# Building great homes vs earning great profits



## Tom M (Jan 3, 2007)

This is an awesome thread, it really hits home. I dont build new but I feel the eact same way for all my related work. It is so easy to say I am better and take the high road but how long can you be idle? You cant just work once in a while when it suits your morals. 
Very tough problem especially for guys like us who come hear to be better all the time when we could be doing something else with our time.



Kyleharrell said:


> Have you followed up with any of the customers who went with another contractor after the project was done to see how their experience was? Was there a large number of change orders that pushed the cost of the project above your original bid? If so, maybe use them as a reference if someone mentions they are getting a bid from xyz corp but it is much lower.


I wanted to do the a number of times but didnt have it in me to follow up.


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## Metro M & L (Jun 3, 2009)

I don't work for fun, I work for money. If you want to build perfect homes for free go work for habitat for humanity until you starve. Everything else is just complaining about having to adapt to a changing marketplace.


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## Heritage (Mar 20, 2007)

This is probably the biggest challenge "high end" contractors face.

First, let's establish that everyone and their grandmother thinks/believes they are the bee's knees of delivering quality and superlative service. Few things make me as sick as when I talk to a tradesman, listen to them spout off about quality, then get a chance to see their actual work/attitude.

I've probably NEVER hired a tradesman that didn't think he was God's gift to __________. Less than 5% could actually deliver what you would call master craftsmanship. So if after 20, 30 years of doing just ONE thing...if only 5% actually qualify as MASTER craftsman...that's sad, but also the reality.

So right there, we have a BIG objection to overcome.

"WHAT MAKES YOU SO MUCH BETTER?"

On the client side, the great majority of consumers ASSUME they should have access to that 5% regardless of what they pay. They assume great service and master craftsmanship on every transaction. "Industry standard" leaves them unsatisfied, well if you know anything about "industry standard" then you know that almost half of the contractors out there can't meet it and in reality very very few can exceed it.

Somebody brought up the automobile industry metaphor.

In keeping with that, let's look at it this way. When you think "high end" what do you think? Most likely:

-Lamborghini
-Ferrari
-Porsche
-Aston Martin
-Bentley
-Rolly Royce

What percentage of the population owns one of the aforementioned?

I would dare say LESS than 1%.

These names are now synomymous with "high performance", "high end". What's one of the first things most people would say if they won the lottery? "I'm gon buy me a Lamborghini" (example). When in fact, less than 1% of the population actually know WHAT a Lamborhini IS. WHY it's such a performance vehicle. And that's 1% may not even be the majority of the people that actually own one.

And Lamborghini didn't become synonymous with performance over night. It was created in the 60's, competed against other high performance vehicles in the market, they INVENTED something new (a revolutionary redesigned engine that never existed before) , gained notoriety, went bankrupt, got bought by Chrysler, things got worse, got sold to Audi, things got better and today they roll out 2 or 3 thousand cars a year.

In a world with 6.5 billion people, that's a factor less than .0000005 of production to total population. Close to 100,000,000 cars are produced every year. That's still only .00002% of the market share.

You could take Prada as another example. They make great shoes (i.e.), no doubt the quality is some of the best in the world + their designs are revolutionary. How many people own a pair? 1% would be overshooting it.

So:
A) We have to accept that our market is actually a lot smaller than we suppose.

B) Anywhere in between middle and top rung is VERY convoluted and confusing, requiring mass consumer intelligence. Which is rare and lacking.

What that OTHER builder (the one that said he'll do it for almost $400k cheaper) has figured out, is that you can use consumer UN-intelligence to your favour. You PACKAGE the "quality", sell the IMAGE, get yourself established in that "Middle to top rung" segment of the market place, then cut your costs every which way you can, cut some acceptable corners and bid your competitors out of the price. The client will never be the wiser.

What have most builders done?

