Do Homework Before Home Improvements

LaCarla Williams thought she was doing everything right when she hired contractors to add 350 square feet to her Gardena home in 2004. She asked for references, checked with the Contractor’s State License Board and the Better Business Bureau and made sure her contractors were insured.

It did her little good. She figures that the contractors took her for about $37,000, leaving her with a leaky roof and no doors or windows on the addition.

“You can do everything right and still get taken,” she said. “We’re still trying to clean up the mess they left.”

Remodeling has boomed in recent years. What was a $198-billion business in 2001 ballooned to $275 billion last year, said Gwen Biasi of the National Assn. of the Remodeling Industry, as homeowners added second bathrooms, updated kitchens and converted garages.

Although the vast majority of contractors are honest and competent, a contingent of shady operators is taking advantage of unwitting homeowners.

It can be difficult to identify an unscrupulous contractor, but experts say homeowners can significantly reduce their chances of getting taken by following a few guidelines and doing some digging of their own.

Here are some tips:

* Beware of the contractor at your door. Good contractors have plenty of jobs and get plenty of referrals. If a contractor is soliciting your business by phone or by showing up at your door, it’s a warning sign. The contractor could be new to the area, so don’t reject the person out of hand. But it’s riskier to hire someone without a history of work in your area, so take extra care.

* Check for insurance and licenses. Every contractor should carry liability and workers’ compensation insurance to protect the homeowner from getting sued if a worker is hurt on the job. Ask for the contractor’s insurance card and call the insurance company to make sure the policy is in good standing, Biasi suggested.

Also make sure the name on the policy and the name on the contractor’s driver’s license match. If the contractor is required to have a contractor’s license -- about half of all states, including California, have some sort of licensing requirement -- make sure the name on that license also matches the name on the driver’s license and insurance card.

It’s not necessarily a crime if the names don’t match, but it’s a warning sign. Shady operators sometimes do business under a colleague’s name -- or even change their names -- to stay a step ahead of their complaint history.

* Look for lawsuits. After Williams started having problems with her contractors, she went down to the county hall of records and looked for lawsuits. She wishes she’d done it earlier. They had been using another contractor’s license, which was one of the reasons they had no complaints filed with the state license board. But she found a long list of lawsuits filed against them by unhappy homeowners.

* Check with the Better Business Bureau. It’s not foolproof, as Williams can attest. BBBs are membership organizations and don’t have records on every business in their area. But being a member in good standing should be considered a positive, while having a complaint history is a negative. Even good contractors get an occasional complaint. But if you find complaints at the BBB and state licensing authorities, and lawsuits as well, scratch that contractor off your list.

* Beware of contractors asking for deposits. California law restricts deposits to $1,000 or 10% of the cost of the job, whichever is less. Avoid contractors who ask for more, said Dan Fritschen, author of “Remodel or Move: Make the Right Decision” and founder of Remodelormove.com.

Even in states where there’s no restriction on deposits, homeowners should be wary of contractors asking for large sums up front. It’s true they need money for supplies, but any contractor who has been working in your community for some time should have established a line of credit with lumber yards and other suppliers, Fritschen said. If a contractor hasn’t, find out why.

But also make sure that you pay promptly and as scheduled, he added. You shouldn’t expect to finance business for your contractor, and your contractor shouldn’t have to finance your remodeling job.

* Check references. Any contractor who has been in business for a while should have plenty of satisfied customers willing to serve as referrals. Get a list and call at least half a dozen. If possible, try to check out a contractor’s past work in person.

* Don’t rush. Homeowners in a hurry often don’t spend enough time considering their plan, Fritschen said, so they make changes as they go along, which can double the cost.

This rule also applies to the interviewing process, he said. The more contractors you interview, the more you learn; the more you learn, the better questions you ask and the less likely you are to get taken by somebody who is incompetent or dishonest.

* Get it in writing. Any job of significance should involve a written contract that spells out both parties’ rights and responsibilities. It should have a payment schedule so you know when money is due -- and so you can make sure you’re not paying for work until it’s done.

A typical contract will have the homeowner pay in stages, with checks due after a particular portion of the work is completed and after the city or county inspector has approved it.

The final payment, usually 10% to 20% of the total, should not be made until the homeowner has thoroughly checked the work and made sure it’s complete and has passed all necessary inspections. Once that payment is made, it’s difficult to get a contractor to return for touch-ups, Fritschen said.

Kathy M. Kristof, author of “Investing 101” and “Taming the Tuition Tiger,” welcomes your comments and suggestions but regrets that she cannot respond individually to letters or phone calls. Write to Personal Finance, Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012, or e-mail kathy.kristof @latimes.com. For previous columns, visit latimes.com/kristof.