How to Compare Contractor Bids

Get three bids on the same remodel and it isn't unusual for the highest to come in 40 percent or more above the lowest. Homeowners usually read that spread as a difference in price. Most of the time it is a difference in what is being priced. Each contractor read your project a little differently, made different assumptions about what you meant, and decided differently what to leave out. This article explains how to compare contractor bids so you are measuring the same job: how to line up scope, allowances, exclusions, payment terms, schedule, and insurance. It also explains why the lowest number on the page is often not the lowest price you will pay.

Why bids for the same remodel differ so much

Start with what a contractor actually earns. In the National Association of Home Builders' most recent cost of doing business study, remodelers averaged a gross profit margin of about 30 percent of revenue, with overhead taking about 24 percent and net profit landing near 6 percent. Those are national averages and individual companies vary. But the numbers make one thing clear. Two legitimate contractors pricing the same project can't be 40 percent apart because one of them is more efficient or less greedy. There isn't that much margin in the job to begin with.

So when bids spread that far, look for structural reasons. One contractor priced a full scope and another priced a partial one. One set realistic allowances and another set placeholders that won't buy what you have in mind. One included permits, dumpsters, and drywall repair in the next room, and another left them out without saying so. Some spread is normal, because labor rates, crew size, and how much risk each contractor builds in really do differ. In our experience, careful bids on a well-defined project usually land within 10 to 15 percent of each other. A spread of 40 percent almost always means the bids describe different projects.

Make sure everyone priced the same scope

The single most effective thing you can do happens before any bids come in. Give every contractor the same written description of the project, and the same drawings if you have them. "Remodel the kitchen" invites three interpretations. A short document that lists what stays, what goes, which fixtures move, the cabinet tier, the countertop material, the flooring area, and whether lighting is changing gives everyone the same target.

Once the bids are back, read each scope line by line against that document. Look for items that appear in one bid and not in another. Common gaps include floor leveling, subfloor repair, patching and painting adjacent rooms, electrical upgrades needed to meet code, venting a range hood to the outside, and haul-away. A bid that doesn't mention one of these hasn't necessarily excluded it, but you need to ask. The answer goes in writing, because the scope is the part of the bid that becomes the contract. Our article on what a remodel contract should include before you sign covers how a good scope reads once it is final.

Normalize the allowances

Allowances are the easiest place to make a bid look cheaper without changing the actual price. An allowance is a placeholder for something you haven't selected yet, such as tile, plumbing fixtures, light fixtures, or countertops. If one contractor carries a $1,500 tile allowance and another carries $4,000, the first bid looks $2,500 cheaper. If you end up choosing the $4,000 tile, it isn't.

On a full kitchen or bathroom, the materials carried under allowances commonly represent 20 to 35 percent of project cost, so the gap can be large. The fix is simple. Make a list of every allowance in every bid, ask each contractor what their number buys, and then reset all of them to the same realistic figures before you compare totals. Also check whether markup sits inside the allowance or on top of it, since that changes how much of the number actually reaches the product. Our guide to how allowances work in a remodel budget walks through how to test them. In our experience, the spread between bids often shrinks dramatically once the allowances match.

Read the exclusions as closely as the inclusions

An honest bid states what it does not cover. Permit fees, engineering, appliance installation, asbestos or lead testing in older homes, landscaping repair after an exterior job, and final cleaning are common exclusions. None of them is wrong to exclude, but each one is a cost you will pay to someone. Add each excluded item to the bids that leave it out, using a reasonable estimate, and compare again.

Pay special attention to a bid with no exclusions section at all. That usually doesn't mean everything is included. It means the boundaries haven't been drawn yet, and they will be drawn later, when you have less leverage.

Compare how each contractor handles changes and money

Two bids with the same total can produce very different final costs because of how changes are priced. Every remodel of any size produces some change orders, from concealed conditions in the walls, from your own decisions, or from inspection requirements. A bid that states a change-order markup, typically 10 to 20 percent over direct cost, and requires a signed, priced change order before extra work starts is giving you a known rate. A bid that is silent on changes is leaving the rate open. Our explanation of how change orders actually work on a remodel covers what should and shouldn't trigger one.

