Change Orders: The $15K Surprise & How to Stop It

William Reid (: 00:00

Hey everybody, welcome back. I'm Bill Reid, your home building coach, and today we are tackling one of the documents that starts more arguments on a job site than anything else I've ever seen. The change order. Let me paint you a picture here. You're three weeks into your remodel, the framing's up, the plumber roughing is done, and your contractor hands you a piece of paper. Or worse, just tells you in passing that there's an extra $15,000.

For work that, as far as you knew, was already part of the deal. Your stomach drops. You start asking yourself, wait, didn't we already pay for that? Was that not included? And now you're in a conversation that feels less like building your dream home and more like a standoff. I have watched this exact moment break good relationships between good homeowners and good contractors. Not because anyone was a crook.

Because nobody set the rules at the start. Here's some perspective from the broader industry. Just so you know you're not imagining how common this is, roughly a third of all construction projects hit at least one major change during the job. And on the projects where the planning was rushed or the scope was fuzzy, those changes can pile up to anywhere from 10 to 30% on top of the original price.

On a four hundred thousand dollar bill, that's the difference between finishing your project and finishing somebody else's nightmare. But here's the good news, and it's the whole reason for this episode.

Almost none of that has to happen to you. Change orders themselves aren't the enemy. Surprise change orders are, and surprise is a planning failure, which means it's preventable. So here's what we're covering today: five segments. First, what a change order actually is, and the one distinction I make in my own business that most contracts don't: change order versus extra work order. And then second.

Where these things actually come from. And then the spoiler here, the number one cause is something that happened long before anybody picked up a hammer. And then third, how change orders work inside your contract, whether you're cost plus or fixed price, and how to know when the price on one is fair. And then fourth, the danger zone, where relationships break.

And the one iron rule that protects you and your contractor both. And then fifth, prevention.

to have fewer of these in the first place and how to handle the ones you can't avoid like a pro.

William Reid (: 02:29

Okay, let's start with the word itself because the word tells you everything. Change order. The key word is change. A change order means something that was already in your plans and specifications has been changed. It was there. Now it's different. You picked out a backsplash tile during the design process, and it's on the plans, it's in the specs. And then three weeks before the tile goes in, you fall in love with a different tile, different make, different model. It costs more.

That's a change order. The thing existed in the plans. You changed it. Or you decide the ceilings in the primary bedroom should be six inches higher than what's drawn. The ceiling was always in the plan. You're changing it. That's a change order. Now, here's where I do something a little differently than most in the industry. And I want you to understand why, because it'll make every one of these conversations clearer for the rest of your project. When something gets added.

That was never in the original plans or specs at all. I don't call that a change order. I call that an extra work order. You're halfway through the build, you decide you want a security system. It was never on the drawings, never specified, never priced. That's not a change to something. that's brand new work. That's an extra work order. Or you decide, while the crew's already on site, that you might as well remodel the bathroom too.

Since they're right there. Never in the original scope. Extra work order. Why do I split these two apart? One word, origin. A change order tells you the origin of the revision is something that was already on the table. An extra work order tells you the origin is something brand new you're bringing to the table. And the conversation is different for each. A change order is a swap. Take this out, put that in.

Here's the difference in cost. It's usually a fairly clean piece of math. An extra work order is an addition. Everything you already agreed to plus this new thing. And new things tend to drag along, new labor, sometimes a schedule hit, and sometimes coordination with trades who thought they were already done. You don't have to memorize legal definitions here. You just have to be able to ask one question.

When a number lands in front of you, is this a change to something we already agreed on? Or is this something new I'm adding? Because the answer tells you whether you're looking at a swap or an addition. And that tells you whether the price you're being quoted makes sense. A change order is what you decide to change. An extra work order is what was never there to begin with. Know which one you're holding, and you'll never have a confused money conversation again.

So that's what they are. Now the more important question, where do they come from in the first place? Because if you understand the source, you can shut off most of them before they ever reach you.

