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The Home Depot

How Does a Contractor Determine Prices?

Pro Referral > Home Guides > General Contracting > How Does a Contractor Determine Prices?
How Does a Contractor Determine Prices?

When hiring a contractor for any home improvement project, price is always one of the main factors in determining who to choose. In many cases, a specific project will carry a very similar price tag from one contractor to the next; in others, there can be vast differences in the price you'll be quoted from each contractor. This can definitely get confusing for homeowners who simply want good work performed at a fair price, and understanding how contractors determine their prices can go a long way in both identifying what prices are "fair" and which contractor to choose.

  1. 1.Homeowner Complaints

    According to their records, the Better Business Bureau received over 6,000 complaints against general contractors (a figure that was up 11% from 2010). While there are plenty of great contractors to be found, homeowners can definitely find themselves with good cause to complain when they feel they've paid too much for work they consider sub-par. The BBB and many other reputable sources will all tell you that the very first step in avoiding this situation is to contact at least three contractors and discuss your project with each in detail before deciding on the one you'll hire.

  2. When dealing with reputable contractors, the variation in quotes can often be attributed to real life expenses.
  3. 2.Legitimate Variations in Quotes

    If you contact three local contractors and get three very similar quotes, you simply need to pick the one you felt most comfortable communicating with or the one whose previous work set him or her apart. If there are thousands of dollars separating each of the quotes you receive, you have a little more homework to do. When dealing with reputable contractors, the variation in quotes can often be attributed to real life expenses. For example, two quotes from equally reputable contractors may be very different if one included waste removal in the price and the other typically allows homeowners to choose their own method of waste removal.


    If one company specializes in a specific type of project and is well known in the industry, they may also charge higher prices (as well as have more overhead expenses in the form of offices and support staff) than a company that is newer to the business and is looking to build a portfolio of good work and excellent references. Other factors like physical distance from the job site and the brand or source of the materials that will be used in the project may also be legitimate reasons for one contractor to charge more than another.

  4. 3.Ultra-Low Prices

    While it is true that there are some very good contractors who will purposefully charge less than average in order to build portfolios or references, beware of prices that seem too good to be true. Good deals are out there, but extremely low prices are often a sign of a business that will use lower quality materials or is willing to cut corners before, during, and/or after the project.

  5. 4.Breakdown of Costs

    A good contractor understands that the clients they serve have probably heard horror stories of huge home improvement rip-offs in the past, and they'll do what they can to ease your mind and explain to you just what your money is paying for. Just about every reputable contractor will be able to give you an itemized report of the material costs, labor, and other expenses (permits, transport, etc.) that go into your bill. When planning the project, they will be able to offer you options that can lower the bottom line, and they will prepare you for the kinds of situations that may arise during the project that may extend durations and raise costs.


    In a nutshell: Contractors can quote just about any price they want for the work they are to perform, but a good one will be able to show you what elements make up your bill and offer you money-saving alternatives to help your project remain within your budget.

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