Value through Design

The maturation of e-commerce has created a significant opportunity to save on materials acquisition costs and create value through cost-effective design.   Whether its door handlesets; faucets and other trim products; cabinet pulls; or other items, elegantly designed products can now be sourced online at fraction of the cost that they are available in local upscale stores or through home designers.

Contractor Inflation

Most homeowners rely on their contractor or a home designer to help them select appliances, finish materials and hardware.  Either of these choices can result in excessive costs.  Contractors tend to be very busy and they don’t like to shop around.  They also add a contractor’s mark up to all labor and materials (usually 10-15%).  But that’s not the big problem.  Contractors often rely on a network of suppliers that cater to contractors.  These companies deliver directly to the job site, provide favorable credit terms, etc., all of which make them the contractor’s best friend.  But not yours.  They pay for all that service by charging very high prices (which you the client actually pay via the contractor).   That basic white American Standard bathtub might cost might cost $250 from FaucetDirect.com and they provide free shipping.  The local plumbing supply store charges $600 and your contractor marks that price up so it’s almost triple the price you could be paying.  Sometimes your contractor will put in an ‘allowance’ for certain items such as carpet.  If the allowance looks high, the contractor will tell you that they will only pass on the actual cost to you if the allowance is too high.  That’s great in theory but what’s the use if they are still going to buy the item from an overpriced vendor?  I can’t remember ever getting back money on an allowance.  I expect to be going to an Ice Capades show in hell before a contractor ever writes me a check.

Designer Inflation

The problem with designers buying/recommending materials is similar – they rely on a network of high-convenience, overpriced suppliers.  Most designers take a markup on items they purchase as well.  Often they will tell you that you should buy from a certain supplier because they get a ‘designers discount’ of 10%.  That sounds good but if you are charged twice the price you could be paying elsewhere prior to the application of the 10% discount, the math is not very favorable for you.

Door Knobs & Cabinet Pulls

Door knobs provide a good illustration of potential savings because there are many doors in a house so there is a multiplier effect applied to your per item acquisition cost.  I remodeled my house a couple of years ago and my wife selected some very nice Emtek Basel Brass Modern Passage Leversets.

We have just 10 doors in our California bungalow.  The list price was about $125 for each.  At Handlesets.com they were $98.70.  At Taylor Security & Lock the price was $57.75.  I saved nearly $700 just on door hardware.

Savings can be even more dramatic on cabinet pulls because there are so many.  I recently remodeled a kitchen and we needed 37 pulls.   We bought these nice European bar pulls for $3.85 each from Knobs4less.com.  Now go to Restoration Hardware and look at the Spritz Pulls priced at $14 each.  Those are pretty similar but would cost almost $400 extra in total.  This illustrates that value is created both by sourcing your materials from the right vendors and choosing items that achieve your design objectives at the lowest possible cost.

Tactics

Generally when I negotiate an agreement with a contractor, I try to identify all the necessary finish materials, hardware, etc. (on a room-by-room basis) and who has responsibility for purchasing them.  As a rule, you want to assume responsibility for all high-value items (bathroom vanities and shower/bath trim, kitchen cabinets, doors, etc.) or high-volume items (cabinet pulls, door hardware, overhead lighting, tiles, etc.).  What you want to let your contractor buy is drywall, framing lumber, piping, wiring, etc.,  which is low value.  Other than that, you just want them to give you a price on all the labor and installation costs.

Tradeoffs

I expect to save a total of 15-20% of the total materials budget by buying myself.  On a recent $120,000 project, my materials cost was around $40,000 and I estimate that relying on a contractor or designer would have pushed that up to at least $50,000.  I may have saved less than 10% of the total budget but I can think of a lot of things to do with that extra ten grand.

The tradeoff is that I spent a substantial chunk of time on multiple nights surfing the Internet and shopping around for the best price.  Since you have to take into account shipping time, it’s best to spec out all your needed materials in advance, then order and stockpile them so items are immediately available when your contractor needs them.  Remember that since your contractor is used to super fast service, they tend to give you very little warning about when they will need critical items.  If you have to pay extra for 2 day shipping that will cut into your savings.

Value can be created in many ways by the real estate investor and intelligent selection and sourcing of finish materials is a significant value driver.

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