To bring this up to scrutiny without overly dramatizing it, we first need to understand the overall business model. We sell an item or a service and anything above our expenses is called a “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 are being ripped off. However, if we receive an offer from a contractor to replace a floor, for example, most of us have no idea what the fair price is.
Contractors rely on this ignorance and constantly overcharge homeowners for work performed. In 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 spikes in price, we notice and complain. If that product stays at a high price long enough, consumers gradually accept it and stop complaining.
This is true not only in the housing industry, but also in all industries. Think about how much we pay for insurance. An insurance agent has a profit margin that is entirely dependent on overcharging clients. As in all businesses, this is a very vague area, so business people only charge according to what people will pay. Many business owners believe that if a customer is willing to pay the price, then it is a fair price.
In our modern world of easy finance, consumers buy houses so quickly that they pay no attention to rising labor costs that it’s ridiculous. They only see a monthly payment amount that they can or cannot comfortably afford.
So, in answer to the question, “are contractors thieves?” The answer is absolutely. On average, most contractors overcharge their clients. But this is true in almost all aspects of the business world.
The way we can make sure we are not overcharged by contractors is by doing all the work ourselves. It is the best way to save more than half the cost of the house. I help people do this all the time.
There are many books and websites that claim that homeowners can save around forty percent on labor costs by being their own general contractor and hiring subcontractors to do the work. I have never seen this work successfully in all my years of building homes.
The problem is that if the owner is not well versed in the cost of the contractor’s work, he or she is likely to be taken advantage of by subcontractors. Subs will steal a homeowner’s equity by overbidding labor costs and usually materials as well.
Once the houses are finished, homeowners who do the entire overall contract themselves are often disappointed with the results in terms of money saved on labor costs. In the best cases I’ve seen, the owner has saved up to twenty percent, but that’s rare. In the worst cases, I have seen subs steal so much equity that the homeowner has to borrow more money to finish the house. That’s unfortunate because it takes a long time to be a general contractor and if he’s done a lot of unrewarded work, the whole event will be a huge negative in his life.
I’ve seen several projects over budget recently from homeowners who have bought a book or certain house plans that have made ridiculous claims to save construction costs by doing all their own general contracts. Books arouse false hopes. The authors of these books are usually one-time homebuilders who have a list of do’s and don’ts.
The problem is that if the authors of those books made costly mistakes as general contractors, their own plan didn’t work for them either. They always say, “Avoid costly mistakes,” but new homeowners who lack experience will make a lot of costly mistakes no matter what.
The real damage done in these cases is not the money wasted on the book or plan, but the time and money wasted by gullible owners.
That’s why I think do-it-yourself homebuilders need to literally do it themselves. If they’re doing all their own work, they won’t get ripped off. The price of materials will be the only numbers you have to worry about.
However, building a house yourself is definitely not for everyone. I truly believe that we as humans are self-defeating and underestimating ourselves. We can do anything we believe in, but therein lies the problem. Once we stop believing in ourselves, we find boundaries where they shouldn’t exist.
Building our own houses strengthens our self-esteem. Once we start to break down the limits and limitations in our lives, the momentum continues and helps us succeed in other aspects of life.
