Finding a contractor. This is an often difficult for the beginner and can delay rehab projects. Once you get rolling and have built your specialty and general contractors list you will save time, skipping the search going right to putting the job out for bid.
The obvious and easiest way to find contractors. Try to secure referrals from other investors and friends; somebody you know who has had a positive experience with this contractor. A recommendation is worth quite a bit. But don’t just accept an endorsement. There is much more to it.
You need answers to these questions.
- Is he/she licensed and insured?
- Does he/she pull permits where required?
- Do they start on time?
- Where their past jobs completed on time?
- Talk to past clients, were there cost overruns?
- Talk to past clients did you have to chase them at the end to clean up and do the punch list items?
- Talk to past clients were there any mechanic’s or materialmen’s liens issues?
- Talk to past clients did the contractor have suggestions for improving the job or cost savings?
Give me two apparently equal contractors, and one has suggested a way to save me money on the job, he has some ethics and would get my work. It also shows he is planning on working for you again, not merely looking to hit a home-run on this one job.
State/county license databases
You could search the city, state or county databases. If you reside in a larger municipality, they likely have on-line contractor license databases where you can go in and search given parameters. It might be a license category you are seeking, say roofers or plumbers. Some databases allow you to check to see if they are licensed, that it is active and in good standing. While this will do nothing to verify a contractor’s performance history and insurance qualifications, it will alert you as to whether they have a valid license for the proposed work. (San Antonio Contractor Search)
Typically, if you go to your state’s website and find the licensing or construction division, you can navigate your way to an actual license search. Most states have this. You’ll learn which contractor licenses are issued by the state (thus allowing the contractor to work throughout that state) or at the county level. County issued licenses typically limit the contractor to performing work in that county. Licensing requirements vary a greatly from county to county. Do your homework before hiring your contractor(s).
Drive new construction job sites
Drive by job sites where new residential construction is taking place. If a contractor already works for residential homebuilders it means they possess the two main pre-requisites you want from somebody on your projects: Trade licenses and insurance. Homebuilders require subcontractors to carry high policy limits so as to protect themselves from as much litigation as possible.
If they are a painter, cabinet installer, a flooring contractor, etc. they may not need a license for that municipality. More than likely electricians, plumbers, framers, roofers, and the general contractors will be licensed if they are working for a builder.
And, of course, there is insurance. You want to be sure the contractors you choose have the appropriate insurance coverage, specifically general liability and workers compensation. Home builders are sticklers for verifying policies for accuracy, as well as being in force. If they’re active on the job site, their insurance is active too. Get the certificate with you as additionally names insured from them.
Builders rarely hire a contractor working out of his garage. They want to hire a qualified business entity. This is what you want as well. If you hire a guy in a pickup truck because he is the low bid, you will be hiring a problem. Run your rehab business like a business and hire professionals.
Qualifying Your Contractor
Too often in Re-habeas hire someone we like or the first contractor we find. Fight this urge, because you can bet that the contractor you hired because he seems like a good guy or is convenient will ultimately cause you to reach for the aspirin, as well as your checkbook.
You must have criteria for contractor selection:
The quality of the contractor’s references is more important than the quantity of the references.
- References should be no more than 12 months old.
- The reference needs to contain the name and contact information of the customer? Contact the customer and ask the same questions mentioned earlier.
- References with job addresses, but no contact information, are worthless
- The contractor should provide you with three to four Job references.
Contacting references and asking these questions is a necessity. You must do it… or troubles will follow, it always does.
If you’re unsure as to what trades require licensing, the way to find out is to check with your local building department. Requirements will vary city to city. Some professional licenses are required by and issued at the state level, but for the most part, your building department will be able to verify whether licenses are required for the given job at hand.
You will probably find that the finish trades (i.e., painting, flooring, cabinets, countertops and trim work) do not require a license.
Licenses (and thus, permits) are most likely to be required in structural trades such as roofing, framing, or building a deck, and trades that may affect life safety such as electrical, plumbing, and asbestos abatement.
You want to make sure that any contractor that you allow on to your property has active and
general liability and workers’ compensation coverage. They should be willing to provide you with an insurance certificate.
Liability insurance is important. If workers on your property cause damage to your property, or even a neighbor’s property you could be liable. Personal injury or Liability insurance provides for coverage to individuals getting hurt on the job. Absent contractor liability coverage, whoever suffered the loss will go after someone, and that someone is you.
The risk from contractors and workers is and if an injury is sustained while on your property. You can be left holding the bag if a worker is injured while on your property and the contractor did not have insurance. They can sue you personally and your business entity, and go after your insurance policy unless the contractor had valid and active workers’ compensation coverage. With insurance in place, the job site becomes their “place of work” and the injured party must go after their employer’s workers’ comp policy first, which is usually enough to cover the claim.
