Everyone’s home can use a little fixing up, but the sad truth is that complaints about home repair perennially make the top 10 list of consumer grievances.
The law gives you certain protections—and you can protect yourself by using some savvy and common sense.
Which federal laws are applicable to remodeling projects?
Federal Trade Commission (FTC) rules address the problem of false advertising. It is illegal for a vendor to advertise any product or service for less than it really costs or to engage in the old bait-and-switch tactic. The law requires vendors to offer a rain check whenever demand for an advertised bargain exceeds supply, unless the limited supply is clearly stated in the ad.
The federal Truth in Lending law protects consumers who obtain outside financing for their projects. A lender must prominently state the annual percentage rate (APR) of interest you will be charged. So whether you finance your home improvement through a bank, a credit union, or the contractor himself, at least you will know what the interest rate is.
Even if the terms appear reasonable, it is a bad idea to have the contractor secure financing for your project and in some areas it may also be illegal. Even though he may approve you as a credit risk when a bank won't, he has good reason: his guarantee that you will pay him back is ultimately your house. It is probably worth a lot more than whatever you are doing to improve it. So if you cannot pay for work right now, try to postpone it until you can.
What protection do I have once I sign a contract?
Given the number of scam artists working the streets, your best federal protection may be the cooling-off period mandated by the Truth in Lending Act. Called a "right to rescission," the law gives you three business days to cancel any contract that was signed in your home (or any location other than the seller's place of business) that implies any kind of financial claim to your home. This occurs, for example, when the contract gives the contractor the right to file a lien against your home to enforce payment.
If circumstances entitle you to a cooling-off period, the contractor must give you two copies of the Notice of Right of Rescission at the time you sign the contract. It must be separate from the contract—not buried in fine print—and a copy given to each owner, because any one owner may cancel.
The notice must identify the transaction, disclose the security interest, inform you of your right to rescind, tell you how to exercise that right, and give you the date the rescission period expires.
What kind of state and local laws apply to contractors?
State laws often are modeled after federal laws, and states and local agencies are much more apt to pursue a small contractor who may have violated them.
Some state laws specifically target dishonest contractors, making it a crime to misrepresent the terms of a home repair contract, deceive people into signing one, damage someone's property to drum up home repair business, or charge an unconscionable fee for home repair services.
Some laws provide such punishments as suspension or revocation of the contractor's license, both criminal and civil penalties, and punitive damages against the contractor.
For information about legal protections and enforcement options in your state, contact your state or local consumer protection agency, or the consumer fraud division of the local prosecutor's office.
What's the best way to guard against swindlers?
Despite all the statutes, if you have to rely on the law to get your money back from a shoddy contractor, you will have to wait a long time. Take matters into your own hands by carefully checking the reputation of any contractor ahead of time. Be wary of contractors who:
- Claim to work for a government agency. Check it out.
- Offer free gifts. Ask the following questions: What exactly are the gifts? When will you receive them? Can you get a price reduction instead?
- Engage in door-to-door sales or try to get your business by telephone solicitations. Be especially wary if the sales pitch demands an immediate decision to take advantage of prices that won't be available tomorrow. Most reputable contractors don't engage in such tactics.
- Offer an unsolicited free inspection of your furnace or basement. Rip-off artists use this ruse to get into a home and either fake a problem or damage a sound furnace and good pipes.
- Claim your house is dangerous and needs immediate repair unless you already know it does. Have a company name, address, and telephone number and other credentials that can't be verified. Fly-by-night operators often use a mail drop and an answering service while hunting for victims.
- Promise a lower price for allowing your home to be used as a model or to advertise their work. (Has the price really been lowered? What does the "use of your home" entail?)
- Engage in bait-and-switch tactics. After luring you with an ad that offers an unbeatable deal on a job, these contractors tell you the materials aren't available for that job but they can give you a bargain on another, more expensive, job.
- Leave delivery and installation costs out of their estimates.
- Offer to give you a rebate or referral fee if any of your friends use the same contractor.
- Insist on starting work before you sign a contract.
How do I find a reputable contractor?
After thinking through what you want and what you can afford, ask for recommendations from people who have had similar work done and talk to building inspectors, bankers, and trade association representatives—people who should know first-hand the work and reputation of contractors in your community.
For a large job, interview and solicit bids from two or three contractors from your list, but make sure they are bidding on exactly the same job to allow comparisons. The lowest bid is not necessarily the best, because a contractor with a reputation for excellent workmanship and for standing behind the work might be worth more. Even if the job is small enough to warrant only one bid, take time to check out your contractor's reputation and credentials.
Make sure a contractor's references had similar work done. For a kitchen remodeling, for example, ask for former clients who have had kitchens done by the contractor.
