Ep 012 - How to Hire a Contractor for Remodel Projects
John Bodrozic and Beth Dodson walk through hiring a contractor for kitchen, bathroom, or addition remodels. Get 2-3 detailed bids, use milestone payments (10-20% upfront, 10-15% held back), and nail down change orders in writing before work starts. Confirm their license, insurance, and references from similar past projects.
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Welcome to Be a Smarter Homeowner Podcast, where you'll discover strategies to save money, save time, and be better organized in managing your largest financial asset and biggest expense, your home. Your hosts, John Bodrozic and Beth Dodson, who are co-founders of HomeZada, have been supporting homeowners for over 20 years. They are here to share with you their tips and suggestions, as well as interviews with industry experts, with the goal of helping you become a smarter homeowner. Now, here's your hosts, John and Beth.
Welcome to another episode of Be a Smarter Homeowner podcast. Today, we've got an exciting show for you, which is all about home remodeling, because we know Americans love to spend lots of money remodeling their home. But one of the big challenges, how to go about hiring a contractor. So Beth, what do you think about what it is to hire a contractor?
So hiring a contractor can be challenging. Doing a remodel project can be challenging, but combining them together just adds more complexity. So we want to talk about what steps you need to consider when hiring a contractor. And one of the things that we've talked about in the past is What do you need to do to be prepared before you even consider hiring a contractor when you're going to do some sort of remodel project?
Absolutely. Great question, Elizabeth. And it really has to do with what I call the— you as a homeowner have to be prepared and create a plan before you even go out and start looking for a contractor. And we recently, or I recently read a story that has a great graphic that talks about— I think it was put out by a magazine called Pro Remodeler. And that graphic basically was sponsored by Lowe's, and they interviewed both homeowners and contractors. And it basically said, what are the challenges that homeowners face with dealing with contractors? And the near number one on the top of the list on this chart is not clear on project costs. And that is going to be an absolute theme that we're going to spend time going on.
To scope as well.
Throughout the next 30 minutes, which is how do you arrive at project cost? And I'd like to start off high level, which is not all remodel projects are created equally.
That's correct.
Right.
When you think about what you put into your home, a kitchen remodel or a home addition or a bathroom remodel tend to be larger-scale projects.
That's correct.
Right. Versus I just want to change out the flooring or carpet in a room, smaller-scale project. I'm going to maybe focus in on the larger-scale projects on this episode because those are the ones that tend to be the ones that get hired As it relates to a contractor.
And they actually involve a longer period of time with more complexity.
That's correct. And just about every friend, family member, customer, homeowner I've ever talked to— here's an example. It's like, I want to do a kitchen remodel. How much is it going to cost?
What's your scope? And they— what do you want?
They expect a contractor to just read their mind and say, oh yeah, it's going to cost X. And my analogy is if somebody came to you and said, hey, Beth, I want to buy a car. How much is a car going to cost me?
Which one?
Exactly. Do you want, do you want the low-end Kia? Do you want the high-end Audi? Do you want the SUV?
Yes.
Do you want the, you know, V10?
The Bentley?
The Bentley. Do you want, uh, what, what is the scope of what you want? And, and, and more or less, what's your budget?
Yes.
Yes, because oftentimes you may want that sports car. But you can't afford that sports car. That's correct.
Exactly. That's the reality of life.
So it really goes into before you even start planning a contractor. One of the big things that I like to tell people is do the upfront planning over trying to determine the scope.
Okay.
And I'll use a kitchen remodel as an example. Right. So you might have an existing house with a kitchen and it's got a geometric layout, right? You've got cabinets and walls.
An existing one.
An existing kitchen layout. Right. If you just want to tear everything out because it's old and needs replacement, but you're not going to move any of the walls, that's going to be less cost because you're not moving walls.
But if you're— And that thus means you're probably not moving appliances either.
That's correct. And if you— but if you decide you want to relocate things because you want to tear out some walls or reconfigure things and move appliances to different locations, the costs are going to be significantly higher. Why? Because all those appliances need electrical power.
Essentially gas, water.
Gas, water for your sink and dishwasher, all that sort of plumbing and electrical has to get moved into the walls to match where those appliances are. So A, that's like an example of determining scope, is like the geometric configuration in a kitchen remodel.
And whether you want to move items or not.
