Understanding the 4 Stages of Pricing for Residential Construction in Toronto
Renovating a home is an exciting yet complex journey, especially when it comes to home extensions and large-scale renovations. When planning a home renovation or custom build in Toronto, one of the most critical aspects homeowners should consider is the pricing process.
Don’t fall into the “free estimate” trap!
When considering contractors in Toronto many homeowners fall into the trap of relying on "free estimates," which often lack the depth and accuracy necessary to set realistic expectations. Proper estimating from a qualified contractor is an evolving process that should align with the stages of architectural and design development. It’s worth including the cost of estimates in your overall budget when planning a large-scale renovation.
Why Understanding Reno Pricing Matters
Toronto’s construction industry is one of the most dynamic in Canada, and when it comes to home renovations, it’s vital to work with a trusted contractor who can accurately price your project at each stage.
In this blog, we break down the four key stages of pricing for residential construction projects in Toronto. These stages provide increasing levels of accuracy and detail, helping homeowners understand how their project budget should be developed over time. When you understand how pricing evolves, you can make informed decisions and avoid costly surprises.
Stage 1: Rough Order of Magnitude (ROM) Pricing
The first stage in the pricing journey is Rough Order of Magnitude (ROM) pricing. This phase is typically used at the very beginning of a project when homeowners are still exploring possibilities and little to no design work has been done. This stage typically involves a rough estimate based on square footage or costs from similar projects.
Key Characteristics of ROM Pricing:
There are minimal or no drawings available.
Estimates are based on broad references such as square footage pricing or costs from past similar projects.
It provides a rough budget range with an accuracy of approximately ±70%.
Purpose: ROM pricing helps homeowners determine whether their vision aligns with their budget before investing further in design and planning. It serves as a preliminary benchmark to decide if moving forward is feasible. At this stage, costs are not fixed, and significant variations are still possible.
Stage 2: Schematic Design (SD) Pricing
Once homeowners decide to proceed, the next phase involves Schematic Design (SD). You’ll have basic floor plans and possibly a few elevations, capturing the overall scope of your renovation. However, no structural or mechanical designs have been finalized yet, and there are still no detailed finishes specified.
Key Characteristics of SD Pricing:
Basic floor plans and possibly a few elevations are available.
No structural or mechanical designs are included, and finishes are not specified.
Rough quantity take-offs are performed, and past project costs are applied to various elements.
A significant number of allowances are used to fill in gaps.
Accuracy improves to around ±80%.
Purpose: At this stage, SD pricing helps you get a clearer idea of the renovation’s scope, but you’re still working with approximations. It's the perfect time to evaluate different design options (size, layout, and basic options) and adjust the scope if needed.
Stage 3: Design Development (DD) Pricing
At the Design Development (DD) stage, the project begins to take shape with detailed plans and specifications. Structural, mechanical, and other technical aspects are incorporated, giving a more comprehensive understanding of the project requirements. The entire scope of the project is well-defined, with only minor details and material selections left to finalize.
Key Characteristics of DD Pricing:
Detailed floor plans, elevations, and structural and mechanical designs are available.
The entire scope of the project is defined except for a few finishing details.
Trade partners and subcontractors are engaged to provide firm quotes.
Labour costs are refined, and the number of allowances is significantly reduced.
Pricing accuracy improves to ±90%.
Purpose: This stage provides a solid cost estimate that allows for more accurate budgeting and financing. Homeowners gain a clearer understanding of their investment, with fewer surprises down the line. If major changes are necessary, it’s best to address them now to prevent cost overruns later on.
Stage 4: Issued for Construction (IFC) Pricing
The final stage before construction begins is called Issued for Construction (IFC). At this point all drawings are complete, and the scope of the project is fully defined. You’ll have finalized plans, detailed structural and mechanical designs, and specific material choices. Pricing is highly accurate and the total cost should be very close to the final amount.
Key Characteristics of IFC Pricing:
All construction drawings and specifications are finalized.
Trade partner quotes are reviewed and updated if needed.
Ideally, no allowances are included, ensuring that every cost is accounted for.
Pricing accuracy reaches ±95%.
Purpose: The IFC estimate is the most accurate and reliable, serving as the final budget for the construction phase. This stage ensures that both homeowners and contractors are aligned on the full project scope and costs. Any last-minute adjustments should be minimal, ensuring the project stays on track.
Why the "Free Estimate" Isn't Enough
Many homeowners are drawn to the idea of a "free estimate," expecting it to provide a clear picture of their project costs. However, such estimates often fall within the ROM stage at best, offering a ballpark figure that lacks the necessary detail to make informed decisions. Without progressing through the structured stages of estimating, there's a significant risk of cost overruns, unexpected expenses, and project delays.
A properly developed renovation estimate evolves alongside the design process, becoming more refined and reliable over time. Homeowners should view estimating as an iterative process that requires collaboration between architects, designers, and contractors.
How Toronto Homeowners Can Navigate the Estimating Process
Understanding the four stages of pricing allows homeowners to:
Set realistic expectations: Knowing what to expect at each phase helps in budgeting and planning accordingly.
Make informed decisions: Progressing through the estimating stages ensures that design choices align with budget constraints.
Minimize financial surprises: Detailed estimates reduce the likelihood of unexpected costs once construction begins.
Build with confidence: A well-developed estimate provides peace of mind and a clear roadmap for the project.
How Lighthaus Built Applies this Pricing Model to Renovation Projects
When we first meet with homeowners, we spend time chatting about their goals and their underlying purpose for the project. After getting a broad sense of the scope of the project we will aim to provide a ROM price. While this number is not very reliable, it usually is good enough to determine whether or not there is realistic alignment between the budget and the scope of work.
Once we agree to work together, we then have the homeowners enter into our preconstruction process. This allows us to partner with the homeowner and the design team to meticulously go through the remaining pricing stages.
If you’re interested in learning more about this process please reach out to schedule a call.
Conclusion
Embarking on a home renovation or custom build in Toronto is an exciting journey, but understanding the intricacies of project pricing is crucial for success. By recognizing the four stages of pricing – ROM, SD, DD, and IFC – homeowners can navigate their projects with greater clarity and confidence.
Rather than relying on unreliable "free estimates," investing time and resources into a structured estimating process ensures better financial planning and a successful construction experience.
If you're considering a residential project, be sure to work with professionals who follow this structured approach to estimating. It will save you time, money, and frustration in the long run.
Need Expert Guidance?
If you're ready to start planning your renovation or custom home build, reach out to us so we can guide you through each stage of pricing with transparency and precision.
Meet the Author
Dave Cook is co-owner of Lighthaus Built and has spent 17 years working in single-family construction in Toronto. Through the years, he has worked as a carpenter, site supervisor, and project manager for more than 60+ major, high-end renovations and custom homes.
As an HCRA-licensed builder, he and his company (Lighthaus Built) are well-versed in constructing high-quality homes and take pride in what they do.
On a personal level, Dave is very active in several sports - most notably, distance running, road cycling, and tennis. He bakes bread (for personal consumption) and no, this was not a Covid thing. He grew up eating homemade bread and has made my own for the past 20 years. He has been married for 20 years and has two teenage children and a dog.
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