Do's and Don'ts of Hiring a Home Improvement Contractor

The do's and don'ts of hiring a home improvement contractor.

August 19, 2010, 10:04 PM

Nov. 10, 2010 — -- Hiring a contractor to repair or renovate your home is one of the more expensive things you'll ever do. Make sure you do it right.

Develop a short list of contractors by asking friends and family for referrals. If your neighbors have a handsome new addition, stop by and ask about their contractor. Ask contractors for references, and don't just listen to the references. Look at their homes! Ask contractors for the names of three clients they're currently working for. Call those clients to see how it's going. Chances are if their projects are behind schedule, yours will start late and drag along too.

Click HERE to see a sample home improvement contract.

At last count, 36 states require home improvement contractors to be licensed. Nearly all states license plumbers and electricians. Make sure the contractors you're considering are properly licensed. This is utterly crucial - and more complicated than it seems. For starters, don't take the contractor's word for it, even if he (or she!) shows you a license card. Ask him for the full name of the company, the owner's name and the license number. Call your state and verify the license by company name, owner name and license number. Find out whether your county has its own licensing requirements on top of the state requirements. If so, check with the county too.

Do not accept a contractor's license from a state or county other than where you live. Local law will only protect you if the contractor is licensed to do business in your jurisdiction. Some counties and states do have reciprocity agreements with their neighboring governments. That means if the contractor is licensed in state A, state B considers him qualified to be a contractor too. But it's not automatic. Make sure your state has certified, in writing, that your contractor is allowed to work there.

You also need to know the difference between a contractor's license and a business license. A contractor's license is a specialty license obtained through testing or apprenticeships. By contrast, business licenses are non-specialized. Business owners have to have one whether they're opening a flower shop or a shoe store or an accountant's office. It's possible your contractor needs a contractor's license and a business license. Just know that the latter is not proof of competence.

There's also something called an "occupancy license" or "certificate of occupancy." Many local governments require businesses to pay for one of these any time they move to a new location. It's simply a mechanism for local governments to collect more fees for the treasury and keep track of what companies are doing business in the area. For you, it's useless.

Background Check

Next, it's time to do a background check. The same state or county office that keeps track of licenses should also be able to tell you if the contractor has a complaint record. Check with the Better Business Bureau and your county and state consumer protection offices too. You should inquire about complaints listed under the company's name and also under the owner's name. This is important, because crummy contractors often change company names to erase their past.

If your state issues contractor's licenses to individuals rather than to companies, ask whether the individual who holds the license will be directly involved in your project. This is important because shady contractors have been known to "borrow" licenses from other people, which is illegal.

Find out how long the contractor has been in business. If it's an expensive project, you want to be doubly sure that you're dealing with a well-established company. Ask the contractor how many projects like yours he's done in his career. You want to establish that he has experience doing the kind of work you need.

Make sure the contractor has insurance: personal liability, worker's compensation and property damage coverage. Ask to see certificates of insurance and make sure they're current. If you do business with an uninsured contractor and something goes wrong, you could end up paying for it.

If you're spending a ton of money and you want to be the ultimate savvy consumer, go to the courthouse and find out if the contractor has ever been sued. If so, is the lawsuit cause for concern? While you're there, see if he's ever filed for bankruptcy. This could be a sign of an unstable company.

Phew! At last it's time to get some estimates. Keep in mind, many contractors charge a fee for providing an estimate. Ask, so you'll know what to expect. Even if you have to pay, be sure to get at least two quotes. The more extensive your project, the more contractors you may want to interview. Some companies charge by the day, others by the job. I prefer to be quoted a price for the job, so there are no expensive surprises if the project takes longer than expected. Get estimates in writing and make sure they're detailed. I've seen contractors scrawl a price on the back of a business card. That's not acceptable.

Once you've chosen your contractor, that detailed estimate needs to be converted into an even more elaborate contract. The contract should include the work to be done, the precise materials to be used, labor costs, subcontractors' names, a construction schedule, a payment schedule, completion date, lien releases and warranties. Make sure the contract includes clean up. Contractors are notorious for leaving junk lying around in your yard. Also beware of clauses that allow the contractor to jack up the price without your permission. Instead, "change orders' should be approved by you, in writing. Don't accept any oral promises. Have them added to the written contract. When you're satisfied, you should sign the contract and so should the contractor. If the contract is signed at your home, then you have three days to cancel it, under the "cooling off rule."