William Reid (: 05:19

Change orders and extra work orders come from a handful of places, but there is one source that towers really over all the rest. The number one culprit, in my experience, and in the broader industry both, a lack of information on the original plans and specifications. Here we go again. Episode 60 now, and probably 48 of them I've mentioned how thorough your plans and specifications are, the more successful the project is.

will be. And here we go. Change orders is the direct result of incomplete, incorrect information on the plans. That's it. That's the big one. Things that were never addressed, never discussed during design, or discussed but never written down. So here's how it shows up. You're standing in the half-built house and you say, Wait, where are the can lights in the hallway? And the contractor says

There were no candlelights on the plans. And you say the six words I have heard a thousand times in my career, but I assumed that was included. Assumed. That word has cost homeowners more money than almost anything else I can name. Because here's the hard truth. A contractor can only build what's on the page. They can't build what's in your head during a conversation eight months ago that nobody wrote down.

Now, I want to be really fair here because this cuts both ways. It's a two-way street, and I'm going to hold on to both sides of it here. Sometimes the information was on the plans and the contractor just missed it. They didn't read them carefully. They overlooked it when they priced the job. In that case, in theory, you should never even hear about it. The work should just get done and the contractor absorbs the oversight. That's on them.

And here's a quiet little proof you have in your back pocket. Think back to when you got prices from a few different contractors. Odds are at least one of those other builders read the same plans and caught the same thing. So if it was on the plan page, it was findable. It's fair to hold your contractor to what the plans actually said. But flip it around here. Maybe it was not on the plans because your designer never put it there.

The contractor never knew you wanted a heated tile floor in the master bathroom because nobody ever drew it or wrote it into the into the scope of work or specifications. In that case, asking the contractor to eat that cost isn't accountability. It's just frankly unfair. And they can't be responsible for a wish they never were were told about. So what's fair is fair. If it was on the plans, that's a contractor's responsibility. If it wasn't,

That's a new scope and it's fair they get paid for it. The plans settle the argument before the argument starts. So notice what's really going on here. Almost every one of these fights traces back to one thing: the quality of your plans and specifications. The more complete and detailed your plans are, the fewer of these surprises land on you. That's not my opinion. That's just how the math works.

In the broader industry, the projects that generate the most change orders are, every single time, the ones with rush design and fuzzy scope. We talked about this back in episode 53 when we covered the bid package and the importance of complete specifications. This is the bill that comes due if you skip that work. Cheaper sloppy plants don't save you money, they just move the cost downstream.

And dress it up as a change order and ultimately undermine your relationships with your design professionals, your builders, and maybe your spouse. All right, so you know what they are and you know where they come from. Now let's talk about how they actually work once you're in a contract, because how you handle them depends a lot on what kind of deal you sign.

How a change order gets handled depends on the cost type you agreed to. And we spent three full episodes on cost types recently in 56, 57, and episode 58. So I'll keep this tight and connect it back. If you're on a cost plus contract, the open checkbook arrangement where the contractor bills you for actual cost plus their fee, then change orders are.

Honestly, a looser process. Why? Because on pure cost plus, you're already paying for whatever it actually costs. A change just becomes part of the running tab. But, and this is a part that matters. If you did what I told you to do back in episode 57 and you put a budget and a not to exceed ceiling on your cost plus contract, then change orders suddenly become very formal and they should. Here's why.

That ceiling, your not to exceed number, was built on the scope you knew about at signing. A brand new addition was never part of that math. So when new work comes in, you want a documented order that says, in writing, this cost sits outside the original budget and outside the ceiling. That keeps your cap honest. Without that paper, new work quietly eats into your ceiling.

And the one protection you fought for stops protecting you. That's the connection to the not to exceed clause from episode 57. A change order is the mechanism that moves the cap, and it should only ever move with your signature on it, never automatically. Now, if you're in a fixed price contract, the locked number, contractor carries the risk arrangement we covered in episode 58.

Then the rule is even simpler and even stricter. A fixed price contract requires a documented, written work order that both of you approve before any of the new work begins. No exceptions here. The whole point of fixed price is that that number is the number. The only way that number legitimately moves is through a signed order. So if a contractor on a fixed price job ever tells you the price went up,

can't hand you a signed change order, that's a big red flag.

Now let me answer the question I know is sitting in the back of your mind right now. How do I know if the price on a change order is even fair? And here's the simplest way to think about it. And it's it's gonna take the mystery out of it, I hope. Every contractor builds their pricing the same basic way on a change order as they did on the original job. The cost of the work plus their markup for overhead and profit.

The honest expectation is that the markup they used on the original contract carries over to the change order. Same builder, same business, same markup. So a change order priced consistently with the original contract, that's fair. That's normal.

