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Before You Sign On the Dotted Line...

Tips for separating the good contractors from the bad

The home remodeling craze is not losing an ounce of steam, as the popularity of home makeover shows and shelter publications continues to surge. In fact, Harvard's Joint Center for Housing Studies reported that Americans rang up nearly $127 billion in home remodeling costs in 2004. In addition to adding beauty and function to a home, improvements certainly can add dollars to the value of a house. But often the most difficult part of remodeling is not agreeing on a design, or even coming up with the financing for the job. Frequently, the biggest challenge is finding a good, reputable contractor.

Buyer Beware!!

There are many difficulties associated with finding a good contractor. When business is strong, many contractors will only estimate the best assignments that come their way. Even during down periods, the top professionals in the group may be reserved many months and even seasons in advance.

While many contractors are just plain booked, there are, of course, fraudulent contractors trying to make a quick buck. The National Association of Homebuilders (NAHB) offers the following red flags that should alert you to devious practices:

- You are told that a contract will not be necessary for your job

- You are asked to pay in full, or even half, for the entire job up front

- You are told you have been selected as a demonstration project at a special, low price

- You are told that special price is "only available" if you sign a contract today

- The contractor refuses to give you references, or the references cannot be located

- You cannot verify the contractor's business address

It is also wise to shun contractors who advertise door-to-door and who try to encourage their own financing for the job.

Do Your Homework

To ensure you select an honest, trustworthy and reliable contractor, there are several steps you must take in order to protect yourself against a con.

The first measure, obviously, is to assemble a list of names. Ask your friends and neighbors for referrals first, as they will be able to speak from personal experience. Professionals such as your mortgage banker, home insurance agent or real estate sales associate definitely will have suggestions and will be loath to make a poor recommendation. Subcontractors like painters, landscapers or plumbers may also be a source for referrals. Consider soliciting help and / or references from trade associations like the NAHB or the National Association of the Remodeling Industry (NARI).

Once you have a short list of possibilities, make sure that each is licensed in your state. Ask each one for a license number and confirm with the licensing department where your house is located that the contractor has jurisdiction there. The Web site www.contractors-license.org can also help verify licensing.

From your short list, try to identify those who have been in business the longest, as they are likely to have extensive records you can check. During your interview process ask for no less than three to five references whom you can call and whose homes you can visit. It is a good idea to look at both completed and in-progress projects to get a full sense of the contractor's ability. Each reference should provide you with a full project description and timeline.

Make sure your short list includes contractors who have completed projects similar to yours. Be sure to secure at least three bids, in writing, before awarding the assignment.

Getting Down to the Nitty Gritty

Once you have done the research, talked to the references, reviewed bids and selected a contractor, make sure that your actual "contract" is detailed and precise, so that both you and your builder have the same expectations for the job. Try to get a good sense of what "problems" the contractor suspects may arise to avoid getting caught off guard in the middle of the project.

- Outline a clear and precise payment schedule. Realty Times recommends withholding at least 15 percent of the total price until the job is completed to your satisfaction.

- You may wish to hire an independent, third party inspector such as an architect to "sign off" on every phase of the project before payment is made. If you choose this route, be sure to reference this in the contract.

- Be vigilant about what kind of warranties you will get from the contractor. Make sure to secure at the very minimum a one year warranty on parts and labor, and get copies of all receipts.

- The contract should detail the approximate start and the approximate conclusion of the project. You may consider including a penalty clause in the contract that kicks in two weeks after the date of the approximate conclusion of the job.

- Make sure your contract states that you have the absolute right to terminate the relationship if you are dissatisfied with the work. You must give reasonable notice of your intent to separate so that the contractor can try to rectify the problems.

Don't forget to check for details on the company's insurance policy, and ask for proof of insurance before work beings. Consider temporarily increasing your homeowner's insurance during the term of the job to protect against any mishaps or injuries.

Finally, when the job is complete and the time has come for final payment, insist that the contractor provide you with what is known as a mechanics's liens, releasing you from liability in case the contractor collects his money but fails to pay his subcontractors.

There's no doubt about it: finding a good contractor is tough, but if you do as much background research as possible and draw up a comprehensive contract, you should be well on your way to a rewarding relationship with your remodeler, and one step closer to living in the home of your dreams.

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Sources: www.nahb.org; Realty Times (7/22/02), Los Angeles Times (8/21/05), ConsumerReports.org (10/3/05), Harvard Joint Center for Housing Studies Remodeling Activity Indicator (1/13/05).

Finding a Contractor

Before You Sign On the Dotted Line...

Tips for separating the good contractors from the bad