The Core Rule
Never compare bid totals until you compare bid scope.
A $280,000 bid that excludes permits, site work, and utility connections is not cheaper than a $320,000 bid that includes everything. Once you add the missing items, the "cheaper" bid may cost $30,000–$60,000 more. Scope comes first. Price comes second.
8-Step Process for Comparing Contractor Bids
Follow every step in order. Skipping any step risks making a decision based on incomplete information.
One bid gives you a price. Two bids give you a comparison. Three bids give you a market. With three bids, you can see the range, identify outliers, and have enough data to negotiate. More than five becomes diminishing returns for most projects.
The most common mistake when comparing bids is comparing total prices without comparing what is included. A $280,000 bid that excludes permits, site work, and utility connections may cost more than a $320,000 bid that includes everything. You cannot compare prices until you compare scope.
Once you have identified what each bid excludes, add those missing items back at realistic market rates. Site work excluded? Add your site work quote. Permits excluded? Add your permit estimate. Now you have a true apples-to-apples comparison.
Allowances are budget placeholders for items not yet selected — cabinets, countertops, flooring, fixtures, appliances. Contractors often set allowances low to make their bid look competitive. When you select real products, you upgrade past the allowance and pay the difference.
General contractor markup typically runs 15–25% over subcontractor costs. A markup below 10% is a red flag — the contractor may be underpricing to win the job and will use change orders to recover margin. A markup above 30% warrants a conversation.
A contractor who wants 30–40% upfront is a risk. Standard draw schedules tie payments to construction milestones — foundation complete, framing complete, dry-in, drywall, final completion. This protects you if work stops or quality issues arise.
Price is not the only variable. A lower bid from an unlicensed contractor with no insurance is not a better bid — it is a liability. Verify license numbers through your state's contractor licensing board. Require certificates of insurance for general liability and workers' comp.
Change orders happen on every build. The question is not whether you'll have them — it's how they're handled. Get the change order process in writing before you sign. Understand the markup on change orders (often 15–25%) and who has to approve them.
8 Red Flags in Contractor Bids
Walk away or ask hard questions if you see any of these.
Risk of contractor disappearing or running out of money
Everything not in writing becomes a dispute
You are liable for job site accidents and unlicensed work
Legitimate contractors do not need to rush you
May be missing scope, planning change orders, or underqualified
Cannot verify quality, reliability, or communication
Will almost always be upgraded at your expense
No accountability for completion date
Get an Independent Estimate Before Any Contractor Conversation
The most powerful position you can be in when reviewing contractor bids is already knowing what the project should cost. An independent cost estimate gives you that baseline.
When a bid comes in 20% above estimate, you know to ask why. When allowances are set too low, you can spot it. When scope is missing, you can add it back at realistic rates. Without a baseline, you are evaluating bids in the dark.
Get your baseline estimate
A location-adjusted cost estimate before your first contractor meeting. Know what fair looks like.
Get My Cost Report →Frequently Asked Questions
How do I compare contractor bids fairly?
The only way to compare bids fairly is to normalize scope. List every cost category, identify what each bid includes and excludes, add missing items at market rates, and scrutinize every allowance. Only then compare total prices. Never compare bid totals without first comparing what is included.
Why is one contractor bid so much lower than the others?
A significantly low bid usually means one of three things: the contractor is missing scope items, planning to recoup margin through change orders, or is underqualified and will have difficulty completing the project. Always ask what is excluded. A low bid with hidden exclusions often costs more in the end.
How many contractor bids should I get for building a house?
Get at least 3 bids, ideally from 3–5 licensed general contractors. Give all of them the same plans and specifications so bids are based on the same scope. One bid gives you nothing to compare. Two gives you a choice. Three gives you a market.
What is a fair contractor markup for building a house?
General contractor overhead and profit typically runs 15–25% over subcontractor costs. A markup below 10% is a red flag. A markup above 30% should be questioned. Ask for the markup percentage in writing before signing.
Should I get an independent cost estimate before comparing bids?
Yes. An independent cost estimate gives you a baseline before any contractor conversation. When you receive bids, you can compare them against the estimate to identify missing items, low allowances, or unusual markups. It is the most effective tool for evaluating contractor bids.
Kerem is a construction cost analyst and architectural graduate with a degree from the Illinois Institute of Technology. He has spent over a decade analyzing residential and commercial build costs across all 50 U.S. states, and leads the cost methodology team at Equin Global LLC — the company behind CostToBuildHouse.com.
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