Not long ago, we moved into a beautiful house with a dark and dingy basement with concrete floors, no lighting, and bare walls. We wanted to use the space for storage and recreation, so we approached a contractor, explaining that we didn't want anything particularly fancy or expensive. We agreed that the necessary work included new wooden flooring, painting, and running electrical wires to install a ceiling light. We looked at a few material samples, and I directed him to use the least expensive options.
We discussed the price and he assured me that it would “be around $5,000, all in, payable when it's done.” This was at the top of my price range, so I accepted his offer. The job was completed, and he did a great job. The basement is beautiful. However, there were more ceiling lights than we asked for, and more expensive wood floors than we discussed. Yesterday, I got an invoice in the mail for $8,000. Do I have to pay him this much?
It isn't uncommon for contractors to give an “estimate” of how much they anticipate the work will cost. An estimate should be the contractor's best professional assessment, including the cost of hiring any subcontractors, the price of materials, and any other labor involved.
Getting an estimate from a contractor is different from getting a quote. A quote is an offer to enter into a contract. It should be the exact amount that a particular task will cost, without much “wiggle room.” Ideally, both quotes and estimates should be put into writing, although some contractors will intentionally avoid doing so.
You refer to “accepting his offer” as if you thought you were accepting a definite contract for a sum certain. Unfortunately, by your description, you did not receive a precise quote, only an estimate. Thus, you cannot really hold the contractor to the $5,000 initially suggested. Moreover, it sounds as if your contractor did not put anything on paper, so even proving that the estimate amount was $5,000 could become your word against his.
None of the above necessarily means that you should write your contractor an $8,000 check. Estimates, generally, must be professionally reasonable. A 10-20% overage might be considered reasonable, especially if the contractor discovered issues along the way that he couldn't have been aware of initially (for example, mold or flooding). Thus a price tag of $6,000, or even a little more, wouldn't be out of line.
A contractor who does discover problems in the course of work would normally notify the homeowner and explain the possible budgetary ramifications. A change order, explaining the costs and changes involved, should be agreed upon. Here, it sounds like your contractor never notified you of any such issues; indeed, it sounds like even in the invoice, he hasn't explained the dramatic price difference. There was no formal change order. Moreover, the contractor spent money on nicer flooring and lighting than what you discussed. A contractor cannot, of course, intentionally increase the quality of materials beyond what you requested.
What should you do in this circumstance? If possible, begin with a non-hostile phone conversation. Ask the contractor to explain why the price rose so dramatically from the initial estimate. He will likely say something about unexpectedly high expensive labor and materials.
Request an itemized invoice, explaining that you do not feel comfortable remitting any payment until you can further examine this issue. This invoice should include a list of many suppliers, subcontractors, or workers on the project, and a listing of all materials purchased. For a relatively small job like your basement, this shouldn't be difficult to generate.
Once you receive that itemized invoice, you should examine it closely for areas where you believe your contractor spent more than was discussed; for example, the extra lighting and the fancier wood flooring.
Next, if appropriate, draft a brief letter, or hire an attorney to draft a brief letter, explaining why you feel that you should not have to pay for these materials and the associated labor. Explain that you made clear that you were looking for basic work, nothing ornate, and that this was clearly communicated from the outset. You might offer to pay $5,000 immediately, and see how your contractor responds.
He will likely object, and demand something closer to around $7,000. Your contractor might have subcontractors or suppliers who are pestering him for payment, so in this sense, you have leverage to withhold payment. Continue negotiating until you arrive at a fair number in the middle: probably something between $5,500 and $6,500.
Keep in mind, a home contractor might become frustrated and file a lien. A lien is essentially a cloud on title, filed with the county clerk, by a contractor who did work on a piece of property. This can be an impediment if you're looking to sell your home.
Your contractor could also file a lawsuit. This would allege that you breached your contract to pay for the fair and reasonable value of his goods and services. Should your contractor sue you for your nonpayment, you would certainly have defenses to the claims, given the lack of notice of the increased costs and intentional overspending. It is unlikely, however, that your contractor would sue you for this sum of money; the cost of the lawsuit alone would make it more advantageous for the contractor to attempt to negotiate with you and collect as much money as quickly as possible.