The Three Bid Rule – Custom Home Builders

As the housing industry becomes more sophisticated and conscientious about achieving genuine and lasting homebuyer satisfaction, the level of professionalism among builders continues to reach new heights.

As a result, potential clients searching for a builder to design and build their dream home have a much deeper pool of talent from which to select. Today’s professional builders are not only skilled in construction and client relations, but also highly competent in terms of their business expertise.

This new and more professional breed of builder deserves to be evaluated by homebuyers in a new way. Namely by dropping the age-old practice of collecting three bids for the work in favor of a more relationship and business-like approach to a very important decision and investment.


Comparative Bidding:

In theory, the three-bid rule was thought to work because it assumed everything else, other than cost, from the competing builders was equal. This thought process assumed that each builder had assessed and calculated the scope of work, blueprints, and specifications in the exact same way.

However, such assumptions are rarely, if ever, accurate in reality. Every builder and contractor, professional or not, analyzes a new-home project and estimates its associated costs differently; as a result, the three bids are not “apples-to-apples” comparisons. The differences can be subtle, but they certainly do exist. And those differences result in an unequal playing field for competitive bids. This leads to confusion and misunderstandings for the homeowner.

In addition to being inaccurate as a cost comparison tool, the three-bid rule reduces each builder to a number rather than considering their various skills, experience, personality, record of success, and ability to do the work. For this reason, an increasing number of the best builders simply refuse to bid competitively, opting out because they know they are being evaluated only in terms of a cost estimate (that is inaccurate) rather than whether they are the best overall builder for the job.


The Negotiated Contract:

In this scenario, a builder is selected based not only on price, but also their ability to deliver a specific project, personality and homebuyer fit. These are very critical and important considerations considering how closely a builder and client will interact throughout the pre-construction, design and actual construction of a new home.

The negotiated contract also takes the guesswork out of the project’s cost. The project is priced based on the buyers budget.

Sharing the budget not only removes assumptions and judging a builder’s worth based on price alone, but also begins to build trust between homeowner and builder. They can explore honest communication about actual costs and, if necessary, choices that need to be made to match the project’s scope with the homebuyer’s budget. That’s the “negotiated” part of the contract process.

The negotiated contract process is far superior to the three-bid rule in matching personalities between the homebuyer and the builder. By first narrowing and then selecting one builder based on everything but the cost of the project, buyers can better make their decision on which builder is most likely to be on-budget and on-schedule and build a beautifully finished home that meets and exceeds their expectations.


What do you think? Agree or disagree? Lets talk about it!

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