How to Hire a Contractor and Avoid a Home Remodeling Nightmare

Article From HouseLogic.com

By: Melissa Dittmann Tracey
Published: August 02, 2024

Learn from a homeowner's experience and remodeling pros about what to do, and not do, in hiring a contractor.

 Jody Costello was eager to begin a two-story addition to her 1940s home, including a new owner's suite and an upper deck with a view of the San Diego skyline and waterfront. She gathered bids from four remodeling contractors, chose the middle-priced bid from a company that radio ads called the "No. 1 remodeling firm in San Diego" with "guaranteed customer satisfaction." She thought she had done everything right.

 But then came the shoddy work, water leaks, and mold. On top of that were regular failed inspections, mismeasured doors and windows, hard-to-reach contractors, a carbon monoxide gas leak that sent Costello to the ER, and home renovation costs that inched higher than her $150,000 budget.

 Everything went wrong that could go wrong, she recalls. " I remember standing in the hallway looking at the mess. A doctor had just ordered me to stay away from my home because of the mold, and I was thinking, ?This is crazy.'"

 Ultimately, Costello took her contractor to court to recoup some of the $240,000 in accumulated bills. She ended up with a settlement (for an amount she can't disclose), but she was left with an unfinished project for years.

 Costello learned a tough lesson: Hiring the wrong home remodeling contractor can cost you dearly. Now, as the creator of the "Contractors from Hell" website, Costello fields messages from desperate homeowners who've had similar experiences. She helps educate them about better protecting themselves.

"The foundation for a successful outcome is vetting to ensure you hire an ethical, competent contractor." But many people trust a referral or online review, she adds. "You will pay the price if you don't take the time to know fully who you're working with."

 How to Find a Home Remodeling Contractor

 Referrals -- from neighbors, friends, or others --are a common source when looking for a remodeling contractor. Real estate professionals also recommend contractors and may offer extra assurance from their well-vetted network.

 Before you hire a contractor, schedule three to five in-person interviews, gather bids, and thoroughly check the background of any you're considering. "Google the contractor's name and their business," she says. "See what turns up and if they have any complaints or lawsuits" filed against them.

 Check online reviews on Yelp, Angi, NextDoor, and elsewhere, but don't base your decision only on those, cautions Josh Rudin, owner of ASAP Restoration in Tempe, Ariz. "Review sites are not all made equally, and not all reviewers are actually customers," he says. "Some review sites let anyone post reviews about the company."

 Instead, Rudin recommends focusing on Better Business Bureau reviews and ratings. "Companies pay to be a part of the BBB, and when the customer complains about services rendered, the BBB has to do an actual investigation of the situation," he says. "If the company has a bad BBB rating, this means they likely have failed to satisfy real customers who had real experiences."

 You can also find out whether a contractor you're considering has been certified by an industry organizations. For example, certification by the National Association of the Remodeling Industry recognizes highly experienced remodeling professionals who are capable of planning and managing complex remodeling projects. NARI offers a consumer search tool at its site to find remodelers in your area who've also agreed to abide by NARI's code of ethics for professionalism.

 Questions to Ask a Remodeling Contractor

 Erin Hybart, a real estate pro in Baton Rouge, La., helps investors flip houses. "Finding a good contractor is by far the hardest part," she says. Hybart suggests that you explore these areas and ask the following questions to vet remodeling contractors:

 Experience

• How many properties have you remodeled/flipped?
  • How long have you renovated homes?
            • How did you learn this trade?
            • What do you specialize in?
            • What makes you different from other renovation professionals?

Licensing, Insurance, and Bonding

• What type of license do you hold?
  • How much insurance do you carry, and what does it cover?
            • Does your insurance cover anyone you hire as a subcontractor?
            • Are you bonded?

Project Costs

• How detailed are your quotes?
  • Can you share a quote from a project you recently worked on so I can see how detailed it is?
            • Does your quote include materials and labor?
            • If your quote includes materials, do I have a say about the material selection?

Work History

• Do you have pictures of projects?
  • Do you have at least three references?
            • Have you ever had a project go over money and time budget? If so, tell me about it.
            • Have you ever had an unhappy client, and how did you deal with it?

The Scope of the Project

• Is there anything you can't do regarding the project I'm proposing?
  • Do you subcontract anything to others?
            • Who do you hire as subcontractors?
            • How do you ensure the quality of your subcontractors' work?
            • Do you pull permits?
            • How are you paid?
            • What percentage do you put into the project for possible incidentals?
            • Why do you think I should hire you for this job?

Why Remodeling Contractors Should Be Licensed, Bonded, and Insured

 Being licensed, bonded, and insured can lend credibility to contractors and offer protection to homeowners, but these credentials come with some limitations, according to Rudin.

