What Happens If a Contractor Goes Over Budget?

It happens more than homeowners think. The contractor starts the work. Then partway through, they come back asking for more money. All of a sudden your $40,000 kitchen is creeping toward $55,000.

Before that happens to you, it helps to know your rights. It helps to know how this is supposed to work.

The Change Order Process

Any change to the work should be written down before the extra work starts. That goes for a change you ask for. It also goes for something the crew finds once they open up a wall.

The written note is called a change order. A good one says three things. What the extra work is. What it will cost. And it has both names signed at the bottom.

Never let a contractor do extra work on a handshake. If there is a fight about it later, a spoken deal is almost impossible to prove.

Common Reasons Projects Go Over Budget

• Hidden problems. Rot, mold, or something wrong with the bones of the house, found once the walls are open.
• The job quietly growing. Little add-ons that pile up over time.
• Changes you ask for after the contract is signed.
• Material prices going up. That can be real, but it should still be written down.
• Placeholder budget amounts that were set too low in the first bid.

Your Rights as a California Homeowner

Under California law, a contractor cannot ask for more money than the contract says without a signed change order.

Say you have a contract with one set price. That is a fixed-price contract. If the contractor runs into a surprise, they usually have to eat that cost. The one exception is if the contract spells out ahead of time how that kind of surprise gets handled.

How to Protect Yourself Before the Project Starts

• Make sure your contract spells out the work in plain, clear words.
• Ask how the contractor handles surprises before you sign.
• Set aside a cushion of extra money for surprises. About 10 to 15% is a good rule.
• Never pay ahead of the work that is done. Pay ahead and you give up your leverage.
• Have a working super read your first bid so the placeholder budget amounts are real from day one.

The best protection against going over budget is a clear contract and a real first bid. A working super's read before you sign can catch a low placeholder amount before it turns into an expensive surprise.