You did a remodeling project and you received the bill. That number seemed a bit higher than you expected. You immediately wondered if you were being overcharged.
Overcharging is rare in the construction world, but it could happen. The best way to avoid being ripped-off is price comparison before signing a contract. On other occasions, you may need to use more forceful methods to protect your rights.
In this article, we will show you how to protect yourself from the RFP phase to the end. We will teach you how to analyze a bid and how to choose the best contractor for your projects.
Table of Contents
- Prevent Overcharging from the Beginning: The Middle Rule
- Understand What Goes Into a Quote
- Be Your Project Manager
- What If You Already Signed the Contract?
- But Wait… Are You Truly Being Overcharged?
- Ways to Save
- Trust Your Contractor
Prevent Overcharging from the Beginning: The Middle Rule
The best way to avoid being overcharged is to not sign a contract that’s overpriced from the very beginning. This might sound easy and obvious. All you need to do is go with the cheapest one, you might think.
However, going with the cheapest option rarely works. In general, you would want to go with one of the bids that fall between the highest and lowest quote. After all, you do get what you pay for.
Some contractors, especially newer and smaller construction businesses will low-bid to get their business going. Therefore, oddly low bids can be a warning sign that this company lacks experience in the field.
Even if the company’s quality is guaranteed, you should still put yourself in their shoes. If you are working on a job that pays you half what you are supposed to make, how would you feel? Would you treat it the same as a job that’s paying the full amount?
Understand What Goes Into a Quote
When you receive a quote, you should always ask what goes in there. Depending on your project, the quote usually includes:
- Material charge: By default, the quote you receive includes any materials needed for the project. This can be lumber, drywall, shingles, handrails, etc.
- Labor charge: This constitutes the main portion of a quote. Labor charge is usually calculated by the hours. Sometimes the contractor submits the labor cost as a flat instead.
- Logistics and travel: If you have a large project and received quotes from out-of-the-state contractors. Then the quote most likely includes travel markup. Even small local contractors may charge a travel cost if you are outside their service area.
- Miscellaneous items: Always check with your contractor and see if he included any additional items in the quote. Most quotes don’t provide an itemized list, so this question is quite essential.
Be Your Project Manager
When requesting proposals for a home improvement project, you will be communicating with two types of companies:
- General Contractors (GCs): General contractors have a team that performs most tasks you would encounter in a remodeling project. Then, for any special tasks that their team cannot perform, they will play the role of a project manager.
When you receive a quote from a GC, often it includes the estimated cost a subcontractor would charge to perform his part of the job.
- Subcontractors (Subs): As the name indicates, subcontractors are contractors that only provide a specific task. For example, a sandblasting company doesn’t do anything beyond sandblasting.
In most cases, they submit their proposals to the GC in charge instead of to the homeowner.
Therefore, being the project manager sometimes allow you to by-pass the GC. Or, at least it gives you negotiation ground when it comes to pricing because you will be assembling a team by yourself
However, it requires you to do a lot more work and is also more challenging. If you don’t have a construction background, then it’s best to leave it to the pros.
Know Your Numbers
Subcontractor charges may vary according to what they do, but you can still find a general range. In the meantime, general contractors mostly follow an industry-standard charge.
We put all that information into a table for you:
Standard Hourly Cost for GCs and Subs
However, when you hire a company, they need to markup considering a company’s overhead cost. That is why most companies will charge a more expensive rate.
What If You Already Signed the Contract?
Things become more difficult if you think you’ve already signed the contract. That is because your signature means you agree with the terms in the paperwork. To file a dispute against the signed contract, it will cost much more time, effort, and money.
There are a few reasons you may be entitled to file a dispute:
- The contractor agreed to adjust the pricing but refuse to do so. This often happens when a GC mark-up an estimate and agrees to lower the final cost once they find all the subs needed.
- The quality of work doesn’t meet the agreed standard. In this case, the contractor didn’t deliver proper results and thus defaulted the contract. Yet to prove your point, you will need further inspection and legal support.
If you think your contractor is overcharging you, have an open conversation with him first. Make sure you properly document your conversation. You can even ask the contractor to justify his final invoice amount if it’s different from what you agreed to pay.
In the most extreme case, consult an attorney specializing in real estate and construction to protect yourself.
But Wait… Are You Truly Being Overcharged?
We’ve talked plenty regarding how to handle an overcharging contract. Nonetheless, we must also acknowledge that you may have misunderstood.
As a consumer, we do tend to argue that we’re being overcharged the moment we see a price higher than others. However, do you understand why your contractor gave you that quote?
The truth is, most contractors are not overcharging even though the homeowner may feel the opposite. That is because many contractors are undercharging. This behavior pulled the average contractor cost lower. And it created an illusion that some companies are overcharging.
Why Under-Charging Is Worse Than Over-Charging?
It probably makes sense to go with a lower bid, especially if both options seem equally qualified. Yet that’s not true. As a general rule, under-charging is worse than over-charging.
In today’s economy, a construction company needs at least a 1.5x markup to survive. Therefore, anybody under-charging is risking going out of business in the upcoming years.
For a homeowner, this is not good news.
In the long run, you want to work with a company that will last for years. You want to return to the same people who did your project initially in the future.
And what if something goes wrong? Many construction companies now provide some sort of customer protection or discount for returned customers. The longer they survive, the more beneficial it is for you.
Ways to Save
In general, there are a few ways to save on your project cost:
- Material: Some contractors take a commission from lumber yards and other material distributors. If you can provide all the materials at your own cost, your project quote will usually be much lower
- Work with a local company: Find someone whose service area covers your home. There is no need to go with someone that will charge you a logistic cost unless they are that good. But are they?
- Assemble your own team: As we mentioned above, choose subcontractors by yourself and be that project manager if you have enough knowledge. That will save you from hiring a large general contractor.
- Do as much as you can on your own: And of course. The best way to save is to do it by yourself. If you are confident in your skillset in home improvement, why not handle some of the home improvement tasks independently?
Trust Your Contractor
As much as we’ve talked about how to avoid being overcharged, at the end of the day, it comes down to trusting your contractor. You can do all the shop around and price comparison you need. We encourage you to do that before signing anything.
But once you signed the contract, a service agreement comes into effect. You need to trust the contractor you choose and let them do their jobs.
If you’ve carefully evaluated the contract before signing, you shouldn’t have the concern of being overcharged. If the contractor truly can’t provide the service that you both agreed with, then you need an attorney to take care of the rest.
The definition of overcharging is always vague. Use your local contractor pricing as a guideline so you don’t get ripped off. That is the best approach.