• Licensed: The company has registered their business operations with the state contractor's registrar. But states offer different type of licenses. "Some licenses allow a contractor to do one kind of work, but not another," Rudin says. "It's important to know the differences between these levels of licensure and what your specific project requires." Each state has different requirements and rules, with some even limiting contractor licenses by the cost of the project. You may want to view contractor licensing rules in your state.
• Bonded: This means they have a surety bond, so if your home is damaged, the bond will cover the loss. "This is important because if the company isn't bonded and an accident occurs, you'll be on the line for the cost of repairs," Rudin explains.
• Insured: The company is protected against various risks and liabilities, such as if a worker has an accident on the job site or if they caused some sort of professional mistake.

8 Red Flags to Look for in a Remodeling Contractor

 When you're interviewing, background checking, or starting a relationship with a remodeling contractor, be leery of these eight red flags:

1. Vague contracts: A written contract should spell out the scope of the work, materials, payment schedule, change orders, etc. "If a contractor gives you a contract that is only one or two pages, that's a red flag," Costello warns.
2. Lack of consumer protections: A contract should protect you, the homeowner, as well as the contractor. Offer a contract addendum if needed. Costello recommends a clause that allows you to fire a contractor for shoddy work or for failing to show up at the jobsite for a specified time. Also, she recommends the contract calls for a change order to be signed by both parties for any added fees. That will help avoid surprise invoices.
3. Large down payments: The contract should outline a payment schedule based on work milestones, such as when framing is completed or rough plumbing or electricity is installed. Costello's red flag: having to pay $30,000 before work even started. "Every state is different, but in California, all that is required is 10% or $1,000, whichever is less," she says. "Negotiate that upfront cost if your state requires a lot more, because if you give away too much money right off the bat, they could drag their feet or use your money for another project."
4. Refusal to pull permits: Many remodeling projects -- like for fireplaces, outdoor kitchens, and room additions -- require a permit from the city or county to ensure they'll be completed up to code. Most remodeling contractors will file these on your behalf, but be cautious of those who don't; it may be a sign they're unlicensed, Costello says. She advises having the contractor pull any permits because "whoever obtains and signs for the permit is responsible for everything, including fees and fines if something ever goes wrong," she adds.
5. Lack of communication: Costello says she never spoke to the contractor until after she hired him and had to communicate through a salesperson first. Her contractor would often not show up for days or weeks and rarely returned phone calls or messages. She recommends the contract detail the frequency of communication.
6. Failure to address lien waivers: A lien waiver can help protect homeowners in large remodeling projects. This ensures a contractor's supplier can't place a lien on your property if the contractor fails to pay the supplier. (Costello says a "mechanics lien" was placed on her home during the remodel for this reason.) Liens can affect a homeowner's ability to sell their home until they're resolved.
7. Low estimates: Homeowners may be tempted to choose the contractor with the lowest bid, but be skeptical: "Low bids tend to be vague," Costello says. "They tend to just offer vague references to painting, plumbing, and electrical, with nothing broken out about the scope of work or materials used. Make sure costs are detailed."
8. Lack of professionalism: "It may seem judgmental to assess the quality of a contractor by their appearance and first impressions, but it can be one indicator in your toolkit," Rudin says. If the contractor arrives late or is continually difficult to reach, that reflect on how they'll handle your project, he adds.
10. What to Do If You Notice Problems With Your Remodeling Contractor

 Looking back, Costello says she likely could have avoided some of her remodeling nightmare by spotting the red flags. Those include the lack of communication, vague contracts, and the requirement to put down too much money upfront. "If you start to notice something isn't right, communicate that right away to the contractor," Costello says. "Always follow up with a written letter that summarizes what you said and uses language like, ?I appreciate your help,' or ?I appreciate your attention to this,' and ?I look forward to getting this resolved.' Document and take photos."

 Costello credits documentation for helping her to receive a settlement from the contractor. Even then, it took about 15 years to get her two-story renovation completed the way she originally envisioned, she says.

"I just wish I knew back then what I know now," she says. "Educate yourself, understand your rights, vet your contractors carefully, and learn to read contracts." It paid off: Her remodeling experiences ever since --for the two-story addition's reconstruction and later a kitchen -- went smoothly, and she credits hiring well-vetted, professional contractors for the results.

Visit HouseLogic.com for more articles like this. Reprinted from HouseLogic.com with permission of the NATIONAL ASSOCIATION OF REALTORS®.

Michael Kogler, REALTOR
MIKE KOGLER TEAM: #1 Sales Team
Long & Foster Real Estate | Luxury Portfolio  International
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