They threw in stainless steel appliances, granite counters, hardwood floors, crown moulding. 20 years ago these were all HIGH END, custom upgrades to builder homes. Today, they are par for the course. But what the builders learned, is that if you PACKAGE the product properly, very few will pick apart the inner working components to decipher what is what.

In my opinion, the middle to top rung segment is dominated by those that understand this principle.

And before you think "THERE'S NO ROOM FOR ME TO REPACKAGE THIS BID". Look again.

One of the most important thing I learned when I started playing the "commercial/industrial" game is some of the tricks that estimators use in competitive bidding. It would blow your mind away. Suppliers play a big part in the equation. I've seen FAIR WAGE projects get underbid by 10%, 20% and awarded to those bidders. Figure that one out


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## Tom Struble (Mar 2, 2007)

no longer is it enough to be just a superb craftsman,actually maybe it never was:sad:


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## Jaws (Dec 20, 2010)

We have the same issue constantly. We have very accurate scopes and bids, with ALL of the real costs included. We use the best subs and materials, products, ect. I


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## Jaws (Dec 20, 2010)

jawtrs said:


> We have the same issue constantly. We have very accurate scopes and bids, with ALL of the real costs included. We use the best subs and materials, products, ect. I[/QUOTE
> Ill finish this later, my smart phone is acting dumb. JAW


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## Tom M (Jan 3, 2007)

Heritage said:


> This is probably the biggest challenge "high end" contractors face.
> 
> First, let's establish that everyone and their grandmother thinks/believes they are the bee's knees of delivering quality and superlative service. Few things make me as sick as when I talk to a tradesman, listen to them spout off about quality, then get a chance to see their actual work/attitude.
> 
> I've probably NEVER hired a tradesman that didn't think he was God's gift to __________. Less than 5% could actually deliver what you would call master craftsmanship. So if after 20, 30 years of doing just ONE thing...if only 5% actually qualify as MASTER craftsman...that's sad, but also the reality.


This all stems from amount of job losses in the US and lack of respect the industry commands. Thats why its hard to sell the quality of our efforts.

There is no real education on installing techniques other than the person whom you've worked for. Even when people move on they are faced with a bombardment of untested new products to experiment with. Even those that know alot are thrown weird curveballs on jobs with unproven products. If you have poor ethics and your a slob, doing the same thing for many years doesnt make you any better. 
Its even worse now because so many guys think they can do everything on the job the work suffers further. Too many treat the construction field as just nailing wood and labor. 

Someone posted a video here a while back on the navy building a home. Not only was this a real skill that took a couple of weeks by hand with little power tools. They were framers, plasterers were skilled and we know how good the tilers were. We remodel baths only because their dated. Most of those mortar bed tile jobs could last another decade. We want to build homes that last but the consumer dont. This last decade of house flipping killed all that was good in our industry. We now have to reverse the ill effects of these homes being pounded out in days rather than weeks. Greedy home builders that beat down subs created the perfect environment for Low cost immigration labor. They drove out the real framers, roofer, drywallers and flooring guys with in the industry so they are forced to do many things to make a living. Lets not forget how many working proffessional have had careers ousted so they turn to our industry. 

There are guys on this board that are only good because they have a lifetime of history under there belts. The old saying is still true, "If I only knew then what I know now". Knowing how to do many things is wonderful but we never stop learning and specialist is a specialist.


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## Joasis (Mar 28, 2006)

The model I am now working on is to give the customer an option for a "dry in" price. 

We have a large home builder who advertises on TV that they build for $73 a sq/ft on your lot. 

Now...we all know that you can but a full size pickup for less then 16k, and the same truck with options is 26, or even 36k. Homebuilding is the same, essentially. 

But instead of beating myself to death to guesstimate every anticipated desire, or trim level, now, I start with the shell of the home,dried in, and offer the customer the opportunity to complete the home on their own. I can give a firm price to dry in, without changes, and the customer feels they are saving a lot of money, and accepting the headaches that go with trim out.


