Photo by Scott Tennant

It is important to understand how contractors quote remodeling jobs if you want to pick the right contractor for your project. Whether you are remodeling your kitchen, adding a bathroom or finishing your basement you need at least a basic understanding of how contractors quote jobs. If you are hiring a contractor to do some or all the work you should know why prices quoted by different contractors vary often so much for the same job.

The obvious parts of a remodel or addition project’s cost are the materials and labor. Materials can be as basic and lumber and nails or it can include final touches like light fixtures and the kitchen appliances you select. Labor and materials can account for 40 to 60% of the total project cost. The balance of the price quoted to you is for overhead and profit for the remodeling contractor.

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If you assume the materials costs are the same for all contractors bidding on a project, bids should be pretty close because all the quotes should have a very specific list of materials to be used. The balance of the cost – labor, overhead for the contractors business and profit account for up to 80% of the cost of a project.  So why is there so much variability in the 80% portion of the cost? Let’s list the specifics to see what drives the difference.
Labor costs
What contractors pay their employees in both wages and benefits can vary significantly. Some may pay top dollar to their workers with full benefits; others may pay less and offer fewer or no benefits. This difference alone could account for 30% of the labor costs. And if the contractor hires subcontractors to do some or all of the work then the labor costs could also include the overhead and profit for the subcontractor.
All businesses must pay overhead costs that can include vehicles, office staff, buildings, managers, and much more. Some factors that might drive overhead costs higher include driving all new trucks, advertising a lot, having an expensive office and warehouse space. The cost for all of this would be passed on in their prices. Other contractors may be very aggressive about keeping their overhead low: driving older cars, negotiating the lowest prices for office space, benefits, etc. Since their overhead is lower, they can quote a lower price to you.
As you can see, the cost of a contractor’s overhead included in a quote can have no impact on the quality of the work done for you. It only affects the price a contactor charges to do work.

To have a healthy business, contractors need to earn some profit. It could be 2% or 20%. Typically it is somewhere in between the two, and is added to the price quoted to you for the project.

The overhead and profit charged by contractors vary between contractors. The amount also varies by the project for the same contractor. There are many reasons why a contractor would charge more or less for a project. They may charge less if they can do all of the work with their employees, or may have some available time when their employees have no other work and could be working on your project. Also, a contractor could raise their prices if their employees are all busy and they would have to hire subcontractors to do the work. Maybe the contractor isn’t comfortable quoting the type of project you want done and therefore is adding a “cushion” for contingencies which may increase the price quoted.
So how much could remodel or addition quotes vary? Realistically – using the same materials and receiving the same quality of workmanship it is possible to get quotes for the same kitchen remodel that vary from $25,000 to $50,000, a bathroom remodel from $7000 to $15000 or a bathroom addition from $10,000 to $20,000!
So what should a homeowner do to ensure they get the right contractor for their remodeling project? Get a good education on the cost of a remodel, make sure the quotes you are comparing have the materials to be used clearly specified, get quotes from both large and small contractors, and get more than three to five quotes.