Los Angeles homeowners often pay far more than necessary for their accessory dwelling units due to confusion about reasonable price expectations. While the average ADU cost in Los Angeles typically falls between $350-$400 per square foot in 2025, many property owners pay $450-$500+ per square foot without realising they’re being overcharged. This price discrepancy can mean a difference of $80,000-$100,000 on a standard project’s money that directly impacts your investment returns and financial goals.
Contractor markup red flags
Some Los Angeles contractors apply excessive markups that far exceed industry standards. Reputable builders typically operate on 15-20% profit margins, while less transparent companies may embed 30-40% markups while presenting them as “standard rates.” These inflated margins often appear in seemingly reasonable line items like project management fees, material procurement charges, or subcontractor coordination.
Specific material markups provide another warning sign. While contractors legitimately mark up materials to cover handling and warranty support, these upcharges should typically range from 10-15%. Some Los Angeles builders apply 25-35% markups on fixtures, appliances, and finishes, charging retail prices plus a premium rather than passing along contractor discounts with reasonable handling fees.
Subcontractor markup practices reveal another potential overcharge area. Standard industry practice involves 10-15% markups on specialised trades like plumbing, electrical, and HVAC to cover coordination and warranty integration. However, some general contractors layer in 20-30% markups while providing minimal oversight of these specialised trades, collecting fees without delivering corresponding value.
Cost components overpaying
Los Angeles ADU projects include several specific areas where overcharging commonly occurs:
- Pre-construction services billed at $15,000-$20,000 that should cost $8,000-$12,000
- Site preparation charged at $30,000-$40,000 for work worth $18,000-$25,000
- Foundation costs of $45,000-$60,000 for systems that typically cost $30,000-$40,000
- Framing labour at $35-$45 per square foot versus the $25-$30 industry standard
- Finish carpentry at double the hourly rates of comparable skilled tradespeople
Permitting assistance represents a particularly problematic upcharge area. While navigating Los Angeles building departments legitimately requires expertise, some contractors charge $8,000-$12,000 for permit processing services that typically cost $3,000-$5,000. This markup exploits homeowners’ unfamiliarity with the permitting process while delivering standardised services that don’t justify premium pricing.
Utility connection charges often include substantial padding above actual costs. Los Angeles Department of Water and Power connection fees are fixed based on service size, yet some contractors add $5,000-$10,000 in “coordination fees” beyond the actual utility costs. These inflated charges capitalise on homeowners’ uncertainty about legitimate municipal fees versus service charges.
Specification game
Vague construction specifications create fertile ground for overpayment through materials substitution and quality reduction:
- Contracts listing “vinyl windows” without specifying performance grades or manufacturers
- Flooring descriptions like “engineered hardwood” without detailing plank thickness or wear layer specs
- Insulation requirements listed as “to code” rather than specific R-values and installation methods
- HVAC systems are described generically without efficiency ratings or equipment specifications
- Roofing materials identified only by type without quality grades or warranty requirements
These ambiguous specifications allow builders to use entry-level products while charging for mid-grade or premium materials. Without detailed specifications, homeowners lack the documentation to verify they’re receiving the quality they’re paying for, potentially losing thousands in value through undetected substitutions.
Excessive change order rates serve as another warning sign. While legitimate changes require fair compensation, some contractors build business models around low initial bids supplemented by excessive change order pricing. Standard change orders typically include material costs plus 15-20% for overhead and profit, but predatory pricing may consist of 30-50% markups that significantly inflate your final cost without providing proportional value.
