Why Do Contractors Cost So Much?

Why Do Contractors Cost So Much?

People often ask me, “Why do contractors cost so much? How can they possibly justify those prices??”

Usually, this question comes from a handy homeowner – someone who’s done a lot of work to their own house.

If you remodeled your powder room for $1,800 and then heard your neighbor hired a contractor to do the same job and spent $6,000, you’d probably be scandalized.

But as someone who works with contractors all the time, I can tell you:

Yes, hiring a contractor to do the work costs a LOT more than doing it yourself. But here’s the thing – then you don’t have to do it yourself!

What’s Included in the Fee

If you’ve ever hired a contractor to do a major home renovation project, you probably understand why they cost so much. In addition to the building materials they provide, they supply an entire crew of laborers for weeks on end until that project is complete.

That’s the biggest chunk a handy homeowner doesn’t account for: labor. Homeowners almost never track their own time.If you’ve ever hired a contractor to do a major home renovation project, you probably understand why they cost so much. In addition to the building materials they provide, they supply an entire crew of laborers for weeks on end until that project is complete. 

We did have a client once who was planning to do the majority of his kitchen renovation himself. He joked that he was absolutely going to track his time because, as a particle physicist, his rate was several hundred dollars per hour. He knew that DIY kitchen renovation was going to add up to at least a few hundred thousand dollars by the time he was finished.

On top of labor, contractors have overhead. This includes paying for their office (if they have one), office supplies, cell phones, computers, work vehicles, tools, insurance (LOTS of insurance), their license, and marketing or advertising costs.

Part of what you’re paying for is a contractor who has a successful, reputable company so that if there’s a problem, they will be in business next year to fix it.

If you do the work and there’s a problem next year,  you just have to fix it or do it again.

How Do I Know if the Price is Fair?

I think the main root of complaints about contractor pricing is that people are afraid of being taken advantage of; they’re worried they’ll pay too much.

This is a totally understandable fear. For better or worse, there is a very low barrier of entry to becoming a contractor. This means there’s a wide range of quality from pro to pro and the chances you’ll find a good one may not seem promising.

Here’s my best advice for making sure you don’t overpay – find a reputable professional.

A reputable contractor who cares about what he does and relies mostly on repeat customers and referrals is not going to scam you out of money. He’s going to do his best to provide a complete estimate and be transparent about costs so you’re not shocked when you get the final bill.

How to Choose a Reputable Contractor

How you find such a pro is an article for another day. But here are my Cliff’s Notes:

  • Ask friends and neighbors. More and more neighborhoods have list serves, Facebook groups, or forum websites where you can poll your neighbors about who’s working in your area and what people think of them. Go there first!
  • Ask suppliers. Visit your local tile shop, lighting store, paint store, stone yard, or lumber yard. Ask them for their list of recommended installers and contractors.
  • Check the “best of” lists. Read local magazines and newspapers who do rankings of service businesses where you live. It’s especially helpful if you can look up previous years online because you can see which contractors get consistently high ratings.
  • Once you have a hit list of 2-4 teams you’d like to consider, invite them to come visit your house and discuss the project. When you call to make the appointment, ask them to bring the names of a few references, a copy of their license, and proof of insurance. If these requests scare someone off, you dodged a bullet.

You’ll find much more on the topic of how to hire a good contractor who will not take you to the cleaners on one of my favorite contractor blogs: Ask the Builder.

If you do your research and vet prospective builders, you can put your cost concerns to rest. Yes, hiring a contractor is expensive. But the right team will have the ability to clearly explain where your money goes and what you get in return.

Happy renovating,
Sara & Sean

Estelle Ford-Williamson
September 25, 2017 11:10 pm

Sara, I wonder if you could address what kind of insurance a contractor should have. What kind of proof does he/she need to provide?

Don’t forget workers compensation insurance there in the overhead! Sometimes they may provide health insurance as well, though I don’t know how many do this.

Very informative!

Sara Martin
September 28, 2017 10:28 pm

Good question! A contractor should have a state license number that you can look up and verify online. Tennesee’s website is http://verify.tn.gov/. There, you can read the status of their licensure to ensure everything’s up to date.

Contractors should also be bonded and insured.

They are “bonded” by a surety company. They pay a fee to be covered by this bond and, should they fall behind on any financial obligations or produce sub-par work, you the client can contact the surety company for compensation.

They should have liability and worker’s compensation to cover damage to your property and workers’ injuries, respectively.

In the initial interview, you should ask for proof of all these things.* If the contractor is evasive, that’s a red flag. Next, you should actually verify that the license, bond, and insurance coverage is current by contacting the companies listed.

*Side note: these checks are for professional general contractors in charge of large scope jobs. You will likely hire unlicensed handymen (or women) on occasion. It’s always safer to go the licensed, bonded, and insured route. But there are good repair people out there who don’t carry all of these certifications and have lower overhead. In those cases, you want to be extra careful to check references.