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## john elliott (Oct 23, 2005)

TheHardWay said:


> I often use car analogies to define our industry. I feel like I sell a Maybach finish at a Mercedes price as it is. My competition is selling a Kia disguised as a Lexus.



That's true, the problem is that the competition is managing to convince the customer that what they are selling is actually a Lexus, and they are able to do it because they don't share your standard of honesty.

You are competing on a playing field that is sloped in your opponent's favour. Unless you are prepared to lower your standards you will never win against these people because construction is NOT the same as cars. People can easily determine a Mercedes when they see one, and so, more to the point, can their friends and neighbours, but they CANNOT tell the difference between what you are offering and what the competition is offering, and, as you have found, there is no way to explain it to them, they simply cannot hear it.


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## Redliz75 (Jun 23, 2011)

joasis said:


> The model I am now working on is to give the customer an option for a "dry in" price.
> 
> We have a large home builder who advertises on TV that they build for $73 a sq/ft on your lot.
> 
> ...




That is how I had my home buillt. The contractor gave me a price with just the bare studs inside. He did figure the siding and windows - both of which I chose. The exterior was complete. That gave us a starting point. He seemed so honest and to the point that I did not get competing bids.

Once that price was established, it was an easy process to pick everything else out and just add it to the shell. My home is VERY small, however. I do not see a home as a status symbol or an investment. It is a shelter and something to get paid off so you don't have a payment or rent.


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## Savva Builders (Aug 11, 2011)

That's a true and great statement....I like that theory


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## Joasis (Mar 28, 2006)

I feel we will be returning to 1200 sq/ft ranch homes as a standard....the days of the McMansions are coming to a close. The home I built for myself is way, way too large. I bet we don't live here 10 years before we downsize.


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## Redliz75 (Jun 23, 2011)

joasis said:


> I feel we will be returning to 1200 sq/ft ranch homes as a standard....the days of the McMansions are coming to a close. The home I built for myself is way, way too large. I bet we don't live here 10 years before we downsize.





Sweetie, I think they will be a lot smaller than that. As a single person, I live in 600SF and do QUITE well! My home is very simple, it is a 20x32 rectangle with one row of trusses. The roof doesn't have any fancy "dteails like the Mcmansions. Just a ridge, no valleys.

I did insist on 2x6 walls for insulation and the builder talked me into doing the trusses 16" on center and using real plywood for all the sheeting. When you build small, quality becomes much more affordable. I chose a 50 year steel roof as well. The windows are Pella and the siding is hardiplank. I like knowing I won't have to redo things for a LONG time!


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## Tom Struble (Mar 2, 2007)

something about calling joasis sweety...just ain't right:no:


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## Redliz75 (Jun 23, 2011)

Tom Struble said:


> something about calling joasis sweety...just ain't right:no:



Why?


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## Tom Struble (Mar 2, 2007)

I think he's icky


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## Redliz75 (Jun 23, 2011)

Tom Struble said:


> I think he's icky



I bet he's a great big teddy bear in real life!


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## Tom Struble (Mar 2, 2007)

:blink:yea:wacko:


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## Jaws (Dec 20, 2010)

Im sick of it too. Sh#* hack builders with no integrity, using ultra low allowances, misleading their clients at every turn, sh#* hack subs, crap material. You name it. They beat their subs and suppliers doesn on price and pit them against eachother. 

Even have HOs say that they know we are a better builder but he was 25000 cheaper on a 450000He understands what we want and we will hold him to it. Yeah right, then they get change ordered to death for crap work, and I couldn't care less. Only an idiot wouldn't pay 5 % more for proven craftsmanship. No sympathy whatsoever. I have gotten more than a few projects off of referrals from people who chose the other guy and wished they had chosen us. Building a home right now off of such a refferal.

The hacks are making a huge dent in the market, and anyone who doesn't see the HO often are getting what they deserve is an idiot. Ill build less projects, put my bags back on and do them with my brother and a helper, I don't care. Ill do superior work, stay in business and sleep great at night. I hope the hacks drive their 60000 trucks off a fing cliff. 

