contractor estimate - P & O fee

rockybirdMay 16, 2010

I am in escrow to purchase a house. It is a mid century home in an amazing location in Phoenix with views. The house needs a lot of work. I found a contractor whom I really like and works on mid century homes. He spent a lot of time looking at the house and came back with what I think is a reasonable estimate. I can only afford to do so much work on the home at the present time because I am paying cash. On top of his fee to manage the project (about 15%), he added a 7% p and o fee for his company (he owns) at 7%. This fee is for overhead. Is this standard? Thanks!

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Not a direct answer to your question, but you can drive yourself nuts trying to second-guess the business plans and fee structures of your service providers. You don't need to know whether this or that fee is "standard." You need to know the bottom-line, out-the-door price, for a very specific chunk of work. Then you need to get bottom-line, out-the-door prices on the same chunk of work from other contractors, and compare them. There's no way you can get only one quote, even from a highly-recommended contractor you really like, and know that it's a good price.

    Bookmark   May 16, 2010 at 5:30PM
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Thank you for your reply. I do have another quote, around the same estimate, and I am waiting on another contractor's estimate; however, I would like to use this particular contractor as he is highly recommended and works on mid century homes. He itemized the costs for me. He cannot give me an out the door price, as he says it will depend on the price of subs and on what he finds as he works, but he thinks this is the worst-case estimate. I am wondering about the p & o fee. This is not in the other contractor estimate. All of his other itemized expenses seemed reasonable to me. I do think it is wise to go through the estimate so that one is educated and aware of what is included and what to expect.

    Bookmark   May 16, 2010 at 9:20PM
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It doesn't really matter how he arrived at his Fee; the total Fee would simply be 22% of the Cost of the Work.

What matters is what other qualified contractors charge for this kind of work in your area and what the total estimate is for the completed project and how reliable that number is.

It is also important to carefully determine what the contractor is allowed to apply that Fee % to. For starters, no office expenses, clerical staff, or vehicle cost would be allowed since that is part of his overhead. Place a limit on rental tools.

Make sure you are not limited to his favorite subs (subs should be bid competitively) and that you have the option to provide materials if the prices are unreasonable.

    Bookmark   May 17, 2010 at 9:44AM
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What I'd be most worried about is that you don't know for sure what materials and labor are going to cost. He's given you an estimate, but not a bid. You could end up paying way more than that if you're not careful.

    Bookmark   May 17, 2010 at 10:18PM
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