How to Tell If a Contractor's Quote Is Fair (Without Being a GC)

You can tell a quote is fair when three itemized bids for the same scope land close together and the price is built from labor, materials and a markup in the range of 18 to 25 percent. A bid far below the others is usually missing something. A bid far above the others may be padded, or the contractor may simply be busy and not want the job.

A thread on r/homeowners asks how you know a contractor quote is fair. It is a common worry because most of us do not price roofs, bathrooms or driveways for a living. The good news is that you do not need to. You need a way to compare bids on equal footing and a few numbers to check them against.

Start with the same scope

A price means nothing until you know what it covers. The Queensland Building and Construction Commission (an Australian regulator, but the advice travels) tells owners to compare quotes like for like. That means every builder prices the same project scope and specifications, the same materials and finishes, and the same labor and timeline.

In practice, write a one-page scope sheet before you call anyone. Include:

• What gets demolished and hauled away.
• What gets built, with dimensions.
• Brands, models or grades for fixtures, materials and finishes.
• Permits and inspections, and who pays for them.
• Cleanup and disposal.
• Start and finish dates.

Hand the same sheet to every bidder. If a bid comes back that does not match the sheet, ask them to revise it, or toss it. You cannot judge price until the scope matches.

The three-bid test

Once you have three comparable bids, look at how they sit relative to each other. This is a rule of thumb, not a law.

• If two bids land within about 10 percent of each other, that is probably the going rate.
• If one bid is 25 or 30 percent lower, something is different. Find out what.
• If one bid is far higher, ask what they included that the others did not, and whether they want the job.

Here is an example with three roofing bids for the same house:

Bidder	Price
A	$9,800
B	$10,400
C	$6,900

A and B differ by $10,400 - $9,800 = $600, which is 6.1 percent. They agree. C is $3,200 below the average of A and B ($10,100), which is about 32 percent lower. That gap is too big to be efficiency. For context, This Old House lists an average asphalt shingle replacement at $5,800 to $12,200, so all three bids are inside the published range, and the range is too wide to tell you which is right. The comparison between bids tells you more than the benchmark.

Why the cheapest bid is usually missing something

Contractors build a price from labor, materials, subcontractors, overhead and profit. A bid that skips one of these has to make up the difference somewhere. The QBCC lists what to check:

• Excessive or unclear charges for footings, earthworks or spoil removal.
• Cheaper materials than expected. Ask for a detailed materials breakdown, warranties and supplier details.
• Missing fees, certifications and inspections.
• Whether contingencies are included, and how much.
• Large upfront payment requests.
• Vague or unwilling answers about payment terms, timelines or other projects.

A low bid does not always mean a bad contractor. Some run lean. But the low bid has to survive a line-by-line check against the scope sheet. Hunker adds a protection to keep in mind. A contractor cannot use change orders to fix their own bid, because an underbid or an omitted item is not grounds for an extra charge. Put that into your contract so the low bid cannot become a high bill.

What a fair markup looks like

BuildingAdvisor says contractors typically mark up hard costs by 18 to 25 percent for overhead and profit, and that the figure is generally higher on remodeling jobs. It sets 14 to 18 percent as a more reasonable figure on a cost-plus contract, where you take the risk of overruns.

Direct costs, per that source, include materials, labor with its burden (taxes, benefits, workers’ comp), subcontractors, consumables, dumpster fees and special tool rentals. Overhead items like trucks, standard tools, office costs and advertising should not be billed as direct costs.

Worked example. A contractor’s direct costs for a bathroom are $8,000.

• At 18 percent: $8,000 x 1.18 = $9,440
• At 25 percent: $8,000 x 1.25 = $10,000

So a fair bid for that job sits around $9,400 to $10,000 if the direct costs are $8,000. If a bid comes in at $12,500, the implied markup is ($12,500 - $8,000) / $8,000 = 56 percent, which deserves a question. If a bid comes in at $8,500, the markup is 6 percent, which leaves almost no room for profit or problems.

You do not know the contractor’s direct costs, but you can ask for a breakdown. BuildingAdvisor recommends asking for detailed invoices that show actual costs, and asking whether materials are billed at retail or at the contractor’s discounted cost. Discounts are small on basic materials and can be significant on windows, doors, cabinets and fixtures.

Check the price against a benchmark

Published cost ranges help you spot an outlier even though they are wide. Use the cost calculators on this site to get a ballpark for your size of job:

• The Roofing Cost Calculator for roofs.
• The Home Addition Cost Calculator for additions.
• The Concrete Driveway Cost Calculator for driveways.
• The Tile Shower Cost Calculator for bathrooms.

Compare the calculator output with each bid’s per-square-foot price. A bid at half the calculator’s number or double it is a reason to ask questions, not to decide.

When the middle bid beats the low one

Take the middle bid when:

• It matches your scope sheet line for line.
• The contractor explained what is included and what is not.
• The payment schedule ties payments to finished work.
• The license, insurance and references check out.

Take the low bid only when the contractor can show it is the same scope, the same materials and the same warranty as the middle one. Ask them to put that in writing. If they hesitate, you have your answer.

Deposits and payments

Large deposits are a warning sign. The QBCC lists “large upfront payments” as a red flag and says no deposit is due until you sign a contract. As an example of how a regulator thinks, it generally limits deposits to 5 percent on work of $20,000 or more, 10 percent on $3,300 to $19,999, and 20 percent on $3,300 or less. Those are Queensland’s numbers. Your state will have its own, so check with your contractor licensing board.

Tie payments to milestones you can see, such as materials delivered, rough-in passed and final inspection passed, so you never pay far ahead of the work.

Questions to ask each contractor

A few direct questions often tell you more than the number does.

• Is your license and insurance current, and can I see the certificates?
• Who does the work, your crew or subcontractors?
• What is not in this price?
• How do you price and approve changes?
• Can I call two recent customers with similar jobs?

Clear, quick answers are a good sign. Vague answers or irritation are worth noting, and the QBCC lists vague or unwilling answers about payment terms and timelines as a red flag.

What to do next

1. Write the scope sheet.
2. Collect three bids, in writing and itemized.
3. Line up the bids side by side against the scope sheet.
4. Ask the lowest and highest bidders what is different.
5. Check licenses, insurance and references.
6. Put the scope, the price, the payment schedule and the change order rule into the contract.

What I could not verify

I could not open the Reddit thread, so I am not quoting its replies. The QBCC is an Australian regulator, so its deposit limits do not apply in the United States. The three-bid rule of thumb here is my own framing based on how the sources recommend comparing quotes. It is not a published statistic. The markup range comes from one building consultant and varies by region and job type.

Sources

• Seeking and comparing quotes, Queensland Building and Construction Commission
• Contractor markup and comparing bids, BuildingAdvisor
• What Is a Construction Change Order?, Hunker
• Metal vs. Asphalt Roof, This Old House (roof replacement cost range)
• How do you know if a contractor quote is fair, r/homeowners