PROTECTING YOURSELF ON A REMODELING PROJECT
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Question: We are about to tackle a major remodeling project and it scares me to death. There is so much money involved and I've heard so many horror stories about crooked contractors and botched jobs. How do I make sure someone is reputable? How many bids should I seek? Give me some tips to protect myself.
Reply: There is a lot of ground to cover, so let's take it one step at a time.
1.) Finding a reputable contractor - Ask everyone you know and trust for recommendations. Don't even ask anybody to bid on your job until you are convinced of a good reputation.
This begins with asking for the company's license number and evidence of insurance. Verify that the license is genuine and current by calling the government agency that has jurisdiction. (You may want to include local phone number.)
I can't emphasize the insurance angle enough. If you hire an uninsured firm and someone gets injured on the job, you could be held liable - and there is no ceiling to what that could cost you.
Most contractors will supply you with their own references, but even the shadiest operators can recruit friends and relatives to pretend they are satisified customers, so don't rely on their references alone. Also check them out with your community's department of building and inspections. Ask an inspector or two for their opinions. Try as well to talk to some tradespeople, especially those that get hired as remodeling subcontractors. They are in the best position to know the good operators from the bad.
Also ask the prospective remodelers for supplier references, and more than one. Most contractors deal with multiple suppliers. They can't stay in business without a source of supply, so it's common practice for someone in trouble to keep paying one supply house while stiffing everyone else. You're asking for big trouble if you deal with someone who can't pay his bills.
2.) Number of bidders - You may have heard the old rule of thumb that says you should get three bids, toss out the high and the low, and take the one in the middle. I think that's way too oversimplified to take seriously, though it contains some general principles that make sense.
There's nothing magical about the number three, except it seems a reasonable number to manage. More than that gets time consuming. As a result, you'd probably end up skimping on the background checks and other details.
It also depends on how high and low the outside bids might be before you decide to disregard them. If all the estimates are within 10-20%, there's no good reason to exclude any of them based on price alone. However, I do suggest that you be very leery of any bid that is far lower than the others. Odds are the bidder made a mistake, doesn't know what he's doing or is conning you.
More important than the number of bidders is to make sure thay are all bidding on the same thing. The only way to be sure is to work from an architect's plan or someone else's detailed drawing of the project you have in mind. There also can be large price variations based upon the fixtures, furnishings and materials specified. Everyone must bid on the same specifications or else you are comparing apples to oranges.
You may even wish to consider not putting out the project to bid at all. If you find a firm that comes well recommended and you feel comfortable with, seeking other bids might just muddy the waters. This is especially true when companies do their own design work. How can you make apples-to-apples comparisons when each firm produces its own unique vision of the completed project? There's nothing wrong with getting "married" to a contractor you have confidence in and who quotes a price you can live with.
3.) Tips to protect yourself - First, read the contract carefully. Make sure you understand all the terms and conditions. Pay special attention to payment terms and a timetable for completion. Some give and take might be necessary to negotiate a contract that's fair to you and the remodeler alike. However, don't sign any contract documents until you understand all the terms and ramifications.
Here are some other tips to protect yourself:
- Make sure the remodeling firm has all the required fixtures, appliances, furnishings and materials in its possession before work starts. Otherwise you are vulnerable to potential delivery disruptions that can leave your home a shambles for months longer than planned.
- See that the contractor complies with all permits and notifications required by your local building department. Some people may try to convince you to save a few hundred dollars in fees by working without a permit and other "technicalities," but this is being penny wise and pound foolish. Doing things by the book protects you in case something goes wrong.
- Ask the contractor to produce a sworn statement identifying all subcontractors, suppliers and creditors for the project. These people may have lien rights to your property if they don't get paid for their work, even if you faithfully pay the prime contractor. A lien means they can lay claim to a portion of your property equal in value to the amount owed them. This can hold up mortgage refinancing, equity borrowing and sale of the property.
- Be suspicious of anyone who wants you to pay a large amount in advance. You don't want to deal with someone whose working capital and credit are so bad he needs your money to get started. Most remodeling jobs are contracted for two or three payments to be made between the onset of the job and final completion. The definition of final completion should include clearing up the "punch list," i.e. minor repairs and touch-ups inevitably required at the end of a job.
- Be aware that almost ever home owner underestimates the amount of money a major remodeling project will cost. People ususally start out intoxicated by visions of their lifelong dream house, but most either need to scale back their dreams or spend much more money than originally planned. Also budget at least 10% extra for changes you may decide to make in your plans once the project gets underway.
Now relax! Every year more than $100 billion of remodeling work gets done in homes across the country. The vast majority of it leaves home owners satisfied.