Absolutely. Another huge aspect of do the research over what types of products you want to put in your kitchen remodel. And it may, it may even start with what I call a theme. Do you want a totally hip modern look? Do you want an Italian Tuscan look? You know, do you want a traditional— yeah, a country style kitchen? I mean, farmhouse, go online. There's all kinds of sites where you can get all kinds of themes over what you want your design look to look like.
Yes.
But then drilling down even more specifically into that, which is you're going to have to choose your appliances. Do you want Sub-Zero, GE, Whirlpool?
Yeah.
It's gonna have a huge impact on what your cost is.
Yeah, your budgets are gonna change accordingly.
Absolutely. And that, that gets into if you're gonna go with high-end sort of products, your budget's gonna grow. Moderate product, products, it's gonna minimize. And then low-end products, it's gonna be cheaper. But before you have that first discussion with a contractor, if you've done the research over kind of like Hey, I want this theme and this is what I want, and I've got some idea over what products.
When you can start off a relationship with your contractor in a positive way, the relationship can continue to move in that direction if you're managing the process. And then the other thing is, if you are providing your contractor with clarity of what you want, from the style of the project to some of the finishes that you may want, then that gets them off to a much faster, easier start. Where they can go and start ordering the products if they are the one placing the orders.
Agreed, but we're not going to jump to the ordering. Let's get to the am I going to hire this contractor or not? Yeah, right. Because ultimately, what you're going to ask these contractors is can you give me a price? Right.
An estimate.
An estimate. And they're going to say well, what do you want? Right. So if you've already got the ideas over what you want, they're much more capable of giving you an estimate kind of mentality.
A clear one.
A clear one because at the end of the day, at the you know, I look at a remodel project like a kitchen. It really falls into like three or four. categories of costs that the contractor has to put together. A, what is the cost to buy all the materials that you want?
Yes.
B, what's the labor cost to demolition your current kitchen and throw all that material away? B— sorry, C is the labor cost to install all of the things that you're buying.
That's correct.
Right. And then obviously the overhead of their business and their profit margin and their transportation costs. And if they're, you know, insurance costs and all that kind of wrapped into their cost Those all, those things all come together when a contractor puts together a bid, but a huge chunk of it is what are the products that you want to put into your remodel? Yes.
And for those people who, what if those people don't know what they want?
I mean, clearly, you know, contractors who've done this stuff before oftentimes engage with clients who may not know what they want. So they may have design ideas themselves, meaning they may have a design process that they could guide you through. To, well, do you want granite countertops or do you want Corian countertops or do you want, you know, custom cabinets or do you want stock cabinets? They're going to probably potentially have a Q&A with you if you haven't done all that upfront research over those different products that you want.
But you're going to have to be patient and take the time to sit with them to go over this.
Yeah, absolutely. Again, unless you know already what you want, right? Then so much easier once you get into knowing what you want. Now you can start the process of saying, okay, Which contractor am I going to hire? Where am I going to find the contractors? And oftentimes I tell people, if it's a bigger project, you probably want to get 2 to 3 bids or 2 to 3 estimates for a variety of reasons. One is you may end up getting some cost efficiencies, right?
Sure.
In terms of, let's face it, if the market's hot and, you know, the contractors are being competitive on what they're willing to price, You may end up saving some, some money. Oftentimes it may also be availability, meaning you might—
True.
You might be ready to start your project in 30 days, but 2 of your contractors are not— they're booked up and can't start for another 4 months. Right. And another contractor may be able to be finishing up a job and start your job, you know, in your timeframe.
Timing is everything.
So timing, cost is why I kind of recommend, you know, getting bids for 3 contractors. And the next phase is really where do I go find 3 or 4 contractors to get bids from?
Yes, that is correct.
Do you have any advice on that, or should I just jump in on my opinion?
So I think part of the, part of the thing that I do personally is I do talk to friends and family and neighbors who have used contractors before. If we— I remember when we built our house, we actually talked to the real estate agent who was very familiar with quality contractors. And believe you me, I have a lot of friends that are in real estate as well in my local community. I call them all the time. Because they just know who are great contractors and who they can recommend. And so that's also really valuable. I start there. And then obviously both you and I together sit down with these contractors to review the scope, the process, what their process is before we get started with them.
Yes. So talk to referrals, friends, family, but there's also a lot of online sites. that are what I call marketplaces that have contractors, whether it's companies like Houzz, Home Depot, Lowe's, HomeAdvisor, they all have sort of, you can sort of peruse those to find potential contractors.
