Americans are expected to spend an estimated $317 billion in 2017 on home improvement and repairs, according to Harvard University’s Joint Center for Housing Studies.
That equals more than $2,000 per home, based on an estimated 134.7 million housing units in the United States, according to the U.S. Census Bureau.
Costs can skyrocket if you hire an unethical contractor who takes your money without giving you a quality product. In those cases, homeowners have to find someone else to redo or finish the job. The cost of home additions, renovations, and repairs could double in that case.
“There probably wasn’t a day that went by for the first six years of our business that we didn’t witness something unethical,” says Jesse Fowler, president of Tellus Design + Build, based in Los Angeles, Calif., and founder of Construction Cops, a nonprofit that exposes and prevents contractor scams.
Since renovations and repairs are major expenses, here are five common lies to watch out for when hiring or working with a contractor.
1. “I can do it in a month.”
Shady contractors often say they can get the job done faster than it will typically take.
“A lot of them want to promise back to you whatever you say. ‘I want this job finished in a month.’ ‘Yes, I can do it in a month,’” says Judy Mozen, president and founder of Handcrafted Homes, a 40-year-old contracting and home design business in Roswell, Ga. “They’re hesitant to look somebody right in the eye and say, ‘This is how long it’s going to take.’”
When Rajeev Chadda hired a contractor in 2014 to update his Atlanta home from its mid-80s aesthetic to something more modern, he was originally told the project would take no more than six months. It took them twice as long.
“The total estimate of the time, from start to finish, was underestimated by 100 percent,” says Chadda. While the contractor finished, the work was so poor that he had to hire another contractor to redo the renovation. The first contractor quoted the work at $450,000, but Chadda says he’s already spent double that amount and is trying to get the changes completed.
2. “I need 50% up front.”
While many contractors may require upfront payments for purchasing materials, such as insulation and drywall if the contractor begins with an insulation upgrade, most contractors shouldn’t demand you pay a large portion before the project is completed.
“Typical money up front is 10% plus a deposit for any finished materials you have asked the contractor to purchase on your behalf,” says Jessica Murphy, a licensed general contractor and owner of Her Cave Atlanta.
If the contractor requests a large sum of money before work has begun, Mozen says you should ask specifically what types of work or materials those payments are covering.
“Because once they have 50% and they haven’t started anything, you have to be careful of that,” she says.
Contractors sometimes have other motives, other than purchasing materials, when they ask for large amounts of money in advance, Fowler says.
“They’re just trying to get some cash in the bank to Band-Aid fix whatever issue they’re in. Then they have to figure out the actually paying for stuff later,” he says. “And that’s why a lot of projects get behind schedule, because they’re not allocating those initial funds to actually ordering stuff.”
Mozen suggests that if you find out there’s a large item, such as marble or granite countertops, that needs purchasing, find out the cost and write a check for that amount.
3. “That wasn’t included in my price.”
When a contractor says “change order,” they’re talking about amending the contract. This will happen any time a homeowner decides they want something different during the construction process. The previous agreement between the contractor and homeowner needs to be changed.
For example, if an island is planned for the kitchen and you later decide you want to include a sink, that would result in a “change order” with additional costs for work such as new plumbing, Murphy says.
Some unethical contractors base their business model on change orders, Fowler says.Some contractors will low-ball their estimate while purposefully not including certain work, such as painting, that the homeowner may not know to specifically request. When asking the contractor about these missing items, the homeowner will typically be told that these missing items were not included in the low estimate.
"But they want to get into a contract with somebody with as few specifics as possible and they want the surprises to happen because surprises mean change orders, and change orders are where contractors make their money,” Fowler says.
If the contractor begins work and cuts into a wall only to find a pipe is in the way, this will require a change order and will cost the homeowner anywhere from as low as $50 to thousands of dollars depending on the change order and contractor. Fowler says that the change order in this case could have been avoided.
“It would have taken about 10 minutes and they would have seen the pipe,” he says.
Tips for hiring a contractor
Ask for references. References can prevent you from being a victim during a remodeling project. While it can be time consuming to call or email references, it’s important to properly vet your contractor. Mozen adds that you should not rely on online reviews but instead talk to “real, live references.”
Then you can check out your future contractor online, using companies that independently evaluate remodelers and builders. Mozen recommends GuildQuality, an independent survey company that sends questionnaires to be filled out by clients after a job is completed.
Choose a contractor with credentials. Not all states require contractors to have a license, which means that many contractors can work without a degree or oversight. But hiring a licensed contractor removes some of the liability, if something goes wrong, off the homeowner.
The first question that Murphy says homeowners should ask when hiring a contractor is, “Are you licensed and insured?”
“Another thing that’s really important to ask about is insurance,” says Mozen. “You want to make sure you have a copy of their insurance certificate showing that they have liability and workman’s comp insurance if anyone is hurt on your property or any damage is done extensively to the property that is beyond the contract that you have with them.”
The National Association of the Remodeling Industry (NARI) has a code of ethics for its members. The association provides remediation and solutions for homeowners and contractors, as well as nine certification and education programs. Depending on the chapter, NARI members pay between $280 and $700 annually.
“Professional associations lend credibility,” says Mozen, a NARI officer and immediate past president.
Mozen also suggests looking for professionals who must take classes each year to stay certified.
In order to become a NARI Certified Remodeler, members must take an exam, meet several qualifications, including having been in the business for five or more years, and pay a $450 fee. NARI offers nine certification and education classes, including a lead contractor certification, a universal design professional certification, and a master remodeler certification.
Confirm that there is a one-year warranty. This is an industry standard for anything a contractor installs in your home, says Murphy. Although this doesn’t apply to normal wear and tear, ethical contractors will agree to replace for free anything that stops working or breaks within the first year. For example, if a pipe bursts or an outlet is faulty.
“It shouldn’t be an added cost; it’s the contractor’s reputation, and if a contractor isn’t willing to stand behind their work for a year, then they’re not worth hiring,” Murphy says.
It is up to the homeowner to ensure that this one-year warranty is included in the contract, as well as to notify the contractor if anything happens to break while under warranty.
Evaluate more than a low bid. While finding ways to save money is tempting, the construction team may cut corners, which can cost you more money in the long run.
Before signing with a contractor, ask to see an outline of the changes that will be made and materials that will be used. Low bidders may use vague descriptions, such as “build out new master bedroom” or “complete master bathroom remodel.” That may mean you’re responsible also for buying all the materials.
“Anything that you don’t really understand or seems like there should be more detail, nine times out of ten there does need to be more detail, and those are the areas where contractors are going to try to screw you,” Fowler says.
Plan milestone payments. In order to make sure you’re getting the most work done for your money, try paying on a milestone schedule, Mozen says. With this schedule, the contractor is paid every time a predetermined milestone is completed.
Milestone schedules give the construction crew goals to work toward, while the homeowners have visuals so they can know exactly how their money is being used. For example, the end of demolition and completion of wiring could be a milestone, or when the sheetrock is installed.
“They should be willing to prove the value they’re providing on a weekly basis so that everybody is comfortable,” Murphy says. “The homeowner is comfortable that they’re not out a whole bunch of money and not getting what they paid for and it’s covering the contractor’s expenses. Everybody is comfortable with how much money has been paid out at any given time.”
Make sure each stage of the payment is in writing and broken down by expense, Mozen says.
“You’ve got to have things in writing,” she says. “It’s one of the largest expenditures of your lifetime.”
Magnify Money is a price comparison and financial education website, founded by former bankers who use their knowledge of how the system works to help you save money.