Dealing with the Fear Tax When Contractors Overbid

TLDR
Contractors pad bids when a problem sounds scary. A “soggy bathroom floor” becomes a $5,000 line item when it shouldn’t be. Reframe the job in plain parts. Give them the chance to bid something different without you negotiating a number on a specific thing.

Table of Contents

Two Scenarios Where the Fear Tax Shows Up

A question came in about the fear tax. The person was asking whether to get the quote first on something like a soggy bathroom floor and then counter, or to break the job down before the quote comes in.

This job is going to come at you one of two ways. First, as you are walking the house with a contractor to build your scope of work before you buy. Second, as a change order while the project is already running. The right move is different for each.

Walking the House Up Front

When you are walking the house with the contractor before purchase, the soggy floor is pretty obvious. You are both standing there looking at it.

In that case, I would walk through and say something like: this bathroom has some issues with the floors. I would not say structural issues, because you are almost always selling the job. You want it to sound like less than it is, not more. The words “soggy bathroom floor” probably would not come out of my mouth.

Then I would naturally break it down with the contractor. Something like: we will probably have to peel off the floor that is there and maybe reinforce some of those joists. But really what I am doing is explaining that there is a problem I want resolved. Then I let them bring the plan to me.

I do that on purpose. I want to see if they are going to add the fear tax. If they try to pad the price there, they are going to do it in other places too. I like to always be testing.

Pro Tip
State the problem clearly, then stop talking. Let the contractor walk you through their proposed fix. Their first-pass description tells you whether they are going to try to scare you into a fat bid.

The Change Order Trap

The other scenario is the change order. This is really what I was talking about in the video. And this is where the fear tax gets applied hardest, because you are not on site.

Here is how it plays out. You get a call. “There is a soggy bathroom floor.” Those words alone make you think, oh no, that is going to be a lot. The contractor knows those words do the work. You hear them and you flinch.

The flinch is the fear tax.

Common Mistake
Taking the first change-order number on a scary-sounding problem. The number is not the cost of the fix. It is the cost of the fix plus however much fear they think you have.

Reframe Instead of Negotiate

When the change order comes in, go to the job site. Break it down yourself. Restate the issue in plain parts. Then give them the chance to bid something different.

You never want to be in a position where you are negotiating the price on a specific thing. I really try to avoid that when I can.

Here is why reframing as a separate job works. Say they came at $5,000 for “soggy bathroom floor.” You push back. Finally they say, okay, I guess I could do it for $2,000. Now it is pretty clear they were trying to screw you over on the $5,000 one. That is bad for the relationship. It breaks trust.

But if you break the same job down into parts, peel the floor, reinforce joists, lay new subfloor, it becomes almost like a different thing. Now they have the opportunity to give you a different price for a different job. Nobody had to admit the first number was inflated.

Reframing protects the relationship while still pulling the price down.

Keep Testing Every Bid

There is not a clean script for exactly how to handle every one of these conversations. It is really conversational. You are reading the contractor. You are reading the situation.

But the posture is the same every time. State the problem. Let them bring the plan. Watch how they price it. If it sounds padded, break the job into parts and let them re-bid the parts.

And if one contractor keeps testing high, they are telling you something about how they are going to run the rest of the project. Take that seriously. Ross has written more on the broader approach in 18 Rules for Managing Contractors.

Key Concept
You cannot prevent every fear tax attempt. You can test for it on every job and reframe your way past it when it shows up.

FAQ

How do I know if a bid has fear tax baked in?

Compare line items across contractors on the same scope. If one line item is way higher than the others and the contractor made the problem sound big when they described it, the fear tax is in there.

Should I always get multiple bids on change orders?

If the change order is big or sounds scary, yes. Even a second pair of eyes on the problem can shake a number loose. For small fixes, you probably just eat the small inefficiency and move on.

What if the contractor gets offended when I break the job down?

Then they were counting on you not doing it. A good contractor will walk you through the parts and explain the price. A contractor who gets defensive about scope is telling you something.

Can I do this by text or should it always be in person?

In person or on a video walk is best. For small change orders, a phone call works. Do not negotiate this stuff by text only. You miss too much.

I am just starting out. How do I even know what a fair number is?

Get three bids on the same scope. The middle one usually tells you where the market is. Over time you build a gut for what things should cost.