Did I mention I hate hacks. JAW


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## Jaws (Dec 20, 2010)

Metro M & L said:


> I don't work for fun, I work for money. If you want to build perfect homes for free go work for habitat for humanity until you starve. Everything else is just complaining about having to adapt to a changing marketplace.


That's beside the point. This has to do with competing against those who claim to be able to do what they can't at a price that is all to often an outright lie. Telling someone you will give them a Mercedes S class for the price of a Chevy caprice, then upcharging for the Mercedes engine, leather seats, Bose stereo, heated seats, windshield wipers, ect. Then all to often still giving them a Toyota Camry for the same or higher price that a better builder would of given them the Mercedes S class, happily. JAW


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## JT Wood (Dec 17, 2007)

Redliz75 said:


> I bet he's a great big teddy bear in real life!


I picture him like this.:laughing::laughing::laughing:


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## Joasis (Mar 28, 2006)

Tom Struble said:


> I think he's icky



Believe it or not, you and my wife have something in common. :laughing:

You both think alike!:thumbsup:


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## john elliott (Oct 23, 2005)

Now that the joke swapping has fizzled out, let's get back to the serious business.

I'm amazed that the thread has not attracted more attention, because it's my belief that the issue it addresses is one of the most important that affects anyone in construction on his own account.

I work on the basic assumption that everyone here (at contractor talk) is here because he is interested in what we do, and cares about it, and wants to provide his customers with the best service he can, at a fair price. He wants to be able to work hard and be well paid for it. Further, I assume everyone here is basically honest and doesn't lie to potential customers.

But the problem is that we have to compete with dishonest people who are liars, and those liars have a willing audience who are so keen to hear about their low low prices that they simply can't stop themselves from being taken in. Maybe, somewhere deep down, they realise they can't buy a Bentley for the price of a Chevrolet, but that part of their minds is completely over-ruled by the part that wants to hear about the low price.

Also, over the past decade or so, expecially since the internet really got going, people have found out that in some fields you really can get the same thing for less money if you make the effort, and on-line you can buy for $80 the very same thing that's in the local store for $100, and I guess they think the same principal applies to buying construction services.

I don't think there is anything we can do about the liars, unfortunately, even if they get found out and lose business as a result (not that they ever do) there are plenty more to take their place and plenty of hopeful clients on too willing to believe them.


My own approach to this problem is to offer a basic kitchen which I know is good value, and better made than my competition's, and fortunately for me, the market here is in my favour. What I would do if I was having to bid on house builds I don't know, but probably it would be, as already suggested, offer a stripped down version.


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## Tom Struble (Mar 2, 2007)

well i am just here for the jokes and the free beer over at lone's place:drink:


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## JT Wood (Dec 17, 2007)

...


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## JT Wood (Dec 17, 2007)

TheHardWay said:


> Ahh.... if only.
> 
> 
> My target market is $600k-$2mil. I am design/build mostly. I am averaging only 6-7% per job right now INCLUDING design. This seems ridiculous for what I am providing.
> ...



$128k profit? After all is said and done? Or does that not include your time and resources to manage?


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## Redliz75 (Jun 23, 2011)

Have any of you tried to persuade your clients to reduce the square footage and provide highter quality instead, in order to meet their pricepoint?


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## skyhook (Mar 17, 2007)

TheHardWay said:


> I can't seen to do both. When I price homes to be as amazing as the client expects, they get shell-shock and look for someone to lie to them about their cost. I lose jobs like this regularly.
> 
> Interestingly, I often lose these jobs to millionaire builders who are known scammers. Why do I keep losing to losers? How can I keep my quality standards and my profits? It is frustrating handling this workload and liability, turning out amazing homes and still turning out single digit profits while staying underpaid. Am I the only one?


