To bring this into the light of scrutiny without over-dramatizing it, we need to first understand the general business model. We sell an item or a service and anything above our expenses is called “profit”.
The profit or loss margin on a tangible item is much easier to calculate than on a service performed. We all know that if we go to a store and a bottle of soda costs us three dollars, we’re getting ripped off. However, if we get a bid from a contractor to replace a floor, for example, most of us have no idea what a fair price is.
Contractors rely on this ignorance and they constantly overcharge homeowners on labor performed. As a matter of fact, they are setting new standards for labor costs just by being dishonest. As consumers, we pay a certain amount for things, but if a product rises sharply in price, we notice and complain about it. If that product stays at a high price long enough, the consumers gradually accept it and stop complaining about it.
This is true not only in the housing industry, but in all industries as well. Think about how much we pay for insurance. An insurance agent has a profit margin that depends entirely on overcharging customers. As in all businesses, this is a very undefined area, so business people just charge according to how much people will pay. Many business owners believe that if a customer will willingly pay the price, then it’s a fair price.
In our modern world of easy finance, consumers are so quick to buy homes, that they aren’t paying any attention to rising labor costs that are ridiculous. They only see a monthly payment amount that they can or cannot comfortably pay.
So, in response to the question, “are contractors crooks?” The answer is absolutely. On average most contractors overcharge their clients. But this is true in almost every aspect of the business world.
The way we can make sure we aren’t getting overcharged from contractors is by doing all the work ourselves. It’s the best way to save well over half the cost of the home. I help people do this all the time.
There are many books and websites that make the claim that homeowners can save around forty percent on labor costs by being their own General Contractors and hiring sub-contractors to do the work. I have never seen this successfully work in all my years of building homes.
The problem is that if the homeowner isn’t well versed in contractor job costing, he or she will probably be taken advantage of by sub-contractors. The subs will steal the homeowner’s equity by over-bidding labor costs and usually materials as well.
Once the homes are finished, the homeowners that do the entire general contracting themselves are usually disappointed with the results in terms of money saved on labor costs. Best-case scenarios that I’ve seen, the homeowner has saved up to twenty percent, but that is rare. In the worst cases, I have seen the subs steal so much equity that the homeowner has to borrow more money to finish the home. That’s unfortunate because a great deal of time is involved in being a general contractor and if you have done a lot of work without a payoff, the whole event will be a big negative in your life.
I have recently seen several over budget projects from homeowners who have bought a book or certain house plans that have made ridiculous claims to save construction costs by doing all your own general contracting. The books raise false hopes. The authors of these books are usually one-time homebuilders that have a list of do’s and don’ts.
The problem is that if the authors of those books have made costly mistakes as general contractors, their own plan didn’t work for them either. They always say, “Avoid costly mistakes” but new homeowners that lack experience are going to make many costly mistakes no matter what.
The real damage done in these cases is not the wasted money on the book or plan, but the wasted time and money on the part of gullible homeowners.
That’s why I believe that do-it-yourself homebuilders need to literally do-it-themselves. If they are doing all their own labor, they won’t get ripped-off. The price of materials will be the only numbers they have to worry about.
Building a house by yourself is definitely not for everybody though. I truly believe that we as humans are self-defeating and self under-estimating. We can do just about anything we believe in, but therein lies the problem. Once we stop believing in ourselves, we find limits where they shouldn’t exist.
Building our own homes strengthens our self-esteem. Once we start tearing down boundaries and limitations in our lives, the momentum keeps going and helps us become successful in other aspects of life.