Are you planning a major home improvement project in the near future? If so, you're probably in the market for a contractor. Finding the right professional to handle such a project can be tricky; trickier still is getting a great job at a fair price.


Case in point: A few years ago, my neighbor hired a contractor he knew socially to do a major home remodel. The contractor agreed to work on a "time and materials" basis, charging an hourly rate and passing along expenses for plumbers, electricians, and other workers. My neighbor agreed to pay for all materials. This deal sounded good, though the details were a bit fuzzy.


His remodel should have cost $100,000, tops. Instead, he spent more than $225,000. Hours raged out of control, and the contractor employed family members, paying them well out of my neighbor's pocket. The moral: Shop around for reputable contractors, and forge a written agreement that is clear and fair.


Try these techniques:

§                     Choose a contractor through personal recommendations. Get referrals from friends or neighbors who have had similar work done.

§                     If you can't find a personal reference, ask local building supply dealers to recommend reputable contractors. Try online services such as—but be sure the service has a strong method of certifying their contractors. As a last resort, check the phone book.

§                     After you've put together a short list, call and pre-qualify several contractors. Find out whether each one is licensed and insured for worker's compensation, property damage, and personal liability.

§                     From each contractor, request names and phone numbers of a few satisfied customers. Call these references and ask to see the contractor's work. Don't be shy. Most people who've recently remodeled want to show off their homes, and they'll go out of their way to help secure another job for a contractor they like.

§                     Choose at least three contractors for a formal bid request. Give each one the same plans and specifications. Generally speaking, a bid that looks too good to be true probably is; if one bid is much lower than the others, suspect inexperience or desperation (the latter isn't necessarily a problem).

§                     Chemistry with your contractor is critical—this person may be in your midst for several months, and you may haggle over difficult issues.

§                     Ask whether the contractor will be working only on your job or managing multiple projects at the same time. Find out whether the contractor will supervise your job on site or hand it off to a foreman.

§                     When you've made a selection, ask to see the contractor's license and double-check insurance coverage.

Make a Written Agreement

At this point, you and your contractor should agree upon a written contract and both of you should sign it. The contract should include at least the following:

§                     Both of your names and addresses.

§                     Details of all work to be performed. Think through your plans completely. Contractors charge for changes to the written plans, particularly if more work or more expensive materials are required. Such charges can send your budget though the roof.

§                     Specifications regarding who will be responsible for demolition, cleanup, and trash collection.

§                     Materials to be purchased. When specifying materials, avoid the term "or equal," or make it clear in writing that substitutions can't be made without your approval. If you agree to a separate budget for items you haven't selected yet, be sure the budget figure is high enough to cover their costs. Do your homework: Price the fixtures and finishes you want at a home improvement center.

§                     Payments and dates. Include a completion date and details on when and how payments will be made. Never pay more money than enough to cover work completed and materials delivered to the job—it's okay to request copies of invoices for the latter.


Final tips:

§                     If the contractor requests a deposit before starting the job, do not pay more than 10 percent or $1000, whichever is lower. Make additional payments as the work progresses. This strategy continually motivates the contractor and protects you from the possibility of a contractor disappearing after you've made early payments. Remember: Money is your only leverage for getting things done.

§                     Don't sign a completion statement or make the final payment until the job has passed final inspection. Be aware that materials suppliers or subcontractors to whom your contractor owes money can place a lien against your property.

§                     You can protect yourself from liens by adding a release-of-lien clause to your contract or asking for proof of payment by your contractor. Another somewhat expensive option is to issue a portion of your payments to an escrow account to be held until the work is completed.