I get it, prices for repairs and remodels are sky-high right now. And it seems that contractors know it and are just gouging people for money. So you figure that this small project can be done less expensively by using an unlicensed “Handyman.” After all, all you want to do is add a few recessed lights, maybe hang a ceiling fan and get the walls painted. That quote from the licensed contractor for $3,000.00 was insane!
Well, be forewarned, that in the State of California, an unlicensed contractor (Handyman, for which there is no official license) can not charge you more than $500.00 for any single project, and that includes the cost of materials (even if you purchase them first). Not only that, but because electrical and plumbing have very specific licensing requirements, the unlicensed contractor is not supposed to do either of those trades at all. There are many things that are done by unlicensed contractors and “Handymen” that may save you money upfront, but if anything goes wrong those savings can be eroded very quickly, and can even cost you more money in rectifying the situation.
We all want to get a good deal and feel like we are getting the best bang for our buck when we make an investment in one, if not THE, biggest asset we have, our home. We all want things to work properly, and when they don’t we want them fixed, fixed quickly, and fixed at a “reasonable” price.
Ah, there is that word, “reasonable”. What is reasonable for one person is complete lunacy for another. Reasonable seems to be the line between getting a good deal and being swindled by a greedy contractor. Right?
Well, what is reasonable? You should expect that a reasonable contractor will be trustworthy, say what they mean and mean what they say. They should arrive on time, and be courteous to you, your family, and your pets. They should protect the work area when they are working in or around your home. They should leave the job area clean when they leave. They should do the work correctly and with the minimum disruption to your daily life, and if there will be a major disruption they should tell you about it before it’s going to occur, not after. They should perform the job within the limits of the law and follow all the local laws for building and repairs. They should be responsive and follow through on correcting any potential issues that arise after the project is completed. That is reasonable yes?
What is a reasonable rate for a contractor to charge? This is a difficult question to answer because there is no industry standard for this. No, the old 10% markup and 10% profit are not an industry-standard recognized by any of the construction industry associations or even any of the regulatory agencies that oversee the trades. Besides, how does a 10% markup and 10% profit compare to any other industry? Well, let’s look at the Retail industry. Those jeans you purchased at the local retail store were most likely marked up 200%. So if the jeans cost you $40.00, they cost the store $20.00. But that doesn’t leave any room for profit. So most likely those jeans actually cost the store around $5. A 200% mark-up would put the jeans at $10.00 but they sold them to you for $40, so they made $30 in profit for those jeans. That is a 300% profit!
Let’s go back to the licensed contractor, they will need to not only cover the cost of your project, but they also will have the overhead that is unrelated to your specific job but that is related to their business. Just like every other business has. Wouldn’t you say that contractors deserve to be able to charge their customers to cover these costs like any other business out there? So those costs get added up and put into the formula to be part of the markup, they also need to be able to make a profit, so that they can stay in business and continue to grow their business so that the next time you need their services, they be able to have a phone on which to answer your call.
So at the end of the day, the contractor needs to cover both the cost of the project (labor and materials, permits, insurance, vehicles, tools, etc) and the indirect costs (office phone, computer, cell phone(s), advertising, business insurance, state fees, local business fees, licensing, etc). And it only makes sense that these costs get distributed over the multiple jobs they have throughout the year.
Now, why is it important that with all of these additional costs, that even an unlicensed contractor still has, just maybe not the insurance, bond, state fees, and probably not even the business license fees; is important and can potentially save you money by hiring a licensed contractor? Well for starters, using a licensed contractor gives you the consumer better recourse should something go wrong. Something like an electrical fire that is caused by poor workmanship or not following codes. If an unlicensed contractor does a job, and it is not permitted nor done to code, and your house is lost in a fire, while that contractor can be arrested and fined, and even compelled by a court to pay for damages, the chances of you seeing those payments is very slim. Whereas a licensed contractor needs to carry both insurance and be bonded. A licensed contractor is required by law to pull permits for every job that requires them, and depending on the local building department, that number can vary greatly as do the fees associated with those permits. If a project is completed without the proper permits, and something goes wrong, such as a fire, the contractor is at fault. The contractor will need to use their insurance, or pay out of pocket for the damages, and they will be facing serious charges and penalties from the local and state agencies overseeing the jurisdiction the incident happened in.
Not only could you be left with little to no recourse if you use unlicensed contractors who do un-permitted work, but you could also be left with an insurance claim that gets denied. This can turn a horrible situation into a devastating situation.
Having a home repair or even a minor remodel, let alone a large remodel or renovation thus becomes a buyer beware situation when you compare using unlicensed versus licensed contractors. Now, let’s be perfectly clear, just because you hire a licensed contractor, doesn’t mean that they are an automatic great craftsman. What a licensed contractor has done is simply shown, in the case of the State of California, to have the minimum competency to understand the laws of the state and the state’s recommended business practices. The State exam does not test at length code requirements or even building practices. Again, it only tests for the minimum competency of the applicant. The State does require that all applicants have a minimum of four years consecutively working in the trade or classification that they are applying to get licensed in. It is assumed that this is where they will learn how to do the craft and learn about codes.
I tell you this because I want to emphasize how important it is to get to know the contractor you are about to hire. It is important not only to find out about the contractor’s process for doing a job but also it is important to understand that a contractor who gives you a low price, may not bring a lot of value to your overall project. In fact, they could end up cutting corners so they can still make some money on the job. Find out what sort of expertise the contractor has. Can they, for example, help you with the design process that will be required for any permits needed? If not, do they have professionals that they work with who can help you with that? Do they know where to go to pull permits? Do they talk about permits when discussing the project? What other processes might be important to you? What kind of reputation do they have? Are they local? This can be a big motivator for a contractor to do good if not exceptional work because if they have to look their neighbors in the eye every day most people would like to see a smile instead of a scowl.
What about dust? Construction is by its very nature a dirty job. Dust inside and outside is bound to happen. How important is dust mitigation to you and your family? Have you ever had a contractor/handyman come inside your home and do a job like a drywall repair? Did they do anything to mitigate the dust caused by cutting out the hole, cutting the new drywall, and sanding the patch? How did that make you feel as the person who lived in that space?
What about the protection of surfaces? Is that important to you? What types of communication do you prefer? Do they offer the one that is best for you?
There are many things that go into the cost of a construction project, whether it is a small minor repair or a full-scale building project, using an unlicensed contractor comes with some very high risks. You can mitigate or eliminate those risks by hiring the right licensed contractor for the job. A good contractor will ask you questions about what you want to be done. What do you want to see at the end of the project? They will ask you questions about past experiences, all things that at the surface may not seem to have anything to do with your project specifically, but the responses you give will shape the experience of the project. So, can you save a few bucks by using that unlicensed contractor you found on Nextdoor or Facebook. Maybe. Although you might find yourself losing a lot more than what that licensed contractor quoted you if something goes wrong. A tear-out and redo is an expensive process, but even that could be better than the worse things that have happened by using unlicensed contractors or even licensed contractors who lowball bids to get jobs and then cut corners to not lose their shirts in the process.