How to Compare Contractor Bids (Most Homeowners Do This Wrong)

You've collected three bids: $42,000, $57,000, and $68,000. The obvious move feels like picking the lowest. But in renovation, the cheapest bid is almost always the riskiest. Experienced homeowners know that the gap between bids usually reflects differences in scope, materials, and whether the contractor actually read your plans.

Step 1: Are the Scopes Actually the Same?

Before comparing prices, confirm that each bid covers the same work. Get all three bids on paper, then go line by line. Did all three contractors include demo? Who is responsible for permits? Does the plumber's bid include fixtures, or just rough-in? An apples-to-apples comparison is impossible if you haven't verified the scope is identical.

Step 2: Verify License and Insurance

In Michigan, contractors performing work over $600 must be licensed by the Michigan Department of Licensing and Regulatory Affairs (LARA). Verify their license at michigan.gov/lara. Also request a current Certificate of Insurance showing both general liability and workers' compensation. An unlicensed or uninsured contractor is your liability if something goes wrong.

Step 3: Evaluate the Payment Schedule

A fair payment schedule is milestone-based: you pay as defined phases of work are completed and verified. A contractor asking for 50% or more upfront is a red flag. The industry standard is roughly 10 to 15% mobilization, then milestone draws at 25%, 50%, 75%, and a final 10% at completion after punch list sign-off.

Step 4: Check References Specifically

Don't just ask "can I have references?" Ask for references from projects of the same type and scope as yours, completed in the last 12 months. Then actually call them and ask: Was the project completed on budget? On time? How did they handle problems? Would you hire them again without hesitation?

Step 5: The Price Difference Question

Once you've verified scope, license, and references, ask each contractor to justify their price. A quality contractor should be able to explain every line item. If the $42,000 bidder can't explain why they're $15,000 below their competition, that gap is going to show up somewhere during the project — usually as change orders.