Chances are any references provided by the contractor will be happy clients, so try to go a step or so beyond "He's a great guy" and "No problems at all." Ask exactly what the contractor did, and how this person found out about him.
- Was the client comfortable with the way things were left at the end of a day as well as at the end of the project?
- What does the client wish he had done differently to make the job go even more smoothly?
- What did the client's spouse (or roommate, neighbors, or children) think about the work and the construction process?
- What is the next project this person wants to hire the contractor to do?
Should I have a written contract with the contractor?
Don't allow any work to begin until there is a signed contract—one that protects you. (Some people might take a chance on very small jobs under $1,500, but it is a chance.) Oral agreements can be enforced in court, but it is difficult to prove who said what if you don't get it on paper.
If the contractor gives you a standard contract to sign, take it home and study it carefully at your leisure. Strike out clauses you think are unreasonable and have both parties initial the change. If you are uncertain about the meaning of provisions and/or if it is a major, expensive job, make sure your attorney checks the contract.
What should the contract include?
A complete home improvement contract should address the following:
Preamble. An introduction that states names, addresses, phone numbers, and the date the contract is executed. It should specify whether the contractor's business is a sole proprietorship, partnership, or corporation. (If it is a partnership or corporation, make sure the person who signs is an authorized representative.) The preamble should also state that the remodeler is an independent contractor, not your employee. Otherwise, you might be responsible if the builder injures someone. For another layer of financial accountability, add the contractor's social security number. The contract price should state the total dollar amount, including sales tax, to be paid by the homeowner for services agreed to in the contract.
Starting and completion dates. No contractor is likely to begin until after your right to rescission has safely passed. Specify an end-date, stating exceptions such as weather, strikes, etc. You may want to add a bonus-penalty clause if the date is critical. Specify a daily starting time if that matters to you. Consider interim completion dates for key phases of big jobs.
Scope of work. Contractors may shy away from a clause as broad as "all labor, materials, and services necessary to complete the project." But don't allow them to be so specific in the work listed that anything else becomes an "extra" or a "change order," which may be billed separately.
Description of materials. See that complete descriptions of agreed-to products including brand names and order numbers are listed. Plans, bids, estimates, and all other documents relating to the project are part of the scope of work. Make sure that copies of these are attached to all copies of the contract before you sign it.
Permits, licenses, and zoning. Specify that the remodeler will obtain all necessary licenses and permits and satisfy all zoning regulations and building codes, and indemnify the homeowner in case he fails to do so.
Cleanup policy. Will the contractor clean up daily? After each project? Only at the end? Where is refuse to be placed?
Storage. Specify where materials and equipment will be kept. You are probably liable for damage to materials and equipment from fire or accidents, so be sure to check your homeowner's policy and make sure these are covered.
Parking. If it is a problem, arrange for the contractor's vehicle as well as subcontractors'.
Noise. Some is inevitable and may even provide a safety valve for workers, but place limits on time and volume, according to local laws and neighborhood needs.
Theft. Building materials are often stolen. The contract can make either the contractor or the owner responsible.
Damage. What if the retaining wall collapses when they're digging for the new swimming pool? You'll want the contract to state that the contractor is responsible for damage to your property.
Change orders. Very few jobs go exactly as planned, which requires that the contract have a provision that enables it to be amended simply and easily. The contract should provide that change orders can be written up, signed by both parties, and attached to the contract as plans change or delays occur. See the sample for specific wording of this contract clause.
Warranties. The contract should assure that the materials are new, and that you will receive all warranties from manufacturers for appliances and other materials used on the job.
Progress payments. Contractors don't expect to be paid entirely in advance, but they also don't expect to wait until all work has been done. It is customary to pay one-third upon signing a contract to allow the contractor to buy supplies and get started. In smaller projects, two payments may suffice. In larger ones, plan to make payments after completion and approval of major phases of the work. In all cases, make your final payment as large as possible, usually at least 10 percent. DO NOT MAKE FINAL PAYMENT until all work is completed, inspected, and approved; subcontractors are paid and any liens canceled; and warranties are in the proper hands.
Financing contingency. If your ability to proceed with the project depends on securing outside financing, include a contingency clause stating that the contract is not binding if you are unable to secure the needed funds on acceptable terms.
Suppliers and subcontractors. Ask for a list of subcontractors and suppliers and attach it to the contract with their addresses, telephone numbers, and social security numbers. Although you are not their boss, they probably have a right to place a lien on your home if the contractor does not pay them in full. It's only fair that you know who they are, should legal action become necessary.
Your chief protection against a lien is holding back final payment until all work has been completed to your satisfaction and your contractor supplies proof in writing that he has paid everyone who worked for him on your job. A release-of-lien form is useful, because it provides places for all the subcontractors to sign.