And some of them you can actually see their work because they post the photographs of their work as well. So if they have before and afters, you can see some of the value that they bring to the table.
Absolutely. And some of the other, you know, getting into the other segue over how to determine which contractor to hire, Of course, you're going to want an estimate, but you're probably going to want to ask a bunch of other questions of your contractor as well, right? And one of the key ones that I like to start off with, and I know that we've got a couple of blog posts on our, on our, on our site. If you go to homesauto.com and just hit blog, you could search for how to hire a contractor there. And a lot of it has to do with, do they have a current contractor's license?
Yes. Up to date.
There are, let's face it, a lot of contractors who don't keep their contractor's license up to date, or they're startups and they haven't gone through the effort of getting a contractor's license. And most states, I think all, pretty much all 50 states will have a licensing process to ensure that the contractors are reputable businesses.
Yes, and they have to pass tests, by the way, to make sure that they get those licenses.
Another huge thing is, do they have insurance?
Oh yes.
Both workman's comp insurance and general liability insurance, right? They're coming into—
Super important.
They're coming into your house. What happens if one of their workers has an accident in your house and gets injured?
Correct.
You want to make sure that they have the insurance that's covered for that, right? If something happens where they cause damage to either your house or something else, who's going to pay for that? You really want to make sure that those insurance certificates are current.
Yes, that's correct.
Because let's face it, insurance is an annual renewal process. Sometimes you may have a current one and then you end up lapsing it and you're not actually covered.
And the reality is, if they don't have insurance, you could be liable for situations that are happening on your property.
Yes. And another great set of questions to ask a contractor is for referrals.
Yes.
Right. You want to actually talk to previous customers where they've done a similar project, right? It goes back to most contractors have kind of like a specialty. Now, granted, some will do different types, right? So they may specialize in kitchen remodels or home additions or roofs. Right. You want to speak to customer references that have actually done that same project that you're considering. And what questions would you ask a client, a previous client of a contractor?
That is a great segue because I think a lot of people think, well, did they do a good job? To me, that's too broad a question. I want to know what was the process? What was the start date? What was the end date? Did you run into any challenges? How did both you and the contractor handle those challenges? Did you run into things that maybe you forgot? Because that does happen on any job. And then how was that handled? I'd want to understand the budgeting process. How were you contracting? For with this contractor and what was the payment schedule? And we'll get into that. But I would ask a lot of very detailed questions that relate to the process of the project and then the demeanor of the contractor.
Yes. And, you know, if you're in a, in a neighborhood where a contractor actually does other work in that same similar neighborhood, you know, maybe you could even go over and see the project. Now that obviously you've got to ask for you know, permission to go into somebody else's house and the contractor and all that kind of stuff. But many people would be— I know we've done it before. We have. That's right. Right. People wanted to—
suddenly they were friends of ours.
Yeah. They wanted to come and see our pool. I think we resurfaced our pool. They wanted to come see what the project was.
They wanted to see our pool because we used a particular product on our pool.
Right. Another set of questions is what I call the availability.
Right.
Which I kind of already mentioned, but it really goes into I think a lot of homeowners think that once they're ready to go, that every contractor that they're interviewing is also ready to go.
Right? Touché.
And how many times have we been at the local restaurant or bar where we hear other homeowners complaining about how the contractors are never getting back to them on time?
Yeah, and this has been a big market for contractors right now. One, we don't have enough of them. And two, there've been a lot of people remodeling their homes lately.
Yes, it's a supply and demand issue, right? When demand is high and supply is short, Right. Contractors may not have availability to start your project when you want.
Correct.
Right. Which goes back to the start planning early. Yes. As soon as you can understand what you want, then you can start having those conversations and start to predict based on all the different contractors you're interviewing, when can they start your job if you were to select them?
I also think you have to be patient in today's market as well because products, You talk about availability, products may not be available yet. We may have a lag time on products. And I know that happens quite frequently, whether there's a pandemic or not, there are lag times, period, on products. And so understanding how to be patient in this market or understanding what the impact to your finished product timeline is, Will be important as well.
100% agree. Uh, I, I remember the story of when we were building our house and we selected tile for the kitchen.
Oh, that's right.
And by the time we selected it, but by the time the contractor just placed the order for it, you know, some time had elapsed because it didn't need to be done right away.
Mm-hmm.
And it was out of stock.
Yep.
Um, so the manufacturer was outta stock. So our choices were either A, wait till it comes in stock if we want that tile, or have to switch out to a different sort of tile. So, and I was fine switching out.
