Here's why you may be overpaying for your NYC renovation
New York City renovations have never come cheap, but you may be paying more than you need to.
That’s according to a study released today by ICO, an agency that represents NYC architects and construction firms and provides a one-stop-shop for renovators in need of architects and contractors.
In the ICO Report: NYC Home Renovation Bids, the company analyzed bids on 132 NYC renovation projects.
Projects typically received bids across a very wide range, which can result in what ICO terms a “perfect storm” of bids above market rate.
"When this happens, an unfortunate homeowner may unwittingly accept a bid which is well above average but disguised amongst other coincidentally high bids," explains the study. "A homeowner typically won’t knowingly pay well above the average market rate for their project. They only end up accepting a high bid when it is amongst a ‘perfect storm’ of other coincidentally high bids."
Just as confusing for renovators: Why do bids from reputable contractors come in at vastly different pricepoints (whether above or below market average) in the first place?
Among the 132 projects reviewed for the ICO study, 44% received a bid that was more than 75% higher than the lowest bid. Eight percent drew high bids that were twice as high as low bids.
For example, says the report, "one multi-story apartment renovation received bids between $1.21 million and $2.56 million."
The study lists bid and spread information for several real-life renovation projects.
Contractors bidding to gut renovate a 2.5 bedroom, 1,500 square foot apartment on the Upper West Side, for example, bid an average of $224,131, with a 55% spread between highest and lowest bid. (The four bids came in at $177,500, $199,200, $245,120, and $274,702.)
So why do bids vary so drastically?
"We believe it is primarily due to the wide variation in cost base that different contractors bring to the table," says Sebastian Donovan, president of ICO.
Here are a few differentiating factors that affect pricing, according to the study:
1. Construction is primarily a labor service. The labor cost depends mostly on a) the hourly rates of the laborers b) the skill with which they work and c) the performance of their management in deploying them. There can be a wide variance in any of these factors.
"A specialist or highly skilled sub-contractor may work 2-3 times faster than a less experienced one," explains Donovan. Therefore, "a construction manager who has his team well grooved and has each of the different players working well as a team and each playing to their strengths may double the speed with which they work."
2. The contractor/project fit. "If the contractor has a large crew, the associated overheads may mean that he has to price smaller projects higher than other contractors," says Donovan.
"On the flip side," Donovan says, "for larger projects he may give more competitive prices than smaller contractors because he has less need to outsource parts of the project to subcontractors."
The type of the project also matters.
"If a contractor specializes in bathroom renovations, his operation may be grooved in for these projects and therefore most competitive for them," says Donovan. "A contractor may not be competitive for single bathroom renovations but may come into his own for full townhouse rebuilds."
3. Other factors Though less significant than the above, these include the contractor's perception/expectation about the amount of work required, desire to win the project, synergies from the contractor’s other projects nearby, strength of the relationship with the client or architect, and the contractor's order pipeline, says Donovan.
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Why is is to expensive to renovate in NYC? And what can I do about it?