That's not really a contractor gaming you. That's just the business running the way it ran on day one. where you want to pay attention is if the markup on changes suddenly looks very different from the deal you signed.

Not because the number is too high in the abstract. Markup varies from contractor to contractor and from contract to contract, and that's their call to make. But because consistency is the tell. If the original deal and the change orders are built the same way, you're being traded fairly. If they're wildly different, ask why. That's all. Ask why.

Okay, documentation, signatures, fair pricing. Sounds tidy on paper, but this is exactly where in the real world things go sideways. Let me take you into the danger zone.

I'm gonna tell you where I've watched more contractor-homeowner relationships break than anywhere else in my entire career. It's not over quality, it's not over schedule, it's right here. The contractor does extra work. They never tell you about it, they just keep moving because that's a contractor's nature to keep the job rolling. And then a month later, they hand you a bill for work you never approved and never saw coming.

And I want you to understand why this happens because it's almost never what you think. It's usually not greed,

It really boils down to two things. contractors are doers, not paperwork people. When they're in the middle of the action, the administrative side of the business gets neglected. They want to keep the crew productive, not stop and write up an order so the work happens and the paperwork doesn't. And then two, and this is the real one here, a lot of contractors are deeply uncomfortable with confrontation.

Asking you to sign an order means having the money conversation up front. And that feels awkward. So instead of having this small, awkward conversation now, they do the work and they try to recover the cost the hard way later, which ironically blows up the whole relationship over something a two-minute conversation would have solved. I think about it like this: Imagine you've hired a guide to take you on a backcountry trek.

You're and you're depending on that guide for your safety. And midway through the guide changes the route without telling you. And now you're being asked to scale a cliff face, and you have zero experience climbing cliffs. You can't really get mad because your survival depends on this person. But inside, you're steaming because the deal changed and nobody told you. That's exactly what unauthorized extra work feels like.

And the fix is the same as it is on the trail. You set the rules before you ever leave the trailhead.

Here's the rule, and it's non really non-negotiable. Change orders and extra work orders are time sensitive. They get approved before the work starts. Always, every time, even the small ones. And the responsibility for getting that approval falls on the contractor, not on you. It is their job to stop, write it up, and get your signature before a single hour of new work happens. So here's your iron rule.

The one sentence I want you to live by for your entire project no signed order, no work, and frankly no payment, period.

And I know some of you thinking, Bill, I don't want to be the difficult homeowner who makes everybody sign a form for every little thing. But let me reframe that for you. Enforcing this isn't you being difficult. It's you honoring the contract you both signed and protecting your contractor as much as yourself. Because when it's in writing, nobody has to remember who said what. Nobody has to defend their vision of a hallway conversation. The paper remembers for both of you.

And there's a practical reality behind this too. In the broader world, when things end up in a real dispute, what holds up is the written, signed order. A verbal, yeah, go ahead tends to evaporate the moment money's on the line. And a lot of places flat out require these changes to be in writing anyway.

So the written order isn't bureaucracy. It's the thing that actually protects you if it ever gets serious.

Now, here's now real life happens. Sometimes there really is a genuine moment where the crew is stand literally standing there. A real decision has to be made right now, and you physically can't get a formal signed order done in that minute. Fine. Here's the move. At the very least, get it in an email. A quick note that says what the change order is and what it will cost. And you replying, okay, go ahead.

In writing. That's not as clean as a signed order, but it's light years better than a handshake in a memory. A handshake feels nice in the moment. A signed order is what you've actually have in your hand the day you don't agree on what that handshake covered. all right, that's a danger zone. And now you know how to walk through it.

The best version of you isn't the one who handles change orders well. It's the one who barely has any. So let's finish there. Prevention.

William Reid (: 17:09

Okay, here's what matters most about everything we've covered today. The homeowner who gets blindsided by change orders and the homeowner who sells through their build with almost none of them are usually not separated by luck. they're separated by what they did before construction ever started.

So let's go let's go through through some key prevention points here.

Number one, make your decisions before the first wall goes up, not while the crew is standing around waiting. The single biggest driver of a homeowner-cause change order is changing your mind mid-project. Finalize your material selections, your tile, your fixtures, your finishes, your appliances, and get them on the plans and in the specs before construction begins.

Every decision you lock in early is a change order that never gets written, if you think about it that way. Number two, invest in complete detailed plans. I know good plans cost money up front, and I know it's tempting to save there. Just don't. Remember what we said earlier. Sloppy plans don't save money. They just move the cost downstream.

