We like this article about working with contractors from Yahoo!Homes, not just because yours truly was quoted in it several times, but because there is some valuable information about cost savings and structuring win/win agreements with your contractor.

(Photo: US Army Corps of Engineers / Flickr)

Cost overruns and missed deadlines may be all-too-common in home renovations, but that’s because few homeowners know how to manage contractors. To ensure a successful project, first you need to walk in their Wolverine boots – or at least imagine what that’s like for contractors.

Ask yourself, what matters to a contractor? “Contractors want to know you are well funded and that the budget is on target with the job. They are more receptive when they know the homeowner is serious and ready to get the job done,” says Debra Cohen, founder of Home Remedies of New York, a contractor referral service.

“One of the first things we look at is to see if the project has a chance of getting off the ground,” says Vince Butler, president of Butler Brothers, a northern Virginia design build firm and former chairman of the National Association of Home Builders Remodelers Council. Like many contractors, Butler says he increasingly finds that the scope of projects exceeds budgets by as much as 50 percent. Today, homeowners expect projects to cost less because the value of their home has decreased, but in reality the cost of lumber, cement and other building materials, which are highly dependent on oil, continue to rise.

For most of us this discrepancy translates into sticker shock when we get estimates for any kind of work in the home.

What’s the best way to get a handle on costs? Of course the time-worn advice of getting three bids and checking out recent jobs still applies, but having a clear idea of what you want to do is just as important. Even something as straightforward as painting a room involves options: Do you want to paint the trim? What color? What about the ceiling? How much patching is involved? Priming? One or two coats?  When you explain the job to a contractor, it’s important to spell out every detail. “There is no way to overvalue the planning process in construction,” says Cohen.

“If the customer knows what they want in terms of fixtures or products, the more knowledge they have, the better they will be in negotiating a rate with the contractor and they are also more likely to recognize an offer that might be too good to be true,” says Venus Stromberg, with the Contractors State Licensing Board (CSLB) for California.

Ask for detailed bids and separate line item pricing. That’s particularly important “For labor (demolition, plumbing, framing, flooring installation, painting, etc.), and finish material quotes (for things like flooring, tile, plumbing fixtures, lighting, or doors),” says Amanda Zettel, owner of Home Made Design, an online interior design firm.”

Once you have several bids, having the quotes broken down into costs for individual labor and finish materials “enables apples-to-apples pricing comparisons and second round pencil sharpening from multiple contractors,” Zettel explains.

Also, it helps prevent confusion over anticipated levels of quality. For example, a quote might come back with a specification for a 6-inch white tile, which can be an inexpensive porcelain tile or an expensive imported, hand-painted tile. Without having details spelled out, Zettel says, there is a “risk of the client assuming higher quality than they are getting. And there is also a risk for a good contractor having overpriced his bid versus a competitor who simply bid lower quality, cheaper stuff.”

A detailed bid will also give you an idea of the markup on materials and whether or not you can get them cheaper. But it is important to understand that when a contractor buys materials they assume the liability and additional cost of delaying a job if a product is damaged, doesn’t work properly or if the wrong product is shipped. On the other hand, Zettel and others say, sourcing products independently gives homeowners more choices and possibly more competitively priced options.

If you do buy materials either on your own or through a contractor, have them delivered to you. And, CSLB advises consumers not to pay more than 10 percent down or $1,000 ahead of time, whichever is less, and not to let payments get ahead of the work.

Ask if there is a less expensive way to do your project. Once they realize that your target budget is somewhat in line with the project, a good contractor will work with you to find ways to shave costs. Still, Butler says, “I can help people get a project down by 10 or 15 percent but I can’t do 50 percent.” Today, too, most contractors are trying to be as lean and mean as possible. “People are being as competitive as possible across the board and I am seeing a similar trend with my subs [subcontractors],” says Butler.

Be wary of bids that are out of line with the others. Getting the best deal involves more than a cheap price. “Guys who are licensed, insured and doing things by the rules have more overhead. But dealing with them is much preferable to dealing with someone working out of the back of their truck,” says Cohen. Going with someone who is unlicensed might be fine for a small handyman job but for anything more you will want to know they are going to be in business a year from and, most importantly, that they are insured and pay subs, suppliers and workers, who can file a lien against your home if they are not paid, in a timely matter.

Check with your state to see if your contractor is licensed. Also, say experts, don’t just ask if they are insured, actually verify insurance coverage with the insurance company. For big jobs, they suggest the homeowner should also be listed as a certificate holder.

Will you save money by acting as your own general contractor?  Unless you understand construction and deal with trades, probably not. Subs are likely to give the best price when they know the contractor will hire them over and over again. And the contractor will be much more knowledgeable of what costs should be and how the job should be done. Additionally, good contractors ensure that their subs are insured.

One last tip, from Cohen:  You don’t want to hire a contractor who feels he is being underpaid. While it’s great to negotiate, you don’t want a contractor to start a job feeling like he’s not making enough.

Reposted from http://realestate.yahoo.com/news/how-to-negotiate-a-deal-with-a-contractor-01.html

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