Financial Fine Print

Reading Financial Fine Print. Information for home design and remodeling.


Prevent money mix-ups on contractor bids with tips for understanding financial fine print.

1. Make sure you're really ready to build.
If you aren't prepared to discuss specifics regarding your project goals, budget, and timeline, take a step back and hire a designer or architect first, not a contractor. Unless it is an integrated design/build firm, a contractor should enter the process only after the basic design has been developed. Without that preliminary step, getting a realistic bid is unlikely.

2. Don't expect to go far for free.
Most contractors offer an initial consultation at no charge, but don't expect more than a nonbinding "ballpark" bid. Many contractors balk at even that, especially for big projects, because they don't want to mislead homeowners or be held to a shoot-from-the-hip quote.

3. Have any crucial money issues resolved up front by having loans or other sources of project funds ready to go.
Most contractors "qualify" clients by making routine calls to your bank or lender to ensure there's money to pay for the work. Don't worry about your financial privacy; contractors don't get details, just a yea or nay.

4. Expect to pay for detailed estimates.
Protest if you will, but it takes time to prepare a comprehensive, specific bid, and it's in your best interest to get such an effort. The fee is typically about 1 percent of the estimated project cost and is applied toward that total if you accept the bid. Don't forget to budget for multiple bids.

5. Get a line-item proposal.
The bid should include a scope-of-work section that spells out exactly what work is and isn't covered, what materials will be used, the dollar amount included for materials purchases (called an allowance), and a project schedule. If you need design services, expect those to be offered and billed separately from construction services, even if the same firm provides both.

6. Discuss a "cost plus" contract versus a fixed bid.
"Cost plus" means you pay for materials and a specified labor rate per hour, plus a standard markup for overhead and profit. If you're more comfortable knowing where every dollar is going, this route might be for you, but it doesn't hold the contractor to a specific figure unless you both agree to a cap ahead of time. Regarding fixed bids, keep in mind that many contractors calculate them with enough margin to cover some unexpected problems or expenses. You'll pay that amount even if the job goes without a hitch.

7. Ask about the payment schedule while you're still getting acquainted.
You'll find many variations, but as a rule, most contractors require a deposit when the contract is signed. A typical arrangement for smaller jobs is 50 percent down when the contract is signed and 50 percent upon completion. If it's a simple one- or two-day gig, there may be no up-front payment required, but you'll usually have to sign the proposal agreement.

More common for major work is an incremental schedule of four payments: a 30-percent deposit upon signing, two 30-percent installments at agreed-upon stages of completion, and a final payment of 10 percent. Whatever the arrangement, incremental payment systems ensure that both parties share financial risks during the project. (Believe it or not, sometimes contractors get burned, too.)

8. Be wary of extreme bids—high or low.
A pricey contractor might be passing along excess overhead or inefficiencies, or including high-end materials you don't want. Conversely, a bargain bidder might be showing inexperience or cutting corners by using lower-quality materials. Context is everything, so get at least three detailed bids to get a sense of what reasonable costs are.

9. Know the rules for change orders before work begins.
Rethinking a doorway's placement or a window's style is a normal part of remodeling, and these kinds of changes should be documented just like original plans. They almost always affect the project costs, but even if they don't, a written and signed change order helps prevent misunderstandings.

10. Remember that professionalism carries a price.
Remodeling firms that present detailed, clear, and comprehensive scope-of-work proposals, keep you informed of job progress, train and manage their employees and subcontractors, and clean up the job site at the end of each day will be more expensive to hire, but they are providing services that benefit you and cost them money. Don't hesitate to ask up front about these intangibles, and don't underestimate their value. Even in the (unlikely) event that you obtain the same result that you'd get from the person who scrawled a dollar figure on a shoebox lid, a polished pro makes the process much more pleasant.

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