Supply and demand. Those guys got the job because they closed the customer. 
Shell shocked is a common negotiating move. Come back with a joke to lighten the mood, then hit them with another closing tactic. 
Always_ ask_ for the job (or confirm) before you leave. Get the signature and the cheque. 
When the housing market turns around, you will be first in line. :thumbsup:


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## WildWill (Jun 6, 2008)

I like to make a stripped down version and then have upgrades on hand for my presentation. 

"So, for the kitchen we have the x cabinets, the y flooring, and the z countertops. Now this is going to be a very nice compilation of products but I have designed this at a budget. I have a few other options that i'd like to show you before moving on the the next area of the project. Some of the items that you might would want to consider would be this compilation of products here for an additional $ amount, or this for that amount..."

I do try to get an idea of their budget so I'm not just spitballing, but not only showing a well laid out proposal but one with many upgrade options makes most of my customers stagger with glee compared to my competition.


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## Jaws (Dec 20, 2010)

WildWill said:


> I like to make a stripped down version and then have upgrades on hand for my presentation.
> 
> "So, for the kitchen we have the x cabinets, the y flooring, and the z countertops. Now this is going to be a very nice compilation of products but I have designed this at a budget. I have a few other options that i'd like to show you before moving on the the next area of the project. Some of the items that you might would want to consider would be this compilation of products here for an additional $ amount, or this for that amount..."
> 
> I do try to get an idea of their budget so I'm not just spitballing, but not only showing a well laid out proposal but one with many upgrade options makes most of my customers stagger with glee compared to my competition.


This is basicly what we are trying to do now, due to the changes in the market place. Our prices are accurate though, and our stripped down version is still complimenting the existing houses styles, or on a new custom commiserate with the allowances of the price range. People are often shocked at what the actual products or labor costs really are. I hate bidding plans with allowances, I like to try and nail down selections or talk them into making all bidders use same allowances for fixtures, floors, cabinets, countertops ect. 

We would much rather do full service remodels or renovations because the margins are so much better, and we have made a rep for ourselves on the "full service" part, weeding out much of the competition. New customs are easier though, menu driven after selections, scope and schedule. Remodels are more reactive than proactive. We came from mostly doing customs since I was a kid, making the switch in marketing to remodels in 07, and I believe that is why we are still in business. I hope it turns around some day, but I have my doubts. JAW


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## Jaws (Dec 20, 2010)

jawtrs said:


> This is basicly what we are trying to do now, due to the changes in the market place. Our prices are accurate though, and our stripped down version is still complimenting the existing houses styles, or on a new custom commiserate with the allowances of the price range. People are often shocked at what the actual products or labor costs really are. I hate bidding plans with allowances, I like to try and nail down selections or talk them into making all bidders use same allowances for fixtures, floors, cabinets, countertops ect.
> 
> We would much rather do full service remodels or renovations because the margins are so much better, and we have made a rep for ourselves on the "full service" part, weeding out much of the competition. New customs are easier though, menu driven after selections, scope and schedule. Remodels are more reactive than proactive. We came from mostly doing customs since I was a kid, making the switch in marketing to remodels in 07, and I believe that is why we are still in business. I hope it turns around some day, but I have my doubts. JAW


In case it seemed that way, I was in no way saying that your prices are inaccurate or misleading, or that your stripped down version was either, Wild Will. Speaking about SOME of my competitors. There are still plenty of good builders here, just to many hacks muddying the waters. JAW


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## Metro M & L (Jun 3, 2009)

Uh, the lexus is a kia. The only difference is the marketing.

You think it costs a large automotive conglomerate 5x as much to assembly the same rough materials (ie rubber, steel) etc...in a slightly different configuration? NO it doesn't. I'd wager the lexus branding strategy and budget is completely different tho.

To continue the analogy - it's been said on the one hand that the builder's are cheating by convincing the buyer that their product is superior when it's not.

On the other hand, it could also be maintained that a product is superior when a greater value is ascribed to it by the buyer. 

