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How to Avoid Unforeseen Costs When Hiring a Contractor

They say that knowledge is power. And when it comes to hiring a contractor, arming yourself with the right information can help you avoid unforeseen costs that can lead to delays and failed home improvement projects.

In this blog post, I’ll share with you my half-century of hands-on contractor experience. You’ll learn how to read between the lines and think outside of the box to avoid damage and delays that can blow your budget.

Read the Contract

Nearly every home improvement project should begin with the signing of a contract. To start this process, request that the contract be sent to you over email. This will prevent the contractor from coming to your home with the expectation that you must read and sign the contract on the spot. Since the contractor is the author of the agreement, they’ll include language and terms that best suit their interests instead of yours.

With adequate time, you’ll be able to:

  1. Fully read the entire contents of the contract and make notes on items you don’t understand. You’ll also be able to look for parts of the agreement that were previously promised to ensure they’re included.
  2. Pay close attention to the presented payment schedule including the start and completion date.
  3. Confirm that materials are specified to ensure that they’ll be high-quality.

The contract is a valuable document that helps both parties avoid unforeseen problems and additional costs. A reputable contractor will give you sufficient time to study it before you sign.

Feel free to ask the contractor to reword sections that need to be amended. If the contractor cannot or will not change the contract to suit your needs, hire someone else. As a homeowner, you have every right to protect your best interests by analyzing and requesting changes or additional language.

To further protect yourself, request that your contractor email you a copy of their insurance (workers’ compensation and general liability) as well as their home improvement license.

Know the Warning Signs of a Shady Contractor

Beware of contractors who:

  • Request a Large Down Payment – A large down payment could be an indication that your contractor is mismanaging funds or funding other projects with your money. Should those other projects fail, your contractor may run out of money before they’re able to finish yours.
  • Require a Low Final Payment– Avoid contractors who require the bulk of the payment before the project is completed. Should you and your contractor disagree, this leaves you with little leverage to settle your differences.
  • Require Payments Starting at the Beginning of a Construction Phase –Most contractors will request payments to buy materials, but then require little else until the work is complete.
  • Set Payment Amounts that Exceed the Percentage of Work Completed– Again, a reputable contractor will charge a client for work completed, not work yet to be done.

Know What You Want to See in a Contract

Knowing what you want when you set out to negotiate a construction contract can help you achieve your goals. Here are a few things to consider:

  • Initial Deposit Amount– Your initial deposit should not be more than 10% of the total value of the project, except in cases where expensive special-order items need to be purchased. If this is the case, your contractor may increase the suggested 10% down-payment. You should then maintain the 10% down payment and only pay the remaining balance when the building permit is obtained, and you’ve received a copy.
  • Permits for Specific Items– If the special-order items require a permit before installation, pay your contractor the 10% suggested down payment and ask them to obtain the permit. Then, wait to pay the additional amount over the 10% deposit until after it has been pulled. No contractor should purchase any special-order item until they have a permit in hand.

 

Add language stating that the homeowner will receive a copy of the permit (if required) before work begins. Request the final payment amount to be equal to the down-payment amount, and add language stating that it’s not due until all final inspections are approved.

  • The Punch List– Include a clause that addresses the completion of the punch listIn a construction project, this is a list of items yet to be completed. During the construction project, the punch list might include a variety of items that need to be corrected. The contract should state that these will be fixed before issuing intermediate payments. That way, you can be assured the contractor has an incentive to complete the project.
  • Payment Schedule – Request language stating that payment is due upon completion of a phase, rather than at the beginning of a phase. For intermediate payments, it’s best to include an exact list of what required work must be completed before each payment will be made. This makes it easier to track payments compared to output.
  • A Penalty Clause Request a penalty clause for each day that work begins or finishes late. This protects you from contractors who incorrectly state that they can start earlier than realistically possible.

Compare Contracts

Compare contractor proposals and look for omissions – don’t assume that all contractors are providing the same service. Examples of omissions to watch for include:

  • Permits
  • Dumpster Rental to Haul Away Debris
  • Portable Toilet Rental (for Large Projects)
  • Supply of Electrical Light Fixtures
  • Lawn Repairs (Should an Additional Foundation Be Constructed)
  • Taxes
  • Delivery

Watching for these omissions will help you avoid unforeseen costs and may also lead you to hire another contractor who has included these items in their quote. If the contractor insists that those items are not necessary for your job, request a list of “excluded items” to be included in the contract.

Add A Clause Stating That All Work Will Be Done to Code

This added language will supersede any language in the contract that describes supplies and tasks performed. Should your contractor not be up to date or knowledgeable of existing codes in either building, electrical, plumbing, or heating, then you can’t be charged for additional upgrades of material or labor involved to meet these requirements.

For example, suppose your contractor specified in their contract the use of a two-by-six ceiling joist, two-by-four exterior studs, R-30 (nine inches thick) fiberglass insulation, and installation of a standard window in the bathroom. If the inspection reveals that this work does not meet standard building codes, the words “all work will be done to code” ensures that your contractor can’t charge you for the additional cost of materials and time. This language also includes items any contractor forgot to include in the contract, possibly because they were unaware of existing or changing codes.

In some cases, homeowners assume that certain features are implied by the phrase “all work will be done to code.” However, not all features are required. For example, a homeowner may presume that ceiling fixtures are required in a bedroom addition, den, or family room, when, in fact, they are not. These rooms are only required to have an entrance switch wired to a selected wall outlet. Or, a homeowner may presume that an exhaust fan is included in the new or remodeled bathroom. However, if the bathroom has a window, this is not the case. A homeowner may also believe that gutters and leaders are included with their home addition, when, in fact, this is not a code requirement. To avoid these miscommunications, request that all provided labor and material be outlined in the contract, even if building codes require it.