The owner of the contracting company may have workers’ comp exemptions for themselves. Most states allow for a company’s principals or senior executives to exempt themselves from workers’ compensation coverage. Get a copy of the insurance certificate. Make it a requirement in your construction agreement contract. Insist on building permits and proof of insurance they go hand in hand if something goes wrong.
Warnings of Problems to Come
So here are some things to look out for when selecting a contractor.
The Contractor offers a cash discount
Be very leery of anybody offering you a cash discount. You give him some cash and may never see him again. You might think you will sue him, but it is seldom cost effective if you do sue you’re often left with nothing but the legal bill. Even if he had good intentions, once people are paid, the incentive to get the job is lost.
The big down payment
If the contractor, ask you for a big down payment you run the risk of being taken by the contractor who disappears with the down payment. Some contractors will say they need the down payment to pay for materials. Any contractor that runs a business has some form of credit, be it a retail home improvement center credit card or at a supply house.
Work with a contractor that has enough of a business history so that they at least have some credit with a supplier. If they can’t afford to buy some of the materials, offer to pay for the materials directly yourself at the home supply store.
Contractors have lien rights. You have nothing to protect you. So, the contractor needs to bear most of the risk, not you. Limit your down payment to 20 percent.
If a contractor has materials delivered to your job that is not paid for, and he does not pay for them, the company who sold the materials can put a lien on your property. Insist all materials delivered to the job be paid for.
No address or business phone number
This screams PROBLEM! We have all heard about the contractors who are working out of a truck or a garage, and their story is they’re just getting started. If that is true, let someone else be the guinea pig. The contractor who is really a handyman will make you miserable if the relationship goes sour, they over promise, and under deliver, you will have to try to track them down, and always be pushing them to get the job finished fighting one costly delay after another.
You want to hire a contracting entity…a business. Not an individual. If they out of their truck, they likely do the all the work personally. Your entire project can come to a halt, if he is sick, on vacation, or gets hurt. Individuals are hired for handy-man work, not the professional rehabber.
A contract who does not pull permits
Perhaps the scariest Red Flag is this one. “Why would a contractor avoid pulling a permit?” Any licensed contractor will want to protect his biggest asset, his license! In the trades, the license is everything. Contractors know if they’re caught by the building department doing work without pulling a permit where required, it puts their license at risk. The only reason to not pull a permit is that the contractor does not have a license.
An unlicensed contractor may suggest that you pull the permit as the homeowner to save you money. Or, he says you don’t need to pull a permit because he does this all the time. What he is really saying is he can’t pull a permit, because he doesn’t have a license or lost his license, or has open complaints at the permit office, or no insurance.
If you didn’t pull a permit and you try to sell the house and there is some kind of house structural damage or loss of life you could be liable. Ultimately it comes back to you because you did not pull a permit. I can’t stress this enough. Demand permits if the city building department does.
Most states require the license holder to be either a principal or an employee of the company who is “materially involved in the day to day field operations” of the company. The person who signs your work contract needs to be the license holder or company principal. The company is supposed to have a licensed individual involved in the day to day operations.
Verify the license is active
Contractors are notorious for allowing licenses to lapse, especially if work is slow and they cannot afford the renewal fees. They are not going to be able to pull permits. Call and verify with the licensing board either at the state level or the county level.
Don’t focus on the low bid
Let’s talk about selecting a contractor. Typically, if you go with the low bid you are going to get what you pay for. I recommend that you focus on getting the best contractor available at their best price, even if they cost you a bit more than the low bid. It is hard for any contractor to provide all the license and insurance requirements that you need to protect your job and still be the low bidder.
Often the low bid will cost you more money than getting the best price from the best contractor. Why? Time. Not only do the low bid contractors nickel and dime you with the little things along the way. A good contractor will want to get in and get out of the project as soon as possible and get on to the next one. A low bid contractor takes more time to complete the project. In the meantime, your cost goes on; you are paying the monthly mortgage and insurance, utilities and maintenance of the house.
Many contractors will ‘low-ball’ you upfront, once they’re on the job they can dictate price increases or ‘extras’ as the job progresses. Follow these suggestions and the ‘low-ball’ contractors will pass on your job because the contract structure won’t allow for extras.
Something to look for in a contractor is one that practices “value engineering.” Value engineering means, “Is there a less expensive way to achieve the desired outcome than what I specified?” For example, suppose you specifying things like sculptured carpeting and granite counter-tops, and the Contractor suggests you stick with laminate counter-tops and builder grade carpet. The less costly items may be more in line with the market values of the neighborhood.
The contractor might be able to identify less costly finishes or things you simply don’t need. A good remodeling contractor knows what works, what is cost-effective and what looks good but does not add value. They can make recommendations, on doors, appliances, floor coverings and paint.
A good contractor considers you an account, not a one-time sale. He looks to establish a long-term business relationship. Suggesting ways to save you money shows some integrity and that they are looking to do some future business with you! Good contractors know your referrals will keep them working.