A construction project is not as simple as buying something from a supermarket. Unlike that deal where you automatically know the price of what you’re buying, a house’s total cost varies depending on certain factors. No matter how many building companies you talk to, they would always have variable prices for every property.
Given this situation, it becomes imperative for you to be familiar with the terms these businesses use. Here are three financial terms you have to know when undertaking a construction project:
A bid happens when you’re talking to a building company ready to complete a scope of work at a specified rate. It could mean a project as small as a renovation project or as huge as a new home construction. Whichever the case, there would be no adjustments, no anything – just plain construction once you agree to the deal.
An estimate works just like a bid, only the price isn’t set in stone. Instead, the contractor gives you an idea of how much the whole project would cost, but the amount remains open for adjustments along the way. In any case, what you have to pay will just revolve around the estimated amount.
Rough Order of Magnitude
The contractor would have to break down the costs of the project. It’s important to specify how much goes to which particular endeavour. This is the reason contractors use the term “rough order of magnitude,” a phrase equivalent to line item estimates. It gives you an idea of the cost per square metre, as well as the cost of furniture and construction work per area.
Time and Materials
“Time and materials” pertains to a more accurate forecast of the entire project’s cost. The difference here, however, is how the contractor came up with the amount. This term factors in the finishing choices, subcontractor bids, labour expenses, and more – in other words, everything specified past the point of construction.
You have to be familiar with where your money goes to be practical with a home construction. Understand these terms and make sure you know full well what you spend money for in your home.