It's tile. It's tile.
Yeah.
I mean, it's irritating, but it's tile.
It gets into the whole— there's, you know, all those products that go into your kitchen remodel. They all get manufactured by somebody else and they have to get shipped to a distributor into your house. Contractor has to install that. All that has timing that the contractor is not in control of.
That's correct. That's important to understand. Product manufacturers are not the contractor's control. They just don't know. And so when you start blaming things on contractors, that's the wrong place to do it.
Another big area, once you've gone through all this process of kind of vetting between references and insurance and licensing, gets into like, what does the actual contract look like between you and the contractor?
It's important.
And I kind of go to 2 ends of the spectrum. If you have a very Well-designed scope, meaning maybe you even hired a designer or an architect to draw it out, and you've listed out all the products that you want and everything is nailed down, then some contractors may be willing to give you what's referred to as a fixed-price bid.
Mm-hmm.
Because they know everything that you want. I'm willing to do your job for X, and in that one price they're going to say, as long as you stick to these products in this time frame, and this, that, and the other, this is what I'm going to give you a price on. Other times you may not know all those product selections, but you still want a contract, right? So sometimes a contractor will do a what's called a material estimate and a labor estimate and then give you an estimate on top of that over what they want for overhead and profit.
Yep.
So it's essentially saying, I will give you an example. The contractor might say, I'm going to charge you 15% of my actual costs for my overhead and profit. On top of what the ultimate material costs are. Because if you choose the granite countertops, the cost is going to be higher than tile countertops.
That's correct.
And so it may not necessarily be a fixed number. So it's a number that could go up and down depending on what your product selections are, because you don't know what they actually are when you're actually signing a contract with the contractor.
And that's for those people who need a little bit more flexibility as well, who don't have some of the time upfront to pick everything.
Another aspect of hiring a contractor gets into the payment terms that get negotiated. So let's assume you've interviewed 3, you've gotten bids, you've validated them and all this other stuff, you select your contractor. And now you're going to try and sign that contract. Before you sign it, you really want to negotiate what are the payment terms. That's correct. And I'd like to give people maybe 3 or 4 bits of advice. One is, it may be— it's probably okay to have some percentage, you know, I don't know, 10%, 20% to essentially pay upfront. It's showing your commitment to the project.
That's correct.
And the contractor probably has to start ordering materials.
Yes.
Right. So they're incurring costs. But you definitely want to avoid the big picture issue of paying the contractor all of the money upfront, if not basically holding back money through the process of how long it's going to take. Right. So a kitchen remodel may take 2, 3, 4, 5 months.
Maybe longer.
Right. So you might, you might pay sort of the first month's worth of cost and then you may have a second payment for the second month's worth of cost and then the third month and you're kind of going along that process. You want to make sure that they are called like milestone payments.
Yes.
That you could agree to. And then really the key is at the end is you never want to pay your contractor final. Until the project is complete.
Yes.
So as an example, let's say your total cost was $50,000. You probably want to hold back 10%, 15%, $5,000 or $10,000 until you make sure that everything is done, because invariably you want to make sure everything's working, that you've got all the product warranties, that you've got all the paperwork. Maybe your project required a permit at the county. Did the contractor get the permit so that you're properly permitted with your county? All these sort of things, you know, the knobs don't work or the garbage disposal is not working. You never want to be in a situation where you've paid the contractor final and they don't have time to come back to you and there's something that's not working and then you're trying to get them to come back and they're off on the next job.
Exactly. And it's, and it's almost like a warranty process between you and the contractor and you can't hold that indefinitely. You've also got to be respectful. And so if you're holding this beyond, in my opinion, maybe 60 days, Now you're just being an irresponsible homeowner as well. So you need to make sure the payment is done, and you need to make sure that you are checking that all the products are working accordingly.
Correct. And let's talk about changes that happen during the project.
Change orders.
What is a change order?
Yeah, it's when something unexpected happens and you have to make a change. For instance, that tile in the kitchen that we were going to order. It was one thing technically. Is it a change order or is it, I gotta find new selection? It could be either or. If it ended up costing more, the tile, the new tile, then I could have had to go pick a new tile that costs more and that would've been a change order.
Right.
But I had to incur those costs.
Right.