Perception is everything. 

The answer to all business problems is marketing. Look at what bp did after the oil spill. Did they clean it up? Sort of, mostly just made sure it didn't float to the surface, but the oil is still essentially all floating out in the gulf of mexico. What they did do was implement a multimillion dollar marketing campaign TELLING everyone they were cleaning it up and were taking care of the little guy.


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## Redliz75 (Jun 23, 2011)

Metro M & L said:


> Uh, the lexus is a kia. The only difference is the marketing.
> 
> You think it costs a large automotive conglomerate 5x as much to assembly the same rough materials (ie rubber, steel) etc...in a slightly different configuration? NO it doesn't. I'd wager the lexus branding strategy and budget is completely different tho.
> 
> ...



And most Americans see through their corporate bull**** lies.


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## Jaws (Dec 20, 2010)

Metro M & L said:


> Uh, the lexus is a kia. The only difference is the marketing.
> 
> You think it costs a large automotive conglomerate 5x as much to assembly the same rough materials (ie rubber, steel) etc...in a slightly different configuration? NO it doesn't. I'd wager the lexus branding strategy and budget is completely different tho.
> 
> ...



You are 100% right, sir. Im not saying it's wrong for them to market/ say they are the best. Im saying they are outright lying about their products, or intentionally misleading their clients. Yes this bid includes hardwood floors, granite counter tops, ect. What he leaves out is, I used the price of some **** I found on craigslist, which is hardwood, 1/2 thick, different grains, ect. Forget to leave out his granite is 1/2 or 5/8 instead of 3 cm. 

Your right, it is whining, they are better salesman, and the client should know better. It is just frustrating to deal with everyday. I don't know anything else to do but keep building right, bidding accurate, and work on marketing and salesmanship. 

BTW, any one who believed bp cleaned that sh#* up the right way is retarded. You can't clean something like that up, im sure they tried their best, but there is still going to be effects that can't be fixed from something like that. I do hope they helped the little guy as much as they should, but somehow I doubt it. JAW


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## Tom Struble (Mar 2, 2007)

we are all just as bad as bp,unless you never use any oil


besides they said they were sorry


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## Jaws (Dec 20, 2010)

Redliz75 said:


> Have any of you tried to persuade your clients to reduce the square footage and provide highter quality instead, in order to meet their pricepoint?


I have seen lots of 10,000 ft shacks. And Ive seen some huge houses that were very nice. A friend is building 2 right now three blocks from eachother. One is 17000 ft and another is 11000. Both over 400 a ft. JAWi


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## pm_sup (Feb 19, 2007)

Well hopefully, making money is why you are in business.

I built spec homes for years. When the profit margin went down. I changed. Why risk financial ruin, for profits that look like wages?

Same reason, I changed from all renos, to commercial renos only. In residential renos, there are too many guys with a nail pouch, and an old truck, who bid on jobs.

I do the job properly, take out permits, have coverage etc. Unfortunately most homeowners are more than happy to have used my higher price as leverage.

Anyway, I don't do this type of work anymore, but I see it going on all the time.

Even right next door to me. A "contractor" was gutting an 800+K home. Trucks delivering paralams, microlams, cutting the slab, jack-hammering inside etc. all without permits, and with the full knowledge of the homeowner.

They worked night and day, weekends, until the Stop Work Order, got posted by the city inspector.

I guess they pissed someone off.


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## Italian75 (Aug 14, 2011)

*My Plan*

I feel that sometimes I am in a bind. Do I do the bait and switch and survive through this or sit on the sidelines with nothing to do. I say give them what they want. I know a sales person that told me of a situation he recently had with a client. He wanted to prove to his partner that clients only look at the price. I the estimat he wrote and I quote "My subs will have the chance to sleep with your wife atleast once" The price on the job was very low. Now he showed this estimate to the client in his house. The client went with them. He proved to his partner that clients now adays only care about price.


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