Should You Ask for an Itemized Estimate when Remodeling?

For many homeowners, getting an itemized estimate makes a remodeling project seem that much closer to reality. An itemized breakdown lets you see each step and what it costs, and we tend to assume that seeing all of those details makes it easier to choose the right contractor for the job.

But does an itemized estimate really serve a homeowner's interests?

I've handled all types of construction contracts, and in my professional opinion, the answer is no, at least for the majority of remodeling projects. With an itemized estimate, it's easy to get lost in the weeds and lose sight of the fact that even a thoughtful estimate carries meaningful budgetary risks for homeowners.

In this post, I'll go over the logic behind itemized estimates, their drawbacks, and why a fixed-price contract actually works better for most home renovations.

What Is an Itemized Estimate?

An itemized estimate is a type of construction bid or proposal that lists the price of each component of the work to be done.

An itemized breakdown is most commonly used for a time and materials contract. This type of contract pays hourly rates for the labor of the general contractor and subcontractors. The client also pays for the materials used plus a markup for the contractor.

However, despite being itemized, this type of proposal is only a rough estimate. The final pricing varies based on how much labor and material are needed to complete the job.

What Is the Reasoning Behind Getting an Itemized Quote?

The main idea behind getting an itemized quote is that it offers transparency by showing a breakdown of the costs for each part of the project. In this way, a client can see how their money is being spent, including how much is paid to each contractor or subcontractor and what materials are purchased.

Some contractors provide itemized quotes for all of their jobs. For them, an itemized list is a way of estimating project costs for a potential customer as part of a formal proposal.

Homeowners also frequently request itemized estimates. It's natural for any customer to want to get the best value for their money, and many people figure that they can scrutinize the estimate and find ways to cut costs.

While I understand this line of thinking, in my experience, it doesn't work out well for most people. An itemized quote often leads a homeowner astray, with unfortunate consequences for their budget and the quality of their home remodel.

What Are the Drawbacks of an Itemized Estimate?

At first glance, it may seem like itemized quotes are the best way to understand the costs of all the services to be provided in a remodeling contract. But in most cases, these estimates don't actually benefit homeowners.

Customers should be aware of the negatives of a time and materials contract with an itemized quote. Important downsides include distracting from the big picture, increasing the budget risk for clients, making it harder to compare bids, and creating problems in contract negotiations that can interfere with the project's timeline.

Distracting from the Big Picture

When looking at a detailed estimate, it's easy for a customer to miss the forest for the trees. All the minutiae -- from a list of each little task to the costs for specific materials -- can distract from the big picture, which is the vision for the final result of a remodel.

Unless you're really experienced in home remodeling, paying attention to all the details can be a red herring. Of course, no one thinks they'll fall into this trap. But when staring down a three-page list of line item after line item, your focus gravitates toward things like the estimated hours for plumbing or what it costs to purchase a square foot of tile.

Increasing Budget Risks For Customers

Too many homeowners forget that itemized estimates, no matter how detailed, are still just estimates. The final cost of the project can go up significantly if the job requires more labor or materials than anticipated.

Unfortunately, seeing an itemized quote can create a false sense of security about a project's cost. Because all the elements of the job are listed out, a customer may not recognize that the budget can swell under a time and materials contract.

Even the best contractors in the business aren't perfect at estimating how much time things will take. Sometimes costs increase because of unexpected problems. Maybe a subcontractor wasn't up to snuff, and a new subcontractor needs to be hired to redo their work. Or part of the design was more complicated than expected, creating a few hours of extra labor. What does this mean for the customer? A final invoice that's noticeably higher than the original estimate.

Homeowners also lose out when contractors aren't efficient. On a time and materials contract, working more hours means more revenue for a contractor. Efficiency can be a sore subject in the industry. You'd like to think that every professional will handle their business in the same way every time, and most of them do. But there are bad apples, and most of the time, homeowners lack the expertise to spot them.

