One of the most common questions that homeowners looking to remodel ask is: I have estimates from three different contractors for the same project. Why are their prices so different? Why are contractors so expensive sometimes? Why do contractors charge so much? Understandably, this is a mystery to most people. We don’t expect the same blender or microwave to cost vastly different amounts at three different stores. Why should the cost of the same remodeling project vary so much? Sometimes, the difference in contractor estimates can cause significant stress for a homeowner. They feel like the low bid must be “missing something” and the high bid must be gouging them. Often, people will just pick the middle one because they don’t know what else to do.
At GreatBuildz, a free service that connects homeowners in Los Angeles, Orange County, Ventura & San Diego with reliable general contractors, we hear from lots of homeowners confused about this very issue.
To help give you some clarity — and peace of mind that you’re receiving fair bids — here are the main four reasons why contractor estimates vary so greatly.
- Contractor pricing strategies vary based on workload; aggressive pricing during slow periods and higher bids when contractors are busy may influence project costs.
- Overhead costs significantly impact general contractor estimates, with small contractors offering direct owner interaction and larger ones providing a team approach.
- Project assessments differ among contractors, affecting material assumptions and potential unknown issue inclusions; clear, detailed homeowner communication improves bid accuracy.
- The choice between contractors with their own crew and those using sub-contractors influences overall project costs; verification of Workers Comp insurance is crucial.
- Personal impressions and communication play a role in contractor assessments; homeowner organization and clear project descriptions contribute to accurate quotes from contractors, while identifying dishonest contractors is essential to prevent exploitation.
The Contractor’s Desire to Win the Job
If a contractor is having a slow period, they want more jobs to keep their crews busy. They are likely to be more ‘aggressive’ in pricing potential projects in order to win the bid. Alternatively, if a contractor is inundated with jobs, they will often bid on the high side. The contractor is essentially saying, “I’m too busy for this job right now, so I’m bidding high because I don’t need it. If the homeowner wants to pay this high of a price, I’ll find a way to do the job because it will be very profitable.” This is important to keep in mind because, generally, a contractor who is ultra-busy or “stretched thin” will not be able to provide a high-quality service.
Contractor’s Overhead/Costs Impact On Contractor Estimates
There are many types of contractors in the world of construction. They range from a one-man operation to large corporate organizations with hundreds of staff. Some work from a high-rent corporate office, and some work out of their home. Some contractors spend hundreds of thousands each year on advertising & marketing, while others rely purely on word-of-mouth referrals. Larger organizations will also have multiple layers of ‘manager’ that increase their costs. As you can imagine, all that ‘overhead’ cost will greatly affect how much profit they expect to make on each job and that will be reflected in your project bid/estimate. There are both pros and cons to both small & large contractors. With a small contractor, you’ll likely be working directly with the owner. With bigger contractors, there may be a whole team of people who can provide you with service during your remodel.
Contractor’s Assessment of the Project
Although you generally know what you want out of your remodel and try to convey that clearly to each prospective contractor, they each have their own ‘understanding’ of what the project will require. Since materials, like kitchen cabinets, can vary widely in price, a contractor’s assumption of the materials to be used can greatly affect their bid. Some contractors like to be very thorough and include the costs of potential unknown issues (for example, repairing ceilings that aren’t perfectly level), and therefore, their bids might be high. Not sure how much you should be paying? Check out our remodel cost guide for help.
Others will include only the bare minimum required for the job, and their bid will likely be on the low side. However, they are likely to request ‘change orders’ or ‘extras charges’ during the job for any unforeseen issues, driving the total costs up. A very common problem in home renovations occurs when a homeowner accepts the lowest bid because they feel like that’s the best deal for them. And they just end up being infuriated as the contractor continues to hit them with extra charges throughout the project. Because every contractor has a different format for their bid, it can be extremely hard to know exactly what is ‘included’ in the contractor estimates; a homeowner can get more accurate bids by doing a few things:
- Providing a clear written scope that is as detailed as you can make it.
- Providing approximate cost expectations (allowances) for each major material included in the project.
- Asking the contractor specific questions about what is/isn’t included in the job and what types of items will require a change order.
Another difference is that some contractors have their own construction workers (crew) on staff, and other contractors will utilize multiple subcontractors to complete each project. Since each sub-contractor is another company, they will each require their own profit margin for each job, adding to the total cost for the homeowner. This is an important question to ask when considering a contractor: Will you be using your own crew or sub-contractors to perform the work?”
Although hiring a contractor with their own crew is often cheaper, it is important to make sure that their staff is experienced in doing each type of work required on the project, whether it be plumbing, electrical, tiling, etc. The worst scenario is when the contractor doesn’t have an experienced tile guy (for example) and uses their carpenter to install the tile. Trust me, it will turn out terrible. You can also do some research on your potential contractors by revising their license/insurance information at the CSLB site. If their profile says they are ‘exempt from having Workers Comp insurance”, it’s likely they don’t have a crew but only use subs. By law, contractors must carry Workers Comp insurance if they have employees (crew). If a contractor has their own workers but is not insured, that should be a major red flag.
The Other “Stuff”
When a contractor comes to your house, you are judging them on their appearance, personality, and communication skills. It’s human nature. Well, guess what… they are judging you too. They are judging whether you will be a good client to work for. Are you organized? Do you have a clear written description of the renovation, or are you constantly changing your mind on what you want? Do you have realistic expectations about time and money? And this one may surprise you, but some are judging your house and neighborhood.
If you live in a fancy house or a fancy neighborhood, that’s a really good sign you can afford an expensive remodel. The point here is you need to be organized and prepared before you meet contractors so that you can tell them the exact renovation you require and your approximate budget. The more you know about your remodel and budget when you meet a contractor, the more likely you’ll get the most accurate estimate from contractor back. It is also important to know how to spot a dishonest contractor so that you are not taken advantage of when the estimate arrives.
The Role of Permits in Project Costs
The role of permits in construction projects is pivotal, not only for regulatory compliance but also for significantly influencing project costs. Obtaining the necessary permits is a legal requirement that ensures your remodeling project adheres to safety and building code standards set by local authorities. While some homeowners may be tempted to bypass the permit process to cut costs, this can lead to severe consequences, including fines, legal issues, and complications during property transactions.
From a cost perspective, permits contribute to the overall transparency and legitimacy of the project. The fees associated with permits vary based on the scope and nature of the renovation, and these costs should be factored into the initial project estimate. Additionally, permits often necessitate inspections at various stages of the project, ensuring that the work meets safety and quality standards.
While permit costs may seem like an added expense, they serve as a form of insurance, protecting homeowners from potential liabilities and ensuring that the completed project adds value to the property. Furthermore, having the required permits in place can streamline the overall construction process, preventing delays and costly corrections that may arise from non-compliance.
GreatBuildz is your best source for an honest, reputable contractor iin Los Angeles, Orange County, Ventura & San Diego. Our contractors are rigorously screened through our 10-step vetting process and agree to a 20-point code of conduct. We offer all our clients free personalized service which includes helping budget for your remodeling project, comparing contractor estimates, and developing a scope of the work before you start working with your contractor.