Why Your Renovation Quote Seems High: Understanding Fixed‑Price vs Cost‑Plus Contracts
“Wait—my contractor just sent me a cost‑plus agreement. What does that mean?”
If you’ve ever stared at a renovation contract and felt that knot in your stomach because you don’t fully understand what you’re signing, you’re not alone.
We regularly hear from homeowners who’ve experienced this: A kitchen renovation with another contractor that ballooned from $52,000 to $97,000. They signed a cost‑plus agreement without fully understanding it. Every unexpected issue, small design change, and extra hour of labour went straight onto their bill. By the time they realized, it was too late to back out.
Most homeowners don’t even know they’re making a choice about contract types. But this decision—fixed‑price vs cost‑plus—might be the most important financial choice you make in your entire renovation.
What is a Fixed‑Price Agreement?
One total price agreed before work begins.
A fixed‑price (lump‑sum) contract sets scope, timeline, and total cost up front. The contractor is accountable for delivering within those terms.
In simple terms: If we quote you $60,000 for your kitchen renovation, you pay $60,000. Period.
- Certainty: no guessing, no surprise invoices—easier budgeting and financing.
- Risk shifts to contractor: spikes, delays, misestimates are absorbed by us.
- Deep planning upfront: clear expectations prevent scope creep.
How protection works in practice: On a $68,000 kitchen, we discovered an electrical panel upgrade ($4,200) after starting. The homeowner still paid $68,000; we absorbed $4,200.
FIXED‑PRICE PROTECTION
Material prices spike? → Contractor absorbs it
Job takes longer than planned? → Contractor absorbs it
Electrical issues discovered? → Contractor absorbs it
Want to change scope? → Clear change order process; your approval required
What is a Cost‑Plus Agreement?
What Cost‑Plus Actually Costs
Example: $50,000 in costs + 15% = $57,500. If costs run to $65,000, 15% = $9,750, total $74,750.
- Pro: flexibility to evolve the scope mid‑project.
- Pro: detailed, itemized invoices.
- Con: risk and overruns are yours; the contractor fee rises when the project runs over.
Reality: Many cost‑plus projects finish 20–50% over the initial estimate. Invoices keep arriving—and growing.
The Real Cost of ‘Flexibility’: A Cautionary Tale
| Different backsplash after prep | +$3,200 |
| Move outlet mid‑construction | +$850 |
| Electrical panel ‘discovered’ | +$4,800 |
| Extend island 8 inches | +$2,400 |
| Labour overruns (crew juggling jobs) | +$12,000 |
| Contractor fee on overages (15%) | +$6,750 |
This isn’t about dishonest contractors—it’s a contract structure that shifts risk to the homeowner and misaligns incentives.
“I felt like I couldn’t say no. We were already torn apart, living without a kitchen. What were we supposed to do—stop mid‑project? We felt trapped.”
Same Kitchen, Two Contract Types: What Actually Happens
| Factor | Fixed‑Price ($60K) | Cost‑Plus (Est. $60K) |
|---|---|---|
| Initial quote | $60,000 total | $52,000 costs + 15% = $59,800 |
| Planning phase | 6–8 wks (comprehensive design, selections, permits) | 2–3 wks ("we'll figure it out") |
| Electrical surprise | Old panel upgrade ($4,800) — Contractor absorbs it | Old panel upgrade — You pay $4,800 + $720 fee |
| Change of tile | Would require change order (your approval first) | Added mid‑project — You pay $2,200 + $330 fee |
| Plumbing discovery | Hidden issues ($1,400) — Contractor absorbs it | Hidden issues — You pay $1,400 + $210 fee |
| Labour overruns | Contractor's problem to manage | Runs over estimate — You pay $6,000 + $900 fee |
| Final cost | $60,000 | $73,360 |
| Surprise costs | $0 | $13,360 (22% over estimate) |
| Timeline | ~8 weeks (motivated to finish) | ~11 weeks (less urgency) |
| Stress level | ⭐⭐ Low — you know what you're paying | ⭐⭐⭐⭐⭐ High — weekly invoice anxiety |
These numbers reflect scenarios we commonly see across the industry: cost‑plus projects frequently exceed initial estimates by 20–50%.
Which Contract Type Is Right For Your Project?
Red Flags: Avoid Cost‑Plus If
No detailed estimate upfront
No maximum cap on costs
You have a strict budget
Markup not clearly explained
Straightforward project with defined scope
‘We’ll figure it out as we go’ appears anywhere
No 30% contingency beyond estimate
Scope is clearly defined
Budget certainty is top priority
You want to avoid surprises
Post‑1990 home with fewer unknowns
Standard kitchen / bath / basement
You prefer decisions upfront
You’re financing the project
Pre‑1970 home with many unknowns
You want significant mid‑project flexibility
You can review detailed invoices
30%+ contingency budget
Comfortable with financial unpredictability
Weekly reports with transparent markup
For most standard renovations, fixed‑price is the only sane choice.
Red‑Flag Questions: How Contractors Answer Tells You Everything
- Show 3 similar projects with estimate vs final cost.
- What % of your projects require change orders?
- On cost‑plus, what’s the largest overrun and why?
- Can I speak to a client from the last 3 months?
- What happens if we discover hidden issues like water damage?
- What’s the warranty and dispute resolution process?
- Good: specific, recent, honest variance. Red flag: vague or defensive.
- Good: 15–20% for clear reasons. Red flag: “None” or “Almost all.”
- Good: candid overrun + lesson learned. Red flag: won’t commit to numbers.
- Good: 2–3 fresh references. Red flag: only old projects.
- Good: stop, document, fixed change order, pre‑approve. Red flag: “We’ll deal with it later.”
Before You Sign Anything With Any Contractor
YOUR PRE‑SIGNING ACTION CHECKLIST
Ask all the red‑flag questions
Review the contract with someone you trust
Verify insurance and WCB coverage
Understand the payment schedule
Trust your gut—walk away if something feels off
Get everything in writing (verbal promises ≠ contract)
Call 3 recent client references (last 6 months)
Check portfolio for similar projects
Know the change‑order process
Feeling Overwhelmed? Work With Us
We only offer fixed‑price contracts—and we do the planning most contractors skip.
Why Grindstone Only Works With Fixed‑Price Contracts
We believe the risk should be on us, not you. Cost‑plus creates conflicts of interest we won’t accept. We plan exhaustively so your price is clear and stable.
How We Make Fixed‑Pricing Work: Our Six‑Phase Process
We invest 8–12 weeks in planning before the first hammer swings. By the time you get a fixed‑price proposal, the detective work is done.
- Phase 1: Discovery (Weeks 1–2)
- Phase 2: Concept Design (Weeks 3–5)
- Phase 3: Design Finalization (Weeks 6–10)
- Phase 4: Approval & Pre‑Construction (Weeks 11–12)
Change orders occur in fewer than 15% of our projects, and when they do, you approve a fixed price before work proceeds.
Financing Your Renovation
| Financing Option | Interest Rate (approx.) | Best For |
|---|---|---|
| Home Equity Line of Credit (HELOC) | 5–7% | Flexible borrowing, requires equity |
| Cash‑Out Refinance | Current mortgage rates | Larger amounts, lock in lower rate |
| Personal Line of Credit | 8–12% | No home equity, quick approval |
| Renovation Mortgage | Lowest rates | Built into purchase / refinance |
HELOC (7%): ~$350/mo interest‑only
Personal LOC (10%): ~$500/mo interest‑only
Cash‑out refinance (5.5%): added to mortgage payment
Credit cards (19%): ~$950/mo interest — not recommended