Avoid Renovation Headaches

A home renovation project often is a taxing and stressful undertaking. But one of the most important decisions in preparing for any size renovation is one of the first, finding a competent home contractor.

CBS News This Morning Money Editors Ken and Daria Dolan can tell you where to find a contractor, what to ask and do in making your selection, and how to set up a contract so you can protect yourself during and after the construction.

Where do you find a competent home remodeler?

• Ask people that you trust. Check with friends, neighbors, relatives and business associates for a referral.
• Check with the mortgage department of your local bank that makes home remodeling loans or your local realtor. Ask questions about the quality of work: were you able to communicate well? Did the contractor complete the work on time?
• As a last resort, you also can check the yellow pages.

  Then the search begins.

What are the first things you should ask a contractor?

• Ask a contractor for references in your area so that you may call or visit to check out the quality of their work. Check completed work and projects in progress to check the level of disruption, like how noisy or messy they are. Remember, the construction may not only affect your living conditions, it could affect your neighbors.
• Ask the contractor if he or she is a member of a professional association that has standards or a code of ethics, such as The National Association of the Remodeling Industry. Its members must have at least 5 years of experience and pass a day-long exam to earn certification. Such organizations also have free guidebooks available to the public to help in home remodeling.
• Don't be afraid to ask questions. Reputable firms will not be offended by your questions.

What homework can you do to check up on a contractor?

• First, check with your local Better Business Bureau to determine how long the company has been in business and if there have been any complaints filed against it.
• Check with your local and state housing authorities to see if the contractor is required to meet certain licensing or bonding criteria in your area, and make sure he is in compliance. A bond may protect you against substandard work that doesn't comply with building codes, but it may not protect you if the contractor does not complete the job. For large jobs, you may want a performance bond which will protect you if the contractor fails to finish, but you might have to share the costs.
• Another important matter to consider is the insurance coverage. Ask the contractor to provide in writing that the company is insured against claims covering worker's compensation, property damage and personal liability in case of an accident.

Should you upgrade your own homeownerinsurance?

• It should be sufficient if the contractor is insured, but you should at least carry $1 million in liability coverage on your homeowner's policy. The one thing you could do is upgrade your homeowner's policy before the job starts so the addition is covered as it is being built.

After checking out contractors, how do you get a fair estimate?

• Have the contractors bid on the project. You have to compare estimates from a least three different contractors. When comparing bids, make sure they cover the same work and materials, or that proper allowance has been made for any differences.
• Watch out for the lowball bid, an unrealistically low bid to get the contract. Later on all sorts of "surprises" pop up that end up costing you more in the long run. The low bid isn't necessarily the best. Look for the estimate with the best value.
• Once you have chosen a contractor and agreed upon the final plans for you home improvement, it is critical that you clarify and confirm everything in a written contract.

What should be in the contract?

• Spell out everything; a thorough description of the work to be completed.
• Require all change orders to be in writing to ensure that there is no confusion.
• Outline all terms of the contractor's warranty for completed work. A two-year unlimited warranty for all work performed is preferable.
• Set starting and completing dates, and outline the penalty for late completion.

Do you need a lawyer to draw up a contract?

No. This is something that is simple and straightforward that you should be able to do with the contractor. If for some reason you don't feel comfortable doing that, you could hire a lawyer, but that is extra money you really don't have to spend.

Are there other things you should be cautious of?

Yes, three important things:

• For a large remodeling job that involves several contractors and a substantial financial commitment, protect yourself from liens against your home in the event that the primary contractor doesn't pay the subcontractors or suppliers. You may do this by adding a "release-of-lien" clause to the contract or by placing your payments in an escrow account until the work is completed.
• Before you sign a final contract, be sure that it specifies the schedule for releasing payments to the contractor and that all oral promises are in writing. Be suspicious if you are asked to pay the entire job in advance. The down payment should be no more than one-third of the total contract price.
• If you do go through with a contracted job, don't sign a completion certificate for the work until after it has been inspected by local building authorities and properly completed according to the contract.

Any other points to be discussed with the contractor before anything is signed?

• Ask about the company's workig hours. Talk about security considerations if work must be done in the home while you are away from the house. Go over the inconveniences that you (and maybe your neighbors) will encounter during the work. And get a number where you can reach them when they are not working at you home.
• Don't panic. If you decide for any reason that you don't want to go through with the job, you can stop before anything has been signed. If you have already committed to a contract you have the right to cancel it within three business days of signing it.

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