And rename it and make everybody miserable. The money you spend getting the plans right is the cheapest insurance against change orders you will ever buy. And let's look at number three. Build a contingency into your budget.

Even the best plans can't predict everything. The crew opens up a wall and finds old galvanized pipe that has to come out. That's a genuine, nobody's fault surprise. In the broader industry, a healthy contingency runs somewhere in the range of ten to even twenty percent of your budget, set aside specifically for things you couldn't have known.

When the surprises come and on the and on most projects, something will, you're not panicking. You're spending money you already plan to spend. Number four.

And this one is a pro move almost nobody does. Keep a running total. Every approved change order, every extra work order tracked in one place against your original contract price and your contingency. So at any moment you can answer the question how much of my changes have added up so far? When that running number starts creeping up towards your contingency limit.

That is your signal to stop and have an honest priorities conversation with yourself and your contractor before you blow through it.

when that number starts creeping up toward your contingency limit, that is your signal to stop and have an honest priorities conversation with yourself and your contractor before you blow through it. The homeowners who get hurt are the ones who never add it up until the end.

Another little story here. So let me tell you about a couple I think of as the McMillan's, because they did this right. They spent real time and real money on their plans. They locked their selections before the crew showed up. They built in a contingency. And when the inevitable surprise came, and it did, it always does, they had a documented order. The cost sat right inside the contingency they

And they signed it in about five minutes without a single raised voice. The project finishes close to budget and they still send their contractor a holiday card. Now contrast that with Ben and Jane in my fictional story inside the book. and I even did a ⁓ earlier podcast episode of this story. I I narrated that story live for you just for the fun of it. ⁓ because I cover almost everything I talk about in one little story.

They rushed the design to get started faster. Does that sound familiar? Made selections on the fly, no contingency, and every single decision they hadn't made up front turned into a mid project change order, stacked on top of each other. None of them tracked. By the end they'd lost count, lost the budget, and nearly lost their relationship with a contractor who honestly hadn't done anything wrong. The plans just weren't there to protect anybody.

Same surprises, wildly different outcomes, and the only difference was the work they did or they didn't do before anybody picked up a hammer. So that's change orders and extra work orders. What they are, where they come from, how they work, where they break, and how to keep them from running your project.

So let me wrap it up for you.

Okay, let's bring it home. Five things to carry with you. One, a change order is something you changed that was already in the plans. An extra work order is something brand new you added that was never there. Know which one you're holding. Two, the number one source of both is missing information on your plans and specs. Get your plans right and most of this disappears. And then three, it's a two-way street. If it was in the plans,

That's on your contractor. If it wasn't, it's fair they get paid for it. And then four, no signed order, no work before it starts, every time. That protects both of you. And five, the best offense is prevention. Lock your decisions early. Invest in good plans, build a contingency, and keep it running total. If you want to go deeper on the contract side of all this.

Section 3.214 of the book, The Awakened Homeowner, on Amazon and other platforms covers change orders and extra or work orders in detail. And the chapters around it walk through everything that should be in your contract. The link to the book is in the show notes. And while you're at the website, theawakenhomeowner.com.

You can always take a look at the the numerous blog posts I have that covers a lot of these topics in even greater detail for you if you really want to study them. And if you're planning a project right now and you want a structure way to make these decisions before they turn into change orders, head over to to buildquest.co and reserve your spot for the beta testing.

BuildQuest is the planning platform we're building to walk homeowners through exactly these decisions step by step. And you'll see my my buddy Quinn, who's an assistant that asks you the right questions so you don't have to know what you don't know. So if this episode helped you, do me a favor, leave a review on Apple Podcasts or Spotify or wherever you're listening.

It genuinely helps other homeowners find the show. And that's a big part of the reviews. Yeah, I like reading them, but really what it does is it makes the show more discoverable for everybody else. And share your thoughts if you'd like. at ww read at the awakenedhomeowner.com.

So next week, I think we're gonna keep moving through the contract, the pieces that have to be in it to actually protect you beyond what I covered in the previous episode, the schedule, the insurance, the plans and specs is part of the agreement and how payments are structured so the money flows the right way at the right time.

All right, everybody. Well, that's what I have for you today. I'm Bill Reid your home building coach, and as you know, I'm here to enlighten, empower, and protect you. Let's go make it happen.

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