Payment structure is the other half. A deposit of 10 to 20 percent, draws tied to visible milestones, and a final holdback of 5 to 10 percent until the punch list is finished is a standard, balanced structure. A bid that asks for half the money up front, or bills every two weeks regardless of progress, is asking you to carry more risk, even if the total is lower. Our breakdown of how contractors bill through draw schedules explains what a fair schedule looks like.

Compare schedules and who does the work

Price is not the only thing that varies. Ask each contractor for a start date, an expected duration, and the items that drive the schedule, such as permit review, cabinet lead times, or window orders. A bid with a much shorter duration than the others is either better organized or less complete, and it's worth finding out which. Often the short schedule leaves out permit review or material lead times entirely.

Ask who will actually be on site. Some contractors run their own crews for most trades. Others subcontract nearly everything. Neither is automatically better, but it affects how tightly the schedule holds and who you call when something goes wrong. Ask who manages the project day to day and how often that person is on site.

Check insurance, licensing, and permits

Every bid should come from a contractor who carries general liability insurance and, if they have employees, workers' compensation. Ask for current certificates, not a promise to send them later. In the Denver metro, contractor licensing is handled city by city, so confirm the contractor is licensed in your jurisdiction and will pull the permits under their own name. A bid that is cheaper because it skips permits, or because the contractor suggests you pull them yourself, has moved risk from the contractor to you. That risk tends to show up later, during an insurance claim or when you sell the house.

Why the low bid often isn't the low price

Three things usually produce a bid far below the rest. The contractor left things out of scope. The contractor set allowances low and plans to recover the difference through upgrades. Or the contractor plans to make up margin on change orders. Sometimes it is simply a mistake in the estimate, and a contractor who discovers they underbid has every incentive to cut corners or slow down to protect their own finances.

A simple example shows how this plays out. Say three bids on a kitchen come in at $58,000, $71,000, and $84,000. The low bid carries $9,000 in allowances where the others carry about $16,000, excludes the permit, and doesn't mention the panel upgrade the new appliances need. Bring those items up to the same standard and the low bid lands in the mid-$60,000s before a single change order. Add a few change orders at an unstated markup, and it can finish above the middle bid. The figures here are illustrative, but the pattern is one we see constantly. Our list of contractor red flags Denver homeowners should watch for covers the warning signs that tend to come with that kind of bid.

None of this means the highest bid is the right one. A high bid can be padded, or it can include work you didn't ask for. The goal is not to pick the high bid or the low bid. It is to adjust all of them until they describe the same project, then decide.

Putting the bids side by side

The practical method is a simple spreadsheet. List every scope item down the side and each contractor across the top. Mark what each bid includes, what it excludes, and what it doesn't mention. Add rows for every allowance with both the bid figure and your realistic figure. Add rows for permits, change-order markup, deposit, holdback, start date, duration, and insurance. Then adjust each total for the gaps. The adjusted totals are the ones you compare.

Send each contractor the questions the sheet raises. How they answer is useful information in itself. A contractor who responds quickly and specifically, in writing, is showing you how they will communicate once the project starts. One who gets vague or defensive about what is included is showing you that too.

What this means for your decision

Comparing contractor bids well takes an evening or two of careful reading, and it is some of the most valuable time you will spend on a remodel. Give everyone the same scope, normalize the allowances, price the exclusions, compare the change-order and payment terms, and check insurance and permits. Once the bids describe the same project, the real spread is usually much smaller than it first looked, and the decision often comes down to which contractor you trust to run the job.

That last part matters more than the number. A well-run project at a fair price almost always costs less in the end than a poorly run project that looked cheap at signing. If you would like a bid that is written to be compared, with a clear scope, realistic allowances, and stated exclusions, our general contracting team in the Denver metro prices every project that way.