What Should I Do When a Contractor Demands More Money?

That sinking feeling hits you right in the gut. The project is underway, your home is a mess, and the contractor you trusted just told you they need more money. It’s a moment that can turn the dream of a renovation into a living nightmare.

You’re not alone. Many homeowners face this stressful situation, feeling trapped and unsure of their options. This guide will walk you through why this happens and exactly what to do about it.

Why Is My Contractor Asking For More Money?

Understanding the “why” is the first step to resolving the issue. A contractor’s request for more money isn’t always a sign of dishonesty. Sometimes, there are legitimate reasons behind the price increase.

However, it’s crucial to distinguish between valid requests and red flags. This knowledge is your first line of defense against being overcharged and ensures your project stays on track without unnecessary budget blowouts.

Legitimate Reasons for a Price Increase

In a perfect world, the initial quote would be the final price. But construction is complex, and unforeseen issues can arise. Here are some of the most common legitimate reasons a contractor might need to adjust the project’s cost.

One of the most frequent causes is unforeseen site conditions. These are problems hidden within the walls, under the floors, or beneath the ground that couldn’t be detected during the initial inspection. Examples include discovering rotten framing, outdated and dangerous wiring, or asbestos that requires professional remediation. These issues must be addressed for the safety and integrity of your home, which unfortunately adds to the cost.

Another common reason is a change order. This happens when you, the homeowner, decide to make a change to the original plan. You might decide to upgrade from laminate countertops to quartz, add a window where one wasn’t planned, or change the layout of a room. Any deviation from the original scope of work will likely impact the cost of materials and labor, requiring a formal change order and a price adjustment.

Finally, significant and unexpected material price increases can also be a valid reason. While contractors should account for some fluctuation, extreme market volatility can lead to sudden spikes in the cost of materials like lumber or steel. Some contracts include an “escalation clause” to handle such situations.

Red Flags and Illegitimate Reasons

While some price increases are justified, others are not. It’s important to be aware of the warning signs of a contractor who might be trying to take advantage of you. These situations can often escalate, turning a renovation project into one of those contractor horror stories you hear about.

A major red flag is a contractor who submits a deliberately low bid to win the job, only to invent reasons to increase the price later. This tactic, known as “low-balling,” relies on the homeowner being too invested in the project to back out once the costs start to rise. They often make up for their initial low price with numerous, often inflated, change orders.

Another warning sign is a lack of transparency. If your contractor is vague about the reasons for the price increase or refuses to provide detailed receipts for materials and labor, it’s a cause for concern. A reputable contractor should be able to justify every additional cost with clear documentation. If you’re facing this, it’s a good idea to demand an itemized invoice.

Finally, be wary of a contractor who claims the price increase is due to their own mistakes. For example, if they miscalculated the amount of material needed or made an error during construction that requires rework, you should not be expected to cover the cost of their mistake. A professional contractor takes responsibility for their errors.

Your Immediate Action Plan: What to Do First

When your contractor asks for more money, it’s easy to feel pressured and make a rash decision. However, the best thing you can do is to stay calm and take a structured approach. Here are the immediate steps you should take.

First, do not agree to anything verbally. All changes to the project, especially those involving cost, must be documented in writing. This protects both you and the contractor and prevents misunderstandings down the line. A verbal agreement is difficult to prove and can lead to disputes later.

Next, carefully review your contract. Your contract is the most important document in this situation. It should outline the original scope of work, the agreed-upon price, and the process for handling change orders and unforeseen issues. Look for clauses that discuss how price adjustments are handled.

Understanding Your Contract: Fixed-Price vs. Cost-Plus

The type of contract you signed will significantly impact how price increases are handled. The two most common types are fixed-price and cost-plus contracts.

A fixed-price contract (also known as a lump-sum contract) sets a single, total price for the entire project. In this type of agreement, the contractor assumes most of the financial risk. If the project costs more than anticipated due to their miscalculation, they absorb the loss. However, this type of contract is less flexible if you decide to make changes.

A cost-plus contract, on the other hand, pays the contractor for the actual costs of materials and labor, plus an agreed-upon fee for their profit and overhead. This type of contract offers more flexibility but less cost certainty for the homeowner. With a cost-plus contract, you have the right to see all receipts and invoices to ensure you’re only paying for legitimate project expenses.

A Step-by-Step Guide to Handling the Situation

Once you’ve taken a deep breath and reviewed your contract, it’s time to address the issue with your contractor directly. Follow these steps to navigate the conversation and find a resolution.

1. Request a Formal Change Order

Insist that the contractor provide a written change order for any additional costs. A proper change order is a formal document that amends the original contract. It should include a detailed description of the additional work or materials, a clear breakdown of the costs, and the impact on the project schedule.

