False Economy
By Kara Murray
Partner, Alair St. Albert
Have you ever heard the term “False Economy?” It’s a vital concept and if you are planning on building or renovating a property, then it is critical that you know it and understand it.
According to the Merriam Webster dictionary, the definition of False Economy is “something that costs less at first but results in more money being spent later.”
A small real-life example of mine was years ago, deciding I could cut my own bangs and dye my own hair. Yes, I saved money in the beginning, but it wasn’t cheap (and staggeringly embarrassing) when I had to sheepishly visit my hair dresser to fix my Do-It-Yourself. Especially when I knew better. I hadn’t received any training, nor had I any experience in the art of cutting and colouring hair. Now my hair had to be handled twice – costing me more money and more time.
On the flip side, I have real life examples of where I recognized my money was better spent on paying for things that maybe I could figure out or do, but it was best to get a professional onboard; like basic vehicle maintenance, appliance repair, tailoring clothing or simple electrical work. I also recognized the time factor that I save when I hire others to do work for me so I can focus my time on things that bring in my income or that bring me more joy in doing. Creating more money and time for me. Lesson learned: value your time, and invest in professionals to handle areas you may not be an expert in.
Yes, I can paint my house. Am I very good at it? Meh…maybe a 6.5 out of 10. Will it take me 3 times longer than a professional painter…No. Likely 5 times longer. I dislike the clean up afterwards and feel like I spent my free time up on something I don’t really care for. And I end up with a subpar product at the end of it. If something needs correcting or to be fixed – I’m the gal who has to do it and pay for it. I don’t have a warranty on the work I do for myself. It is absolutely worth it to me to hire a professional painter.
In the home building industry, I have seen people decide to complete a project themselves or put in less expensive options to save money. It isn’t always bad, and budgets are real, but it does need to be done thoughtfully and with full understanding of what the choice entails. Basically, a cost analysis with a complete look at consequences.
Some basic assumptions that people think will save them money are:
- Cheapest quote
- Purchase supplies themselves
- Complete the install themselves
- Choose cheaper options in materials and finishings
The cheapest quote is an easy trap to fall into. We are often told to get at least 3 quotes when doing house construction or renovations. While it is a good idea to talk to multiple builders to understand their processes and make sure you feel comfortable with them, it is not the best practice to simply hire the least expensive one. Somewhere along the line, it has been reduced to that. The first thing I would suggest is really ensure you are comparing apples to apples. You may get 3 quotes but they might not all be including the same things.
For example, one client of ours was gathering estimates on his acreage property build.
We came in the highest; however, after discussing it with him more, we were the only one that included septic and cistern in our estimates. When adjusted for this, we were actually the middle quote – just above the lowest one.
So, it can’t be stated enough that you really need to make sure that you understand what is being estimates. Getting a reasonable price is not a bad thing, but when something is quite a bit lower than the average of everyone else’s quotes, it should be sending off alarm bells. 100% of the time when we went with a trade who was significantly lower than others, it came back to cost us more money and time than if we went with the most expensive option in the first place. While spending lots of money doesn’t always equate to best quality, you often do get what you pay for.
Regularly, clients will want to supply some materials themselves. They may have a family or friend who can get them discounts on certain products or purchase them online. Sometimes this is a great opportunity to take advantage of and sometimes it can actually act as a hindrance.
Most tradespeople make some of their income in getting supplies at a reduced rate and charging retail to the clients. They also might not be as familiar with the client-provided product itself if it’s not a very common item.
What are the effects of this? Well, you might find a plumber charge a handling fee for each item supplied by a client, you might find those products not covered by the plumber’s warranty or you might find the plumber refusing to do the job completely. (Not picking on my plumber friends, this occurs with all the trades and is done to protect their businesses). If you get a discount on products but lose a warranty or must pay handling fees, are you really saving money?
What about doing the labour yourself? Again, this is not necessarily a bad thing but a few questions to ask yourself:
- Am I qualified/have the skillset?
- Can someone do it better and/or faster?
- Am I willing to invest the time into doing this? (Because time is money.)
- What is the opportunity cost of me doing this? (If I make more money working, should I be taking time off to do this?)
- Am I willing to not have the work covered by the builder’s warranty?
- What happens if I get injured on site while doing the work?
If it makes sense to you go for it. If you are working with a contractor, you might be limited in what you will be able to participate in. But essentially why would you want to pay a contractor and then do the work yourself?
And lastly, when it comes to finishing selections….
Better deals on these items can definitely be worth it and they are easier to upgrade or change out down the road if you choose. I mention it here because embarking on a new home build or renovation is a big investment and you want to make sure your money is spent wisely. If you are spending hundreds of thousands of dollars on your house, do you want to cut out a couple thousand here and there to save money? Maybe you do but maybe you also don’t want to compromise. And that’s ok too. It might make sense to upgrade your flooring by $2.00 per square foot if it is hardier and less likely to scratch easily. You might want to invest in automation which is cheaper to do in the beginning rather than later. Yes, some of these things might be more money now, but they also generally mean less money or no money later.
These conversations are essential to have with your builder. If they are not willing to discuss the pros and cons as well as potential consequences with you about various decisions you are making in regard to possibly the largest purchase you will ever make, then you should be wary. Money absolutely has impacts on decisions made, but it is best that you make them fully informed with the help of your builder to avoid more costly actions down the road.
After all, you don’t want to end up like I did – with a bad haircut needing to be fixed by a professional.