conditioned and heated) are counted in the square footage. The reason this matters is when more spaces are counted in the square footage it drives down the cost per square foot, which is one way of describing construction costs. The understanding needed to really be able to parse what’s included in a bid and compare it to another bid is a challenge for homeowners who don’t have a construction background.

WHAT CAN YOU DO? This is where involving your architect is helpful. Architects commonly provide assistance with bidding.

2. A bid that’s significantly lower in price should be subjected to a greater level of scrutiny

It can be enticing to bite on the lowest price but keep a few things in mind. “Generally, we're paying the same amount for labor hours and materials,” Schiffer said. “I might spend more labor hours on a project, and that’s directly related to the quality.” So when you get a bid that’s significantly lower than the others, you should be asking a lot of questions to make sure you’re truly getting the same level of service. You need to find out why their price is so much lower.

WHAT CAN YOU DO? Asking for an itemized bid can provide clarity. Once you understand the why behind the bid, you’ll have to decide if they're providing the same level of service as their competitors.

3. Bidding can prioritize price over the builder’s skills and professionalism

“You’re incentivizing the wrong thing. Essentially you’re instructing the team, ‘Only bid what’s in the drawings. Don’t go in with ideas about improving this or that,’” Schiffer said. If you’re thinking, yes, the architect is the designer, remember the builder is the expert in translating those drawings into three dimensions. Their expertise can positively influence the design, especially if they’re involved early in the process. Further, you’re going to be intimately involved with your builder for up to two years — that's how long a custom build can take. For all of these reasons, you want to find someone who’ll be a good partner. “Find a builder whose personality and process you agree with, and whose pricing model you’re comfortable with,” Bruton said.

WHAT CAN YOU DO? Your architect might be able to suggest builders whom they’ve worked with in the past, so you can start your search focused on a few strong candidates.

Even if you live in a bidding market, making a decision based on price alone isn’t a wise move. Remember, you’re trusting this builder with what’s likely your largest asset.

Ready for some tips on how to interview a builder?

To find a great builder, we’ve got five tips that will help you take a more balanced approach. Doing your own due diligence is one of those steps and that means exploring your builder’s web presence, including their project portfolio. Video tours of their projects can give you some insight into the quality of their work, state of their jobsites, materials they favor, and more.

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What’s the alternative to bidding when hiring a builder?

If bidding puts the emphasis on price over a builder’s skill and professionalism, here’s how to take a more balanced approach to hiring a builder. These five tips for finding and vetting a builder come from some of the builders we trust the most:

1. Ask for referrals from your architect, your interior designer, or a trusted friend or family member

“When you get a referral, vet it,” Schiffer said. “Why were they great?” It’s important to understand why the builder earned the referrer’s trust. What’s important to that person might not be as important to you. There are different kinds of builders out there catering to different kinds of clients.

2. Do your own due diligence

This will no doubt mean exploring their portfolio online. Though keep in mind that some great builders don’t have great web presences. It’s also wise to research them to see if they have any pending litigation against them, according to Michael Conneely Owner of Chicago-based Greenside Design Build. Additionally, he recommended speaking with real estate professionals to get their take on the builder’s reputation.

3. Interview three to five builders

Once you’ve done enough research to know you’re truly interested in a particular builder, you’ll want to meet them. Builders we spoke to unanimously agreed about the importance of finding someone whose process will meet your expectations and whose personality is a good fit with yours. “They might not be a bad builder, but people aren’t always on the same wavelength,” Conneely said. He said signs of a good fit include “easy communication” and “expectations that are in natural alignment.”

4. Visit a past project and speak with a past client

Seeing is believing as they say. “If it’s a good builder, their previous clients will have no problem showing off their home,” Conneely said. “They’re simply returning the favor because they did the same thing.” Speaking with a past client is also important as it gives you a chance to verify the builder delivered what they promised. “We encourage them to ask what didn’t go well,” said Heather Tankersley, Vice President of Operations and Co-owner of Tankersley Build Co.. “That gives us a chance to address it.”

5. Visit a current project and speak with a current client

Seeing their process firsthand and speaking with someone who’s deeply engaged with your potential builder (and past the honeymoon phase) will give you additional insight. “Drive past the project on the weekend before your scheduled visit,” Heather said. She suggested looking for big differences between the visits. “If it’s covered in trash when you drive past and then cleaned up when you visit, well, you know what the everyday status will be.”

Two men installing windows in a framed out addition.

Two men installing windows in a framed out addition.

Visiting a jobsite and other steps can help you make a hiring decision you feel confident in.

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Bidding still has a place, but it’s within the builder’s walls

Finally, it’s important to know that even in market segments where projects aren’t generally bid out bidding is happening. It’s happening within the builder’s walls as they subcontract for things like pouring a driveway, laying a roof, and other work that’s less specialized.

If your builder is using a cost-plus fee structure, you’ll be privy to the details of what’s being subcontracted out, the price of these subcontracted services, and more. The transparency that cost-plus provides is a major benefit.

"When we’re building a $2–3 million custom home, we’ll be using a cost-plus fee contract, which means the owner is collaborating with us, and they see everything from how much the electrician’s charging to how much the framer is charging,” said Steve Tankersley. “We’ll get multiple bids on a lot of those trades, and they help select those trades.”

TAKEAWAY: The problem with bidding is that it incentivizes hiring the builder promising the lowest price over hiring the builder who’ll execute your project according to the highest standards of craftsmanship and professionalism. It sets up a situation where some builders will be incentivized to cut corners in order to present a lower price. Ultimately it can create an environment where quality is undermined, which isn’t what anyone wants for their home.

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