Do not allow work to proceed on any changes until you have signed the change order. This document serves as legal proof of the agreed-upon changes and protects you from surprise charges on the final bill.

2. Ask for a Detailed Breakdown of Costs

Don’t accept a vague explanation for the price increase. Ask the contractor for a detailed, itemized list of the additional charges. For materials, request to see the supplier invoices. For labor, ask for the number of hours and the hourly rate.

This level of detail will help you determine if the charges are reasonable. You can even do some of your own research to check the market rates for the materials and labor in question. This is a critical step in preventing contractor overcharging.

3. Negotiate the Additional Costs

Just because your contractor asks for a certain amount doesn’t mean you have to agree to it. You have the right to negotiate. If you believe the charges are too high, present your research and make a counteroffer. A reasonable contractor will be willing to have a discussion and find a compromise.

Remember that your goal is to get the project completed to a high standard at a fair price. Approaching the negotiation with a calm and professional demeanor is more likely to lead to a positive outcome than an angry confrontation.

4. Document Everything

Throughout this process, keep a detailed record of all communication with your contractor. This includes emails, text messages, and notes from phone calls or in-person conversations. If you have a discussion, send a follow-up email summarizing what was said to create a written record.

This documentation is invaluable if a dispute arises that you can’t resolve amicably. It can be crucial evidence if you need to pursue mediation, file a complaint with a licensing board, or take legal action.

When Things Go Wrong: Your Rights and Recourse

Unfortunately, not all contractors are honest or reasonable. If you’ve followed the steps above and still can’t reach an agreement, or if you suspect you’re being scammed, you have several options for recourse. It’s frustrating when you’re also dealing with issues like a contractor who keeps delaying the start date, as these problems can often be linked.

Your first step should be to send a formal written notice to the contractor. In this letter, clearly state the issue, reference the relevant sections of your contract, and outline the resolution you’re seeking. This creates a formal paper trail and shows that you’ve made a good-faith effort to resolve the dispute.

If the contractor remains unresponsive or uncooperative, you can file a complaint with your state’s contractor licensing board. These boards have the authority to investigate complaints and can impose penalties on contractors who violate the law or engage in unprofessional conduct. This can include fines, license suspension, or even revocation.

Do I Need to Hire a Lawyer?

If the amount of money in dispute is significant, or if the contractor has breached the contract in a major way (such as abandoning the job), it may be time to consult with an attorney who specializes in construction law. A lawyer can review your contract and documentation, advise you on your legal options, and represent you in negotiations or in court.

While hiring a lawyer is an added expense, it can save you a substantial amount of money in the long run by protecting you from illegitimate charges and helping you recover damages if the contractor is at fault.

Reason for Price Increase	Is it Legitimate?	What You Should Do
Unforeseen Structural Damage	Often, yes.	Request a detailed change order with a cost breakdown. Get a second opinion if the cost seems excessive.
Homeowner-Requested Changes	Yes.	Ensure all changes are documented in a signed change order before work begins.
Sudden, Documented Material Price Spike	Potentially, if allowed in the contract.	Review your contract for a price escalation clause and ask for supplier invoices.
Contractor Miscalculated the Bid	No.	Politely but firmly refer the contractor to the signed contract price.
Fixing the Contractor’s Own Mistakes	No.	The contractor is responsible for the cost of their own errors. Do not agree to pay for rework.
Vague “Increased Costs” Without Proof	Highly suspicious.	Demand a detailed, itemized breakdown with receipts. Do not pay without documentation.

Prevention is the Best Medicine: How to Avoid This Situation in the Future

The best way to deal with a contractor asking for more money is to prevent it from happening in the first place. Proper planning and due diligence before you hire a contractor can save you a world of trouble. It can also help you avoid other common issues, such as wondering why contractors don’t show up.

Start by getting at least three detailed bids from different contractors. This will give you a good sense of the fair market price for your project. Be wary of any bid that is significantly lower than the others, as this could be a sign of a low-ball offer.

Before hiring a contractor, check their references thoroughly. Speak to their previous clients and ask specifically if the final project cost was close to the initial estimate and how any extra charges were handled. This simple step can provide invaluable insight into a contractor’s honesty and professionalism.

Finally, insist on a detailed and comprehensive contract. The contract should clearly define the scope of work, a payment schedule, the process for change orders, and how unforeseen circumstances will be handled. The more detail in the contract, the less room there is for disputes later.

Dealing with a contractor who wants more money is stressful, but it’s a manageable situation. By understanding the potential reasons, knowing your rights, and following a clear plan, you can protect your investment and ensure your project is completed to your satisfaction.