Why the lowest quote is a bad idea

by Ryan Stannard | January 6, 2024

If you are looking to build a new home, then conventional wisdom says that you should send your plans to three or more builders, let them all quote your project, and then choose the builder with the lowest price…

It’s a proven model that works every time…Until it doesn't.

Porter Davis is one of the biggest examples of why building companies in financial trouble offer consumers massive discounts before being placed into liquidation.

Unfortunately, it's a far too common occurrence in the residential construction industry and something that applies to all building companies both large and small.

Which is why price is only one factor you should consider when comparing builders quotes and not something you should be basing your entire decision on.

Estimates vs. Quotes

Why the lowest quote is a bad idea 1First and foremost, most quotes that are offered for ‘free’ by a lot of building companies are not quotes at all, they are simply estimates.

Guesses that do not factor in soil conditions, engineering or even the latest rates for materials and labour because to do that requires around 30-40 hours of an estimator's time.

Clearly no business can afford to give away that amount of resources for free in the hope of winning one in ten jobs which is why they provide estimates with very little detail. 

This is because anything not documented is not included. And anything not specified can be substituted for a lower cost item. Additionally, allowances which are not sufficient to cover the scope of work are either inserted in the estimate, or worse, brought into the contract at a later date. 

These practices enable building companies to suggest a far lower cost to construct than is reasonably possible, allowing them to win jobs on price when that is the only component a prospect is focusing on.

These situations rarely end well for either the consumer or the builder due to expectations not being met.

The Danger Of Not Knowing Your Numbers

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However, there is a darker side to this situation which is far worse than a consumer getting hit up with additional costs during the build.

And that is when the builder pitches a low price to the consumer not because they are planning on making up the difference once construction starts, but because they have no idea of their numbers.

This could be the true cost of labour and materials or even how much they need to make in order to cover their fixed expenses. It’s a situation which unfortunately is a lot more common in our industry than you may realise.

I’ve had countless conversations with owners of building companies that did not know their true break even point to build a home and instead would simply offer a price low enough to win a job, even if it meant they were losing money once their fixed expenses were factored in.

The sad thing about these types of companies is that they are not deliberately sucking in unsuspecting clients, they genuinely have no understanding of their numbers which is a recipe for disaster when dealing with millions of dollars on wafer thin margins.

As cash flow tightens up they become even more desperate for new work to pay old creditors which means they will say and do anything in order to get you to sign on the dotted line.

The Value of a Design & Construct Service

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My advice is to do your research and make sure you are dealing with a professional building company with strong management and a great reputation in the marketplace.

There are still plenty of well run building companies in Adelaide, but they are unlikely to be offering you the lowest price to build your home which is why the whole idea of getting multiple quotes and then comparing them is a waste of your time.

Instead, do your research before you even start to design your new home and choose a company that offers a design & construct service.

That way you get to work with them long before signing a binding construction contract.

At the end of the day, it doesn’t matter if you are building your first home or if you have built many times before…

Designing a new home can be very overwhelming and when you hear new things for the first time, it's not easy to remember everything.

All the tips I’ve covered here are just a small sample of the information I need to share with you to ensure you are well informed when you get started on the design process... 

Which is why I put together a quick guide for you to download. 

The 7 Things You Must Know Before Designing A New Home.

It’s completely free, and it will help you to avoid any nasty surprises that can sneak up on you when building a custom home.

Just click on the link below and let me know the email address you'd like me to send it to.


Download Our Free Guide For Building In Adelaide