@William Allen I generally ask that question to get a feel for what kind of work the owner wants. If I ask a customer what kind of budget they they have in mind for.... say.....the kitchen project we are standing there there talking about (for example). That tells me a few things. 1- If the budget is fairly high I can price out nicer counter tops and appliances etc. I do tell the owner if they don't like the price then it can be changed by downgrading finishes like appliances, crown moulding, back splashes, etc. 2- if the budget number comes in low in my point of view for that particular project that means its prob a person that doesn't really want nice cabinets and granite. They want it to work and they don't care how efficient the cabinet layout is... cheap cheap cheap. 3- if the number comes in really low that may mean the owner wants me to try and work with that budget, which I will if it is at all realistic, or they want me to hit an unreal number and that means they probably don't have any money. Which means they are wasting both of our time.
To help out your contractor I would tell him (when he asks if you have a budget) that you are looking for a really nice bathroom to blow people away, or you are wanting to make sure everything works just to sell. You want cheap siding, like vinyl, or stain grade clear cedar. You don't necessarily have to give him the number.