There are different types of change orders, some due to unforeseen circumstances and others due to owner requested changes or upgrades.
Unforeseen circumstances can be something found hidden in a wall or underground, or an unexpected city requirement or fee.
In any of these cases, it is our policy to work with clients, because nobody likes surprises like that. That can mean reduced or no profit for us, and sometimes even splitting the cost.
For owner requested changes like adding more square footage or upgrading finishes, we always price them out before completing work and give our clients choices. The profit margin we use is consistent with our original contract.
Protect Yourself from Greedy Profit Margins
It is common for home improvement contractors to escalate their profit margins on change orders, sometimes doubling the cost. In my opinion, it is taking advantage of a client when they really may not have a choice.
I suggest asking the firms you are considering up front how they handle changes. This quote from a contractor in Maryland is what you should watch out for:
“Change orders are as much a part of our business as anything else we do… Mark-up needs to be much higher… Change orders can be a great way to increase profits!”
As a long-time professional design-build firm that is known for accurate up-front pricing, being greedy with profit margins on additional work is behavior we do not practice.
When I consult with homeowners, I advise them to push back if a contractor comes forward with change orders after the fact. Contract law states that it is illegal to complete additional work without a signed change order. That should be enough leverage to use against a contractor who treats you unfairly.
A healthy relationship with your home improvement professional means a little give and take. If you are reasonable, added value is likely to come your way.