How to Negotiate with Your Contractor When Building a Custom Home

Right up there with buying a car, I’m sure many homeowners consider negotiating a general contractor agreement with their builder as one of the more complicated and stressful processes they’ve endured. Is this price legit? Do I go in tough or nice? Am I missing something? Are they missing something?

Take a deep breathe. Here are some tips from the trades to help you navigate a well-negotiated contract:

Be nice.

If there was a thought that you should come in as the “tough guy” – and that goes for the ladies too! – toss that thought out of your mind and read about how to select your builder. Your builder should be friendly and their process to get you to negotiating their signed contract should have made you comfortable. So, the process of negotiating their contract should also be friendly. No one – not the contractor or you – want to be working with a jerk.

Do your research.

Do you know how many times I’ve developed a multi-page bid with each trade on a separate line item consisting of detailed scope and individual pricing only to have clients make it painfully obvious that they merely scrolled to the bottom number and want to negotiate? First, that immediately shuts down any empathy I have for your financial interests because you have shown me you have no empathy for mine by expecting me to “take off the top”. Second, it increases my perception of risk associated with managing you as a client because I am now concerned that you don’t understand and/or respect the scope of your project. It’s a bad way to start. Instead, read through the contract, see where the costs are adding up. Do you think one of the line items are too high? Go on Youtube and watch someone do it (yes, you read that right)! The more you know, the better your negotiation because your contractor will feel that you better understand and because you will actually better understand. It’s always easier to talk about the details when both parties have a detailed understanding of what it takes to do something – especially if you need the price to come down.

Be empathetic.

“I recognize…”, “I understand…”, “I see what you’re saying…” These are powerful phrases. They do amazing things if they’re said with authenticity. If you don’t mean them sincerely, then they’ll sound like “With all due respect, but…” and we know what everything before “but” is…However, if you are asking questions and getting specific, thoughtful responses, use these phrases! Everyone wants to be understood. It feels good as a builder when someone puts value on your work and opinions. This is especially important when negotiating contract language.

Be specific.

If you are negotiating price, be specific about where you think the price should come down. Present the contractor with credible, reasonable research to show how you developed that opinion. For example, “I recognize that hauling all those stones onto the jobsite is a huge undertaking, no question there. I’m just wondering if adding the stones for that side patio increases the site management fees equally or is there an economy of scale since we already have the crews hauling the other stone?”

Find correlations.

If the bid is broken down by scope of work and not individual trade and you’re unsure about pricing, then try to find something else you can compare it to in the bid. For example, is there another scope that involves drywall? Plumbing? Electrical? Carpentry? Try to draw correlations. An easy correlation is price per SF. If one 150SF bathroom is $25k and another 500SF bathroom is $50k, then one bathroom is $167/SF and the other is $100/SF. This is a productive start to a specific question. Also, drawing correlations may answer some of your questions for you. Things add up quickly in construction and a lot of it has to do with square footage.

Be candid.

Honesty is contagious. When one lets their guard down, often the other feels comfortable doing so as well. You risk great losses by holding everything tightly to your chest. By the time you’ve gotten to this point, you’ve likely vetted the pricing in various ways either through receiving multiple bids and/or research and/or consultants (e.g. architect). So, the price shouldn’t be a surprise. Also, you’ve seen the price and are still moving forward – so, the approach of saying “I can’t afford X” falls on deaf ears because, if that were true, we wouldn’t be negotiating.

Focus on scope.

Do you really need the price to come down? Then get ready to reduce your scope. Contractors may be charging big dollars – that doesn’t mean they’re making big dollars.

Change up the rhythm.

“Tit for tat” is a dangerous way to manage a negotiation. You’re not looking for sound bytes, you’re looking for a contract that everyone can comfortably sign. If you find the contractor getting defensive – stop! Change the rhythm. Ask a question instead of responding to the back and forth.

Be consistent.

Take a positive tone and keep it that way. People are mirrors to each other during negotiations. Let everyone keep their focus on the contract and not get distracted by any interpersonal drama.

Be a team player.

Don’t ever forget that you’re on the same team. Remember that you all have the same goal: to sign a contract, to execute your project.

Breathe in, breathe out. A good builder will make this process easier and everything should be okay…even if there are a few bumps along the way.