Building? Remodeling? How Not To Get Ripped Off

I hate hearing stories of how people got ripped off by shady building and remodeling contractors. It’s even worse when homeowners are victims of a natural disaster, and get ripped off. These unscrupulous building and remodeling contractors are a bad reflection on honest contractors, who have spent years building their business and reputation.

If you’re planning on building or remodeling, the first burden lies with you. Know what you want. Find a good architect and have all of your drawings (plans/blueprints) how you want them. It’s a lot less expensive to make changes on paper, than it is after construction has begun. Ask your architect if they have a computer program that will give you a virtual tour of your new home or remodel. If you take more time during this phase of building, delays and over runs are less likely to happen.

Have all of your finances in order for your project.

Before you submit a set of plans to a building or remodeling contractor for review and a bid, make sure this is your final set of plans, including all revisions and governmental approvals (i.e. city or state). It’s unrealistic to expect a contractor to bid a set of plans, have them give you a proposal for what it will cost, and expect them to stick with that number, if you later make revisions to the plans.

Get bids from no less than three contractors. Make sure they all have the same set of plans, and are bidding the same items. When you look at more than one bid, you may not be comparing “apples to apples”. Different contractors bid differently. You want the job bid “complete”. Read the fine print. The lowest bid is not necessarily the one you should accept For example, does one bid include materials and labor, but the other one, only include labor? Naturally, if everything isn’t included, one contractor will come in lower than the other. Don’t just look at the bottom line..
Consider the reputation of the contractor, and the length of time they’ve been in business. Their price may be a little higher because they use higher quality materials, have more knowledgeable employees, and do the job right the first time, as they don’t want “call backs”. I’m not saying that the lowest bidder isn’t a good contractor, or that the highest bidder is the best contractor, what I’m saying is, make sure you’re getting the exact same thing with all of the bids.

Once you have the written contract, make sure you’re protected. If the contract is written by the contractor, they will most likely have clauses that protect them. If there aren’t clauses that also protect you, have your attorney rewrite the contract to the satisfaction of both parties.

Find out if the contractor is offering a warranty on his work. Is a long term home owners warranty available? Check into that. On new homes, typically a contractor will stand behind their work (for minor repairs) for at least one year. Long term warranties usually cover items like roofs, siding, heating and cooling systems, etc. However, all of these warranties are only as good as the contractor. Warranty work is a “non paying” job, but if a contractor does things right the first time, you may never have to call them to come back. If a warranty is part of your contract, do a walk through upon completion, and document anything you find that needs to be redone or repaired. Keep those records in a safe place. Get the warranty work done as soon as possible. I’ve known of people who have gotten a home inspection right after their house is built. Hiring a home inspector is a great way to have someone with that “critical eye” look at all aspects of your home. They see things a typical homeowner wouldn’t even think of looking for. This could be one of your best investments. If it’s something you plan to do, remember to add it to your budget.

How reputable is the contractor? How long have they been in business? Is their license, bond and insurance current? Do a little homework. Ask for a current certificate of insurance. A lot of states publish contractor licensing information online. Go to your state’s official website, and search for licensing information. If you can’t find it, call the state office. A few minutes researching, could save you thousands of dollars (or much more). If the contractor isn’t licensed, bonded and insured, find another one.

Ask for references from previous clients. Before a bank lends you money, they check your credit rating. This is the same principle. Some contractors may just give you a couple of names of people whom they know will give a great reference, however, if a contractor has “burned” all of their customers, they probably won’t have any references to give you. If a contractor can’t give you any references, that’s a red flag. A reputable contractor can probably give you a list of dozens of satisfied clients. Call the references. If a customer had a home built, ask the homeowner if they would be willing to supply their address, so you can drive by. Ask them if they would recommend the contractor to others. Ask them if they would use this contractor again. Ask them what problems arose during construction, and how the problem was resolved. Ask them if the contractor stayed on schedule and on budget. Ask them if the contractor performed the warranty work to their satisfaction. A great way to find a good contractor is to ask friends and/or relatives who they would recommend. New to an area? Ask people you meet? Check with the National Association of Home Builders (NAHB). A lot of good contractors don’t need to advertise. They get most of their work from referrals. If the same contractors name keeps popping up, that’s a good sign.

