Tricks of the Trade: Contractors

As thousands of Superstorm Sandy victims are now beginning to discover, the right contractor is critical. Choose wrong and you could be in for months of agony dealing with incomplete or shoddy work, or worse – being scammed.

Gripes with home improvement contractors rank among the highest by industry. The Better Business Bureau received 5,558 complaints related to general contractors in 2011 and another 8,190 for roofing contractors, putting both in the top 30 for complaints of 4,790 industries tracked.

Before you pay a contractor big bucks, Money Talks News founder Stacy Johnson explains some tricks of the trade used by contractors. Check out the video, then meet me on the other side for more.

Now that you’ve heard from Stacy, here are more details for finding the right contractor.

1. Check credentials and complaints

Before you sign on with a contractor, do a little detective work.

Always get at least three estimates before starting any significant work. As you go over the estimates with the contractors, ask questions, like how long they’ve been in business, if can they can provide proof of proper licensing and insurance, and if they belong to a national trade association. Then, verify the information they’ve given you by contacting the appropriate company, board, or organization.

You can find local regulations for contractors as well as information for licensing boards using this list of licensing requirements by state. Search online or call to check on your specific contractor.

Use other resources to find out more about your contractor’s record too. Check with the Better Business Bureau (BBB) to see if they have a history of complaints. Look for contractors that have been in business for at least three years under the same name: Some change names to hide past complaints.

Services like HomeAdvisor.com or Angie’s List also provide consumer reviews and recommendations.

2. Be thorough with references

When it comes to a contractor’s previous work, look beyond the beautiful work they’ll show in photos: They could be fake. Right-clicking and saving an online picture isn’t hard, so take extra steps to verify they actually did the job they’re showing you. Ask for the customer name behind the work, then talk to them. Better yet, visit them and see for yourself.

Even if you’re not the type to check references, make an exception. The world of contractors is rife with ripoffs. So call past clients and find out how satisfied they were with the quality of work as well as the contractor’s ability to stay on budget and on schedule. You’ll be glad you did.

3. Beware of underbidders

With any construction or home renovation project, multiple bids are mandatory. Getting at least three will do more than determine you’re getting a fair price: It will also allow you to compare personalities so you end up with someone good to work with.

Don’t assume you’re getting a deal with a significantly lower bid. Contractors know they’re in competition: some will bid the job low to secure the work, then jack up prices later by claiming the job is more costly than originally anticipated, or substituting lower-quality materials.

Don’t be afraid to show the low bid to the contractors with higher estimates: Ask why their competitor’s bid is so much lower. Doing this will better help you understand the details of your project. It could also give you leverage to get a better deal from a better contractor.

4. Get everything in writing

Protect yourself by making sure to get all the project details in writing and placed into a formal contract. This includes:

• Itemized estimates. Having separate prices for each component of the project makes adjustments for changes easier later. Ask them to list prices for labor, materials, permits, and any other costs related to the project.
• Permit responsibilities. Specify who’s responsible for pulling permits to meet local regulations and avoid delays.
• Subcontractors. You hired this specific contractor for a reason, so you’ll want to know who he hires as subcontractors to complete the job. Make sure to get the details on what work will be subcontracted out and to whom, and don’t be afraid to check up on subcontractors just like you have for your general contractor.
• Change orders. It’s easy to point to the work in progress and ask for a change that’s beyond the original scope. Instead of relying on a verbal agreement, put the changes in writing so both sides are clear on the requested changes and the corresponding costs.
• Late penalties. Some contractors are truly busy, but they shouldn’t keep you waiting forever with a home that’s in mid-renovation. Negotiate to have late penalties in the agreement that require the contractor to complete the work by a specified date or risk losing part of their fee.

5. Don’t pay too soon

While you may be eager to get the project started, you need to be careful about paying too much, too soon.

Negotiate the lowest down payment possible. It’s not a good sign if a contractor can’t start a job because they don’t have the money or credit for materials. If your contractor insists on you paying for materials before starting work, pay the source directly and have the materials delivered to your house.

And if they ask you for all the money up front, be afraid. That’s a sign of a scam.

Certain states restrict the down payment amounts. California law limits down payments to 10 percent or $1,000, whichever is less, and this may be a good guideline no matter where you’re located.

Once the work has begun, a general rule of thumb is to avoid paying out more than the level of completion on the project. If you pay out 90 percent for work that’s only 25 percent complete, you risk that the contractor will stop showing up as often or at all. Instead, create a payment schedule that includes payouts based on the level of completion.

When the work is complete, consider waiting a few weeks to make the final payment to ensure you’re satisfied with the final product.