Since the client will initially look for how much they need to spend before hiring you for their project, it is nearly impossible to secure a job without any cost estimate. So, when you share an estimate and receive the client’s approval, you will get paid only what was mentioned in the estimate, regardless of whether the total project cost is more or less.
Now, it’s all up to you: whether you’re preparing an estimate to give a rough idea of labor and material costs or generating an estimate with a clear cost breakdown and specific terms and conditions. The latter can be considered a binding estimate (similar to a quote) if the client signs it.
Is accepting an estimate legally binding? Many professionals and new entrepreneurs have this question in their minds.
Alright, let’s dive deeper to know what a binding estimate is and when an estimate becomes binding.
Key Takeaways
- Businesses have a clear understanding of the project scope and financial requirements through estimation.
- Estimates are helpful in resource allocation before starting the project.
- Business professionals can plan a budget and ensure efficient cash flow management through an accurate estimate.
- Estimates provide cost approximations, whereas quotes represent constant prices that are agreed upon between the parties.
- Using estimate maker software, professionals can easily create an accurate estimate.
💁🏻♀️Do You Know?
The average annual wage for a cost estimator in the USA was $77,070 in May 2024.
What Is a Binding Estimate?
Binding estimates are contracts in which the sum stated is the whole estimated cost you pay, regardless of any further unanticipated charges. After it is set between the parties, the dealer may not increase the lower under any condition. Accepting an official estimate, on the other hand, implies that the client will not pay any less.
A legally binding contract is one in which the sum stated is the whole cost you pay, regardless of any further unanticipated charges. When a contractor agrees to a certain price based on the customer’s generally projected activities and resources, for example, if the client accepts a binding estimate, they might prepay you a final amount. The dealer may not increase the price in any way.
The dealer may not increase the price in any way. Accepting an official estimate, on the other hand, implies that the client will not pay any less.
Here are some examples of how it may benefit you and your business:
- Clients should be informed of their expectations in advance.
- Cash flow forecasting and planning.
- Make an impact on consumers to persuade them to hire you.
- Make the appropriate material and supply orders.
- Keep a copy of the agreement in case of a disagreement.
Is an Estimate Legally Binding?
The straightforward answer is no. An estimate is created only to provide a rough idea of what the project cost will be. It does not include the final amount or the client’s approval. It provides how soon the project will be completed and what factors will contribute to the total price.
Say, for example, your client wants to hire you for a landscaping job, so they have asked you for an estimate. After the site visit, you shared an estimate of $7,500 (roughly), which can be more or less after a detailed inspection and other additional requirements. Further, there is no client’s signature as prices are likely to change. Therefore, it doesn’t bind legally.
An estimate becomes a legally binding document if both you and your client agree on the price, which can’t be changed later. A binding estimate should have a client’s signature and detailed information about the project.
Let us take the same example. You shared a detailed estimate and received approval from the homeowner for an estimated price of $7,500. This estimate can be deemed binding. So, $7,500 is the fixed price that the homeowner needs to pay.
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Why is a Written Estimate So Important?
A written estimate frequently includes information regarding the requested repair. Here are a few reasons why you should request a written estimate before having your automobile fixed.
- A detailed breakdown of the same work that has to be done on the automobile.
- The whole price of the project, including labor and materials.
- A guarantee that the estimated amount won’t be increased without the client’s permission by a particular percentage or amount.
- It could avoid future conflicts between the two parties. For the business, the written estimate acts as the parties’ equivalent of a contract.
It makes sense to use estimating software to provide a legally enforceable estimate. It will best guess the contents of your estimate and state if the client has approved it. You’ll be able to resolve any consumer issues and uphold your established costs by using an efficient tool like Moon Invoice.
💡Top Tip:
Always use the Work Breakdown Structure (WBS) to break down the project into smaller, manageable components.
Binding Vs No-Binding Estimates
| Binding Estimate | Non-Binding Estimate |
|---|---|
| A legally binding estimate obligates you to pay the fixed price specified therein. Whether the service costs less or more than the total, you will still be responsible for the whole amount. | The business calculates the price of a job without committing to a precise sum or final cost. This is known as a non-binding estimate. It is based on an educated guess and is used mostly by small businesses. |
| The additional services and resources of the company are the factors that best guess how much the deal will cost. | The actual services rendered, not necessarily those stated in the non-binding contract, will determine the final costs of the business. |
| A contractual agreement, which must be in writing and signed by you and your moving company, guarantees the whole payment of the goods and services included in the estimate. | The services provided by the company and the cost of materials will determine how much it will cost you in the end in a reasonably accurate estimate. |
| Instead of a price guarantee, the company provides you with a non-obligatory estimate of the full cost. Binding estimates also pose some risks. | You only pay the anticipated sum at delivery when the estimate is deemed to be legally binding. You won’t have to pay more or less than necessary. |
“There is no such thing as absolute value in this world. You can only estimate what a thing is worth to you.”
Legal Claims from Legally Binding Contracts: How to Avoid?
Here are some tips to help you avoid any legal troubles later down the road in the best way:
- Both parties must be able to grasp the data in the estimate since it was carefully created using accurate terms in the construction industry or any other sector.
- It needs to give customers accurate information that can prevent them from using it improperly or harmfully.
- Modifications, changing markets, and unintended additions should all be covered in the agreement to make the terms clear.
- For safer practice, a range of degrees of precision can be provided in just an estimate. The bid might then include a final estimate and go through the formal legally bound contract law process.
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Conclusion
In the end, a binding estimate does much more than help you maintain your calm. Moreover, this legal document has a direct impact on the project’s performance in several ways. So, we hope this article helped you comprehend the advantages of project estimation and how to do it properly. For more info, don’t forget to hop on to the FAQ section.
FAQs
Jayanti Katariya is the founder & CEO of Moon Invoice, with over a decade of experience in developing SaaS products and the fintech industry. He holds a degree in engineering. Since 2011, Jayanti's expertise has helped thousands of businesses, from small startups to large enterprises, streamline invoicing, estimation, and accounting operations. His vision is to deliver top-tier financial solutions globally, ensuring efficient financial management for all business owners.