Ask yourself, can I work with this contractor for the next “blank” number of months? Do we have a good rapport? Do they listen to me? Are we on the same page? Do they show me respect? Follow that “gut” feeling. Don’t let a contractor “rush” you into a project. A reputable contractor is normally so busy, that you’ll have to wait to get on their schedule. Plan for it.

Sometimes, a contractor will ask for money “up front”. This isn’t all that unusual as they may need to pay payroll, or will need to purchase materials for your job. Do not, I repeat, do not, give them all of the money upfront. A down payment is usually relative to the total cost of the job. The bigger the job, the percentage “upfront” is usually smaller. On a small job, a down payment of 25% is reasonable , 75% – 100%, is not. The contractor may ask to have an escrow account set up for the job. This assures them that the money is there for the project. If you’re hesitant to set up an escrow account, this could be a red flag for the contractor. Just as homeowners need to be smart when it comes to choosing a contractor, a contractor need to protect their interests, as well.

For your part, make sure the contractor is receiving their check(s) as per the contract. If you don’t pay the contractor, they could stop work, and delay your project. If you’re borrowing money from a bank, lost time means you’ll pay more interest on your construction loan. If you don’t pay the contractor, they could lien your project.

To save some money, you may want to buy all of the materials yourself, however, this is a time consuming process. If you buy the wrong materials, you could easily delay your job for days. A reliable contractor already has a rapport with their suppliers, knows exactly what they need, plus knows the “language” of their trade.

If you’re doing a large project, your contractor is most likely using “subcontractors” and is purchasing materials for your job. It’s also important to know that these “subs” and suppliers are getting paid. If they aren’t, they can lien your property. Some unscrupulous contractors “take the money” and run, leaving you, the suppliers, and the subcontractors, “holding the bag”. All the more reason to hire a reputable contractor. Check with the Better Business Bureau. If they’ve received complaints about a contractor, let that be a warning sign.

Some, but not all, states have inspections on the different phases of building. Make sure the contractor isn’t proceeding on your project without getting the proper inspections, and, approval on his work. Most inspection records are kept in a “job box”. If an inspector approves or disapproves what was done, that will be recorded on the inspection record.

If you decide to make a change in the middle of construction, don’t expect the contractor to hold to their original price. Ask the contractor a separate bid for the change. Get it in writing.

Don’t expect the contractor to give you “freebies” just because they’re there with their tools or equipment. For instance, if you want a tree cut down, and you see the contractor has a chainsaw in their truck, don’t say, “While you’re here, can you …..” You hired them to do a specific job. If you want that tree cut down, (or whatever,) either be willing to pay the contractor to do the extra job, or do it yourself. Contractors work on tight schedules, and time is money to them. That’s how they make their living. Your’s, is most likely, not the only job they’re working on. And…you don’t want to be their only client. Red Flag!

Once your project is underway, stay out of the way. Let the professionals do what they do best. Interrupting their work, or the work of their employees, will only slow down your project.

Plan, you’ll go over budget. With building and/or remodeling, it’s very common to go over budget. Plan for it! How much should you plan for? It’s not uncommon for homeowners to go over budget by at least 10%. Keep in mind, the more upgrades you ask for and/or changes you make to the original plans, the greater this percentage will become.

Plan for delays. Your project may go on schedule, however, delays are very common. A delay may be due to weather, a family emergency, an unforeseen error in your plans, or maybe you created a delay in your project, because you haven’t provided the contractor with the necessary information they need to proceed. Plan for delays!

Don’t give a contractor the final payment until the job is complete, signed off by the proper governmental agencies (if applicable), and you’ve gotten what you agreed to. On the other hand, if the contractor has completed your job as agreed, make the payment as per the agreement.

Building or remodeling a home is a stressful project. You’ll have hundreds of decisions to make along the way. Do your homework before starting your project. Choose a reputable building or remodeling contractor, and have a written contract. Your life will be disrupted for months, but don’t let that stop you from fulfilling your dream. If you know you can trust your contractor to do their part, the process of building or remodeling could actually end up being a fun project.

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