To bring this into the light of scrutiny without over-dramatizing it, we must first understand the general business model. We sell an item or service and anything that exceeds our expenses is called a “profit.”
The profit or loss margin for a tangible item is much easier to calculate than for a service performed. We all know that if we go to a store and a bottle of soda costs us three dollars, we get ripped off. However, if we receive an offer 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 constantly overcharge owners for work performed. In fact, they are setting new standards for labor costs simply by being dishonest. As consumers, we pay a certain amount for things, but if the price of a product rises sharply, we notice and complain. If that product is held 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 undefined area, so entrepreneurs only charge according to how much 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 don’t pay attention to rising labor costs which is ridiculous. They only see a monthly payment amount that they can or cannot afford comfortably.
So in response to the question, “Are contractors criminals?” The answer is absolute. 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 contractors don’t overcharge us 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 contractors and hiring subcontractors to do the job. I have never seen this work successfully in all my years of home building.
The problem is, if the owner is not well versed in costing contractors’ work, subcontractors are likely to take advantage of him or her. Underwriters will steal the owner’s equity by over-bidding on labor costs and typically materials as well.
Once homes are finished, homeowners who do all the general hiring themselves are often disappointed with the results in terms of money saved on labor costs. In the best case I’ve seen, the owner has saved up to twenty percent, but that’s rare. At worst, I’ve 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 great deal of time to be a general contractor and if you’ve done a lot of work without a payoff, the whole event will be a huge negative in your life.
I have recently seen several over budget projects from homeowners who have bought a book or certain house plans who have made ridiculous claims to save construction costs by doing all of their own overhead hires. Books raise false hopes. The authors of these books are typically one-time home builders who have a list of dos and don’ts.
The problem is, 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 owners who lack experience are going to 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 the plan, but the time and money wasted by gullible owners.
This is why I think DIY home builders should literally do it themselves. If they are doing all their own work, they will not be scammed. The price of the materials will be the only numbers you will have to worry about.
However, building a home on your own is definitely not for everyone. I truly believe that we as humans are self-defeating and underestimating ourselves. We can do almost 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 begin to break down limits and limitations in our lives, the momentum continues and helps us to be successful in other aspects of life.