Outline All Provided Merchandise in the Contract

Some contractors undercut others in their field by installing bottom-of-the-line products. Requesting that all merchandise be listed in the contract enables you to review the items that the contractor will purchase and ensures that your contractor will be installing quality products.

If you fail to do this, you could be misled into thinking that you’re hiring a reasonably-priced contractor, when in reality, their quote is low only because they’re giving you the cheapest options.

Examples of merchandise that could easily be swapped for lesser quality products include:

  • Roof Shingles– Cheaper options come with a 20-year warranty, while high-quality shingles include lifetime protection.
  • Wall, Floor, and Roof Sheathing Plywood– Quality plywood costs $26.00 per sheet compared to a wafer board sheet, which sells for half the price.
  • Interior Trim (Base Molding, Window and Door Casing, Window Sills, Door and Window Jambs)– These products can be found in either solid pine or MDF (Medium Density Fiberboard). MDF is 50% less expensive than pine and prone to swelling.
  • Interior Doors (Both Slabs and Pre-Hung)– Doors can have a solid or hollow core. A hollow core is 50% less expensive.

Never accept a “generic” description of merchandise, such as “We are supplying and installing roof shingles, windows, and interior doors.” A better description would read, “We are installing GAF lifetime warranty architectural roof shingles and Andersen windows (400 series). The windows include grids to match present house style, screens, hardware, and interior/exterior finishes in white vinyl. Interior trim is clear pine (no knots), and interior doors are hollow core, six-panel, and include brush nickel hardware.”

When details are present in the contract, you can ensure that you are getting the exact materials you want and are paying for.

Include Allowance Items in the Contract

Additional merchandise to be specified in proposals and eventually included in the contract are known as “allowance items.” Allowance items are selected only by the homeowner because they are based on personal taste. Examples include toilets, tubs, floor and wall tiles, vanities, faucets, carpet, kitchen cabinets, medicine cabinets, counters, electrical light fixtures, and laminate flooring.

If you haven’t yet selected these items during the preliminary bidding process, have the initial contractor arbitrarily place an average price value on all merchandise. To help you compare bids from different contractors, relay this arbitrary price to everyone else who proposes a bid. This helps ensure that each contractor is bidding “apples to apples,” thus not misleading you into thinking you’re hiring a reasonable builder – when in reality, their bid is low because they are figuring on the cheapest selection.

After signing a contract with the builder of your choice, shop around for these items to determine the actual cost of the contract. You can do this by totaling the “allowance” amounts to your selections to see if the actual totals are over or under the assumed amount. If under, you should receive a credit for the difference. If over, you’ll pay the difference.

Add a Wish List

Another way to avoid unforeseen costs is to request a separate “wish list” of items that you may later consider when gathering initial quotes. This will enable you to lock in on a price, should you eventually hire that contractor and add this project to the contract as an additional work order.

This method will most likely present a more favorable cost to you because, at this stage, you have not yet committed to whom you will hire. Therefore, you have leverage during the selection process. Should you wait to do this until after the contract is signed, the cost would be higher because the contractor is no longer bidding against anyone else, giving them the leverage.

Add A Margin of Error

It’s common for contractors to encounter unforeseen costs from hidden damage when they remodel a home. Dry rot, mold, leaks, and other problems can all be revealed when the walls of a home are torn open. Most contractors will include language that allows for additional costs to be incurred during the demolition stage. For example, a contract might state that “any rotten wood, code violations, or obstacles in the wall, ceiling, floor, or ground that needs to be either moved, relocated, or replaced will be an additional charge.”

The contractor will not name a price because it’s not yet known what kind of repair, if any, must be performed. You can anticipate these costs by adding 10% to any contractor bid. This margin of error will enable you to plan for these costs even if they’re not incurred.

One of the major reasons that unforeseen costs occur is because contractors can’t see through walls, ceilings, floors, or the ground to determine which obstacles they will encounter. Within the walls of any home, there may be rotten or missing materials as well as code violations. The contractor has the obligation to correct and be compensated monetarily if this is the case. However, contractors must take the time to properly and thoroughly inspect all exposed locations at the proposed and abutting areas associated with the project.

For example, if the proposed project is an addition, the existing electrical panel must be inspected to determine whether it has room for the additional required circuits. The same applies to the furnace or boiler, which must be examined to ensure that it is large enough to accommodate the extra cubic footage of the house. If the electrical panel, furnace, or boiler cannot cover the addition, a replacement is necessary.

You should relay any code violations or required upgrades to all contractors. This will go a long way in preventing unforeseen costs. Remember, you’re likely to get a better deal from a contractor before you sign a contract.

As a homeowner, it’s your responsibility to tell your contractor about any known code violations in your walls. If you’re upfront about the costs, you can have a more accurate idea of what kind of repairs your contractor will have to make once the project begins.

Work with an Honest Contractor

My final advice is to vet your contractor to ensure that you’re working with an honest professional. A contractor with integrity will be upfront about the costs of your home improvement project – even if that means the job will be awarded to someone else.

You can identify a good contractor by checking references, getting referrals, and of course, verifying licensure. Interview each contractor you’re thinking about hiring – meet face-to-face on the job site and be sure to ask scrutinizing questions. Each contractor should make an effort to explore your property and identify possible problems that could arise during the project. If one contractor fails to do this, hire someone else. Only by doing your due diligence can you protect yourself from unforeseen construction costs.

If you’re looking for a reputable contractor with full transparency, contact Arnone Building and Remodeling Inc. today. We’re committed to you and providing the best service possible, without the excuses.

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