10 Things You Need to Know Before Hiring a Contractor: Your Guide to a Smooth Project
Embarking on a home improvement project, especially something as significant as basement finishing, can be exciting. However, it’s crucial to approach it with careful planning and due diligence, particularly when it comes to hiring a contractor. The best way to avoid headaches and ensure a successful outcome is to be well-informed before you even sign a contract. This comprehensive guide outlines ten essential things you need to know before hiring a contractor, empowering you to make the right choices and protect your investment.
1. Define Your Project Scope with Precision:
Before you even think about contacting contractors, take a step back and clearly define what you want to achieve. Ask yourself: What do I want done? This might seem obvious, but the more detailed your vision, the better. Consider the finished look, the functionality you desire, and your budget. Thoughtful planning will enable you to articulate your needs effectively and receive accurate bids.
You might benefit from consulting an architect or draftsperson to create detailed plans. While some contractors with CAD software can offer this service along with a bid, remember that this expertise comes at a cost. Don’t expect them to provide detailed plans for free. Crucially, remember: if it’s not on the plans, you probably won’t get it.
Furthermore, integrate energy efficiency into your planning. Consider insulation, energy-efficient windows, and HVAC systems. An energy-efficient home not only saves you money in the long run but also increases comfort and resale value.
2. Understand Your Financing Options:
Your home is likely your biggest investment, and remodeling can be a significant financial undertaking. Explore various funding sources such as personal loans, home-equity loans, credit unions, insurance policies, banks, or savings and loan institutions. Investigate different sources to compare amounts, interest rates, terms, and tax considerations.
If your project stems from insurance-covered damages, check with your insurance company first to understand the extent of your coverage before signing any contract.
When evaluating loan options, ask about potential prepayment penalties. These fees can be substantial and should factor into your decision-making process.
3. The Power of Multiple Bids:
A fundamental step in hiring a contractor is to obtain at least three written bids based on the exact same plans and specifications. This allows you to compare not only prices but also the contractors themselves.
Don’t automatically choose the lowest bid. As a homeowner, you might not be familiar with current material and labor costs. The three-bid rule helps you gauge whether bids are reasonable. Scrutinize each bid thoroughly, ensuring they cover the same scope of work, materials, and specifications. Discuss any price variations with each contractor to understand the reasoning. Sometimes, a higher bid might reflect superior quality materials or more extensive work. For instance, the cost difference between prefabricated and custom kitchen cabinets will be significant.
Beware of bids that are substantially lower than the others. This could indicate a mistake by the contractor or, more worryingly, that they are not including all the necessary work. Accepting an abnormally low bid can often lead to disputes and additional costs down the line. Remember the adage: “If the offer sounds too good to be true, it probably is!”
4. Verify the Contractor’s License:
Is the contractor properly licensed? This is a non-negotiable question. Unlicensed contractors pose significant financial and legal risks. They often lack proper insurance and may not adhere to building codes, potentially exposing you to liability for injuries or property damage.
A license number on a bid or contract doesn’t guarantee its validity. Always take the extra step to verify the license through your local licensing board or online database. Working with an unlicensed contractor might seem cheaper initially, but the potential legal and financial consequences far outweigh any perceived savings. You might end up in civil court with limited recourse for problems. Furthermore, unlicensed contractors may lack the expertise to complete the job correctly, potentially leading to costly rework by a licensed professional.
5. Check References and Credentials Thoroughly:
One of the most reliable ways to find a reputable contractor is through personal recommendations from friends or relatives who have had similar projects completed and were satisfied with the results.
Ask the contractor for local references and actually call them. Inquire about their satisfaction with the contractor’s work, adherence to the schedule and contract terms, their responsiveness to problems, and their willingness to make necessary corrections. Recognizing that contacting references can be time-consuming, ask if the contractor has completed customer surveys you can review. Reading through several surveys can provide valuable insights and potentially reduce the need to call individual references. Skilled contractors will be proud to share positive feedback. Remember, you are inviting this person into your home for an extended period.
Beyond references, check the contractor’s standing with your local building department, trade associations, consumer protection agencies, the consumer fraud unit in your city or district attorney’s office, and the Better Business Bureau (BBB). These organizations can provide information about any complaints or issues associated with the contractor.
Verify the contractor’s business address and telephone number. Be wary of contractors operating solely from a vehicle with a cell phone, as they may be difficult to track down if problems arise after the job is “completed.” If they don’t have a fixed business location, ask for their home address. Don’t be swayed by smooth talk; take the time to ensure professionalism.
6. Ensure Adequate Insurance Coverage:
Ask the contractor to provide proof of Workers’ Compensation and liability insurance. Verify this information directly with their insurance carrier and agency.
While licensed contractors aren’t always required to carry general liability insurance, they must disclose this in the written contract. This insurance protects against third-party bodily injury and property damage. If a contractor is uninsured and damages your property, you or your own insurance policy might end up covering the costs.
In most states, Workers’ Compensation insurance is mandatory if the contractor has employees. This is crucial for your protection. If a worker gets injured on your property and the contractor lacks this insurance, you could be held liable through your homeowner’s insurance. Don’t let your insurance become your contractor’s workers’ compensation!