In these ways, the entire payment system based on itemized estimates pushes risk onto the homeowner.

Making It Hard to Compare Bids

Because itemized estimates aren't uniform, it can be extremely difficult to do a side-by-side comparison of bids.

Contractors have different bid templates, and they may not use the same terminology or organize job tasks identically. In addition, you'll find that not every estimate has the same level of detail. Sometimes a contractor will throw together an estimate simply as a form of lead generation, trying to get more sales but pumping out low-quality proposals for more and more jobs.

All of these issues make comparison shopping hard when relying on itemized quotes. One way around this is to show an estimate to a different contractor and ask them for an estimate in the same format. However, this just encourages undercutting or trying to sell you on their proposal at a slightly lower price. This can backfire, though, because creating an estimate in this way is far less likely to accurately represent the final cost. Again, you're just getting an estimate, and no matter how many line items it has, there's still no guarantee that the estimated price is what you'll end up paying.

Complicating Negotiations and Slowing Projects Down

Many customers treat an itemized estimate as the starting point for negotiations. Their goal is to save money by debating with the contractor about the details of each line item, questioning the pricing or seeking out discounts for various aspects of the job.

Unfortunately, this back-and-forth can lead to a breakdown in communication and create significant delays in the overall project timeline.

One of the few tips I offer to people who are dead set on getting an itemized estimate is this: Don't treat the estimate as a test of your haggling skills. Feel free to ask questions, but remember that pushing back too much is not an effective way to communicate with someone who is experienced in the remodeling business.

Here's another way to look at it:

• If your bid is from a trustworthy home remodeler, you shouldn't need to haggle. Someone who excels in this service business will be fair and give you their best estimate from the get-go.

• If your bid is from an untrustworthy remodeler, revisions to their estimate are meaningless since they can find ways to inflate your bill during construction.

In the end, if you don't trust a contractor to give you fair pricing, you shouldn't trust them to work on your home. Tedious negotiations only slow your project down without eliminating the risk that the total cost exceeds the initial estimate.

Fixed-Price Contracts: The Alternative to Itemized Estimates

A fixed-price contract shows the client the total, all-inclusive cost of a project. It is also known as a lump-sum contract, and it doesn't itemize each part of the job. Instead, it focuses on the final deliverable and the overall price that the client will pay when the work is complete.

Benefits of a Fixed-Price Contract

Several benefits make a fixed-price contract the best choice for most home remodeling projects.

• Prioritizes the finished product: Rather than getting bogged down in an itemized list, customers can focus on the most important parts of their remodel, like the layout and how a space should look and function. An interior designer and contractor handle the details, collaborating with a customer to ensure that the design plan is aligned with the project's goals.

• Simplifies the customer experience: With an all-inclusive budget, there's no need to worry about the labor cost or prices of each material. If you get fair value from the proposal, you can move forward and let the experts handle the work without having to keep an eye on how efficiently each subcontractor is working.

• Reduces risk for customers: With a lump-sum contract, customers don't run the risk of extra costs if more labor or material are needed. Instead, contractors take on that risk. They don't get extra payments from working inefficiently. They have an incentive to create detailed designs and project descriptions at the outset, which helps build trust with their customers. Once a design is in place, they are motivated to carry out the work efficiently and professionally.

Allowances in a Fixed-Price Contract

Allowances are line items in a fixed-price contract that can be modified based on customer decisions. These allowances are designed for things like fixtures and finishings, not the fundamental vision of the project.

For example, in a kitchen renovation, a client may want to upgrade their fridge and dishwasher. In the contract, there would be two allowances - say $2,000 for the fridge and $1,000 for the dishwasher. If the customer ends up picking appliances that cost more, they pay the difference. If they pick models that cost less, they are refunded the difference.

The benefit of allowances for a fixed-price contract is that they let the project move forward without getting hung up on smaller details. This gives a homeowner time to make an informed decision about fixtures and finishes without creating unforeseen budgetary risks or changing the project scope.