Possibly the most important part of your contract is the payment schedule. Personally I prefer not to pay any money up front. Unfortunately many contractors will not agree to that. At the very least, don't pay your first installment until the end of the first day the contractor's crew begins the project. You're trying to guard against situations in which you pay, but the contractor never shows up to do the work. Some states prohibit contractors from taking more than a third of the estimated price up front. I think that's way too much. One fair way to structure the payment schedule, is so that it closely follows the construction schedule. Don't allow your payments to get ahead of the contractor's progress. If the contractor were to suddenly go bankrupt, he'd have your money and you wouldn't have the cash to complete the renovation.

Avoid paying cash for a remodeling project. Using a credit card is a better choice. If you are paying for your project with a construction loan, make sure the bank makes the check out to you, not the contractor. Be leery of contractors who try to persuade you to get your loan from a friend of theirs. If your home has been damaged and your insurance company is providing the money for repairs, also get the check written out directly to you.

Before you make your final payment, live with the renovations a few days or weeks to make sure you're satisfied. Even though you have a warranty, it's a lot easier to get the contractor to make fixes when he's still trying to earn his fee. Look at the work in all different types of light. Test every button, switch, handle and appliance. When you're comfortable with the work and sure the contractor has paid his subcontractors, then you can sign a certificate of completion and make your final payment.

If you have already had a problem with a contractor, the most effective way to complain is to hit the company where it hurts: go after its license. File a formal, written complaint with whatever agency licenses contractors in your state. It could be the home improvement commission, the board of contractors or the department of licensing and regulation. Also file complaints with the BBB and your county and state consumer protection offices. If there's a lot of money at stake, you may have to go to court.

Telltale Signs of an Unlicensed Contractor

1. Unlicensed contractors often go door to door claiming they "just finished a job down the street."

2. They may rush you and say if you act now, you'll get a special price.

3. Unlicensed contractors either neglect to pull construction permits or they ask you to do it for them. If you do, you are assuming liability for the project, including their mistakes.

4. Some states require contractors to list their license number on their vehicles, their estimates and their advertising. If a contractor has not done that, it may be a bad sign.

5. If you see a license number in an ad, and it has a different number of letters, numerals and digits than all the other ads, it may be a fake license number.

6. Be wary if a contractor provides only a P.O. box or cell phone number. That may mean he doesn't have roots in the community and plans to move on as soon as people start to complain.

7. Unlicensed contractors often ask for a lot of money up front. Try not to pay any money in advance. If you must, keep the amount minimal.

How to Screen Contractors

1. Find out what the licensing requirements are for contractors in your state. Also check with your county. If you live in an area where contractors do not have to be licensed, you're going to have to be extra vigilant about who you hire.

2. Try to find your contractor through word of mouth. A satisfied friend or neighbor is a much better source than a free newspaper.

3. Ask to see the contractor's actual paper license. Unlicensed contractors often put fake license numbers in their advertisements.

4. Get the contractor's full name, company name and license number and double check all three with the county and state departments that license contractors. Also ask those departments if the contractor has a history of complaints.

5. Don't be fooled by "occupancy permits" or business licenses. These pieces of paper are worthless to you. Any business owner can get one. When I say "licensed contractor" I'm talking about a person who has proven their skill in the field and been awarded a specialty license just for contractors. Hint: ask the contractor if he had to take a test to get his license. He should have.

6. If the contractor is licensed in another state, but not the one where the work is to be done, that's no protection. Some states do have reciprocal agreements, where a contractor with a license in one state can be "fast tracked" to get a license in another. Until he goes through that process, don't do business with him.

7. Also make sure the contractor is licensed to perform the type of work that you need. A licensed electrician cannot do plumbing work, for example.

Web Extra: See Sample Contract

8. If you hire a general contractor, make sure the specialists he hires -like plumbers and electricians-are licensed too.Check the contractors reputation by contacting your state or county consumer affairs office and by searching the Better Business Bureau database at Also try typing the company name and owner's name into a search engine along with words like "scam" or "complaint" to see what pops up.

9. Once you've identified some properly licensed contractors, get multiple written estimates --at least three.

10. Insist on a detailed contract. Make sure everything the job entails is included. New York's Department of Consumer Affairs offers an excellent model contract, which you can download HERE.

11. Don't pay much - if any - up front. Let the payment schedule follow the construction schedule.

12. Never make the final payment until you are satisfied.

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