It could be something unexpected where something that you thought was in the architectural or design plans. And oops, you forgot it. That has happened to me as well. That you have a change order. Now, certain things are mandatory and mistakes do happen. For instance, if you do not have an exhaust that leads out of your house, then you can't put a fume hood in your house for your stove. And that's just wreaks one problem after another. So you need to do certain things that are required. To get your permit for your remodel project, and unfortunately sometimes change orders do happen in that capacity. But you are essentially identifying a change with your contractor, and there may or may not be more cost.
Yes, I like to repeat the process of try to figure out what is the reason for the change.
Yes.
Is it a manufacturer issue where you have to change out products? Is it the contractor installed something incorrectly or out of sequence, and they're trying to get you to pay for it for their Then you're in a negotiation over, hey, you, you're the one who installed this correctly. I shouldn't have to pay for that change.
I had to do that too.
But then on the flip side, there are consumers who will just change their mind after something's been ordered. Something's already been ordered, it's on its way, or it's even partially installed. You walk in and you see half of your tile installed and you're like, I don't want it. I want different tile.
I couldn't envision it. Yeah.
Right.
So that's your responsibility as the homeowner.
Exactly. So it's the— what's the—
They pull that up and then you have to go buy more. Ugh, that's expensive. Oh, and by the way, you bought the original tile too, right? So you got that stored somewhere in your house.
It's basically trying to create a fair and equitable relationship between you and your contractor. If, if they're the one who installed something incorrectly, they should be able to fix it without charging you the change. If you changed your mind after something's been ordered, you're probably going to pay for that, right?
Correct.
If you have to swap it out, maybe you do it at the even price or maybe it goes up or down, right? So all those things need to be taken into account because nothing comes, you know, to fruition always the way you plan. And so, yeah, that's definitely a huge thing to consider. Maybe a question for you is once, once a project is completed, what's the closeout process over what do you expect the contractor to deliver to you once they finish the kitchen remodel?
So the first thing that I bring up is making sure everything— and kitchen remodel is a good example— making sure everything works. Making sure the refrigerator works, the freezer works, the temperature gauges work. Make sure that it's all installed correctly. If it's inside or if it's just laying out there, make sure it's installed correctly in the right spot. I want to make sure that all the appliances are functioning. Water is running in a sink. Garbage disposals are running. I want to also make sure that the installation of of cabinets is done properly, and as are countertops and etc., because you've got, um, seams in certain countertops or tile. You've also got grout, so I want to make sure it's in there nice and tight. And that even lighting— because people forget about that— lighting is working in the house. So I want to make sure everything's working before I make my final payment, and I want to do it In a clean, sensible way. So if I need the contractor back in the house because some things are not working, I want him to come back to repair that with his, his staff or himself. And I say he, but there are women out there that are contractors. So making sure that that's done properly.
To add to that, it gets into what I call the paperwork. You want all the warranties because all the products that you bought through the contractor has a product warranty. Right. Your refrigerator, your appliance has a warranty, but you also want your contractor to provide a warranty. Many of them will provide a 1-year warranty.
That's correct.
For the labor and installation that they did it correctly. So you almost have 2 sets of warranties. One is from the individual manufacturer, but you also want a contractor to warrant their work as it relates to putting it all together.
And you know what else? You bring up another good point with paperwork, making sure you've received whatever permits that your contractor has filed on your behalf so that you can store them for anyone who potentially buys your house in the future. You have that data saying, yes, I did this remodel, but here's the permits that I secured with it so that when you're eventually trying to sell your house, you don't have to run to the county or the city or what have you to go figure out where it's filed or if it's filed or what's going on.
My other suggestion is take lots of before, during, and after photos.
Yeah.
Right. You want to take a photo of all the— what your kitchen or whatever looked like before. And then you want to take during photos, during demolition, during installation, because if there ever is a problem, those photos can be used to help you determine what was the root cause of the issue over how all these sequence of products got installed. And then take pictures of the final product, because again, you as the homeowner are going to have to deal with perhaps upping your insurance coverage, dealing with your own tax issues in the future. And if you ever decide to sell your home, Having all that data becomes valuable as well. So I don't know, we've covered a lot. Elizabeth, any other action items or closeout for us today?
I think we covered a lot, and hopefully the tips that we've provided are valuable for you in determining how to hire a contractor. And, uh, for any other information, please visit us on our blog at homesauto.com because we do have some tips there directly for you. And then we'll also include some of that information in the show notes. But, uh, thank you. Anything else for you?
Absolutely not. I'm done.
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