Melanie Duquesnel- President and CEO, Better Business Bureau of Eastern Michigan joins us for this Money Monday segment with some tips for those looking at remodeling or improving their homes.
Create a Budget.
Most home improvement projects end up being over budget by 10%. To avoid costly surprises during the process of improving your home, be sure to reserve 10-15% of your budget to cover unknown expenses.
If a contractor appears on your doorstep and claims they are doing work in your neighborhood or they have "extra materials," it's best to decline any offer for work. Reliable businesses will give you time to do your research before committing.
If a contractor asks that you pull the permit for your home improvement project, it may be a red flag that the contractor isn't properly bonded and insured. Legitimate contractors are responsible for getting all required permits for the job.
If a contractor asks for payment upfront, this is a major red flag. Never pay a contractor in cash, use a credit card or check. A trustworthy contractor should accept a payment plan of one-third upfront, one-third halfway through completion, and one-third when the project has been successfully completed.
Using a Lender.
If a contractor pressures you into using his preferred lender, this is typically a red flag. If you need to take a loan out to pay for the project, research lenders on your own and be sure to review interest fees, terms of agreement, and more.
If you can't verify the contractor's contact information, location, or credentials, this is a major red flag. You should be able to find information online about the contractor, his business, and his contact information.
BASIC HOME IMPROVEMENT SCAMS
"I'll need payment up front."
This is the most common type of home improvement scam. The contractor will tell you he needs the cash up front in order to purchase materials or rent equipment. Once you've paid him, he'll either disappear, do subpar work, or not finish the project at all.
"That wasn't in the contract."
When you first meet with the contractor, you'll discuss the project and your desired outcome. But if you don't get every detail in writing, and included in the contract, he won't be held accountable for them. When you confront him, he'll tell you those features will be an additional cost or they won't be completed at all.
"No permit necessary here."
This is a big red flag, as a building permit is required for most construction and remodeling projects to ensure the work will be done to code. Any reputable contractor will get all necessary permits for the job and won't try to persuade you to do it yourself.
"I didn't expect this problem."
Your contractor tells you that the agreed-upon price has gone up due to unforeseen circumstances. Suddenly there are structural or electrical issues and the contractor will find excuses to increase the cost. If you don't trust his word, it's always a safe bet to get a second opinion.
"I've got extra materials."
If you come across a contractor going door-to-door selling his services and telling you he's got extra materials, it's usually a red flag. If you accept his offer to "redo your driveway," you may end up with a low quality pavement that'll start to crack within a year.
HOW TO AVOID HOME IMPROVEMENT SCAMS
Up Front Payment.
To avoid this scam, never pay more than one-third of the total cost of the project. It's also recommended that the most to be paid up front is 10% of the total. If you pay in increments, include the payment schedule in your contract and be sure not to pay the final amount until you're completely satisfied with the finished project.
Get Everything in Writing.
If you sign a contract that is blank or lacking important details, you'll have no legal options in the event that the contractor doesn't complete the work satisfactory, or at all. Be sure to have a detailed description of the work to be done, as well as the materials to be used.
Any reputable contractor will get all required permits necessary to begin working on your house. If a contractor refuses to get a permit or pressures you into getting one yourself, this is a red flag. Is the contractor legitimate, is he licensed and insured?
Contract Changes. Before signing a contract, be sure that it includes the process of a change order. This is like a sub-contract that lists the new work description and fixed price for the job. Any work related to the problem cannot begin until the contract is signed by both parties.
Never hire a contractor on the spot, no matter what the job is. A reputable contractor will give you time to do your research and check your references. Be sure the contractor is legitimate, has a good reputation and does quality work on time.