7. Understand the Role of Bonds:
Some bonds are designed to protect you against substandard work that doesn’t meet local building codes. However, it’s important to understand that bonds do not guarantee a contractor’s financial stability, professional integrity, or competence.
Contractor’s License Bonds are often a licensing requirement (e.g., a $10,000 bond). However, this bond is typically insufficient to cover multiple complaints.
Contract Bonds, on the other hand, guarantee both job completion and payment of labor and materials. The bonding company’s liability is usually capped at the bond’s face value. Bonding requirements can prevent less established or contractors with poor track records from bidding on projects, as bonding companies thoroughly vet a contractor’s capabilities and business practices before issuing a bond.
8. The Contract is King: Understand and Agree Before Signing:
Don’t sign anything until you completely understand and agree to all the terms. Remember that any document you sign can be considered an authorization to proceed with the project, even a bid.
Ask questions until you are absolutely clear about every aspect of the contract. Get everything in writing, including all agreements and the detailed scope of work. If the contractor makes any oral promises, ensure they are included in the written contract. Be specific about what the contractor will and will not do. If you plan to do some work yourself or hire another contractor, this must also be clearly stated in the contract.
Never sign a blank or partially blank contract. Obtain a signed copy immediately for your records. Both you and the contractor are legally bound by the contract’s terms, so read it meticulously before signing. If you have any doubts, seek legal advice.
Ensure the financial terms are crystal clear. The contract should specify the total price, the payment schedule (including when payments are due), and any cancellation penalties. Expect to make a reasonable down payment, typically around 10%.
9. Warranties: Get Them in Writing:
Be sure to obtain any warranties offered by the contractor for both labor and materials in writing. The warranty should clearly outline which parts of the work are covered and the duration of the coverage. Additionally, request any written warranties from the manufacturers of materials or appliances installed by the contractor.
10. Scheduling and Payments: Manage Expectations and Protect Your Interests:
Your contract should include approximate start and completion dates, rather than just a number of working days. For example, specify “Begin approximately April 20 and end approximately April 30” to avoid open-ended timelines. Acknowledge that external factors can cause delays.
Ensure the payment schedule is tied to the contractor’s progress. Never let your payments get ahead of the completed work. The contract should include a “retention” clause, typically withholding 10% of each payment or the total job cost until final completion and your satisfaction.
Never sign a completion certificate until all the work outlined in the contract is properly finished and you are satisfied. Lenders often require this certificate before releasing the final payment.
Be aware of potential inconveniences if you are living in your home during the renovation. Discuss these with your contractor beforehand and plan accordingly.
Maintain a detailed job file containing the contract, change orders, plans, specifications, bills, canceled checks, lien releases, correspondence, and progress photos. Also, keep a record of subcontractors, work performed, and material deliveries.
During construction, ensure all work adheres to local building codes. Remember that codes set minimum safety standards, not necessarily the quality of work. The contractor should obtain all necessary building permits, and this should be explicitly stated in the contract. Make sure copies of the signed contract, plans, and permits are posted on the job site.
Be present for inspections whenever possible, ask questions, and conduct your own frequent inspections. The building department’s final inspection doesn’t guarantee quality, so your own “walk-through” is essential before making the final payment.
A Word of Warning: Be cautious of anyone urging you to act as your own general contractor (“owner/builder”) unless you have significant construction experience. This shifts considerable responsibility and liability onto you.
Legal Considerations: Liens
For larger projects with subcontractors and suppliers, protect yourself from potential liens against your property if the contractor fails to pay them. Consider adding a release-of-lien clause to your contract or paying with joint checks made out to the contractor and the subcontractor/supplier. If you are financing, your lender may require verification of payment to subcontractors and suppliers before releasing funds.
Preliminary lien notices are common; they inform you that subcontractors and suppliers have worked on your project and expect payment. This doesn’t mean a lien has been filed yet, but it highlights their potential mechanic’s lien rights. You could be forced to pay twice to avoid foreclosure if your general contractor doesn’t pay their dues. Protect yourself by identifying subcontractors and suppliers in your contract and obtaining signed conditional and unconditional lien releases upon payment. Filing a Notice of Completion after the project can also reduce the time frame for filing a mechanic’s lien.
Avoiding Complaints and Problems: Red Flags to Watch For:
- Inability to verify the contractor’s information.
- Using a toll-free number and PO box as an address.
- High-pressure sales tactics.
- Offers that seem too good to be true (e.g., using your home for advertising at a “special” price with immediate sign-up).
- Reluctance to provide references or negative feedback from references.
- Inability to verify licenses, insurance, and bonds.
- Requests for full payment upfront or cash payments to a salesperson.
- Pressure to sign a completion certificate before the job is finished.
What if Problems Occur?
Despite your best efforts, issues can arise. Contact your contractor in writing to address any problems. Keep a record of all communication. If the contractor refuses to make corrections, you can file a formal complaint in writing with the relevant consumer protection agencies.
Hiring a Contractor
Hiring a contractor requires careful research, thorough planning, and a clear understanding of your rights and responsibilities. By following these ten essential steps and ensuring a comprehensive written contract, you can significantly increase your chances of a smooth and successful home improvement project. Don’t rush the process; taking the time to be informed is the best investment you can make in your home.
