SPECIAL REPORT : Hassle-Free Remodeling : It Isn’t Easy, but There Are Ways to Avoid the Many Traps

“Y ou must be Mr. Fielding,” a smiling foreman tells dazed homeowner Tom Hanks in “The Money Pit.” “Your number came up in the drawing this morning. We work today!”

If you’ve been avoiding remodeling for fear of sinking into the money pit, take heart. With the real estate market in the doldrums, it’s a good time for long-postponed renovations. Contractors anxious to keep their work crews busy are bidding more competitively.

And, as often happens in downturns, more contractors are turning to remodeling since there’s not enough new work to go around.

“Consumers are more savvy than in the past,” said Alan Campbell, executive vice president of the National Assn. of the Remodeling Industry. “They are taking advantage of the weakened condition of the construction industry and getting more competitive prices.”

While not a banner year, residential remodeling is weathering the recession much better than new construction. As the median American house approached its third decade last year, homeowners spent $97.5 billion on improvements. According to the Construction Industry Research Board, residential remodeling dollars in Los Angeles County for the first half of this year were down 6.4% from the first half of 1991, compared to new-housing dollars, off 24.6%.

But despite continued interest in remodeling, the process can be overwhelming for the uninitiated. It’s easy to get caught in a web of difficult decisions, from choosing an architect and contractor to negotiating fees and contracts. Not to mention trying to look intelligent when your contractor talks about draw payments, punch lists and R- and U-values.

To help simplify the process, here is a remodeling blueprint:

Selecting an Architect

Even before interviewing architects, homeowners should compile a notebook of pictures of houses and rooms they like, said Santa Monica architect Paul Bailly, who teaches a UCLA Extension course on residential remodeling.

“The most common statement we hear from clients is that they don’t want to stifle our creativity, but it’s going to come through anyway. It’s much better for the architect to have information upfront.”

Once you’ve put some thought into the number of rooms and style, the next step is to get referrals from people who have had successful relationships with architects.

When interviewing architects, look for someone with whom you communicate well and who imparts a sense of trust. Ask prospective architects if they could arrange for you to see their previous work.

“You want to feel comfortable that the person you hire has a good grasp of the project and is sensitive to the fact that the remodel is a large undertaking,” said Tarzana-based architect Kevin Crossman.

“A lot of people can do the drawings,” he added. “You also want someone who will be available to work with the contractor and take some of the concerns off your shoulders.”

Fees and Services

Architectural fees are usually structured in one of three ways: an hourly rate, a fixed fee or a percentage of construction cost, usually 10% to 17%. Often, architects use a combination of these methods, such as a fixed fee for the design phase and an hourly fee for services during construction.

While practices vary, there are certain basic phases in a remodeling project. During the schematic design phase, the architect makes several sketches before arriving at a floor plan and outside elevations. In design development, drawings are further detailed, including materials, finishes and ceiling treatments.

Next come working drawings and specifications. The specifications can either be attached to the drawings (sheet specs), or separate (book specs), with more specific instructions on products to be used and their installation.

The architect may also help the client select and work with the contractor.

Choosing a Contractor

You can try to save money by being your own contractor. However, be aware that subcontractors are more likely to meet a professional’s schedule because they want to be hired for future jobs. You also have to worry about liability insurance, permits, code compliance, payouts and mechanic’s liens.

Even experienced do-it-yourselfers often need a contractor. As with architects, it is best to get referrals from satisfied homeowners and from your architect. Make sure those making the referrals were pleased with the management of the job as well as the workmanship. Ask about the contractor’s honesty, promptness and reliability, and what problems were encountered.

“The real problem with many contractors is knowing how to manage the business--how to buy materials and keep good records,” said Orange County contractor Mark Lambert. He suggests that owners ask to see copies of the contractor’s liability insurance policy, workman’s compensation and license. Just because a contractor is licensed does not mean he carries the necessary insurance.

Find out how long a builder has been in business. Visit a contractor’s past and current job sites and check for outstanding complaints with the Better Business Bureau, Contractors State License Board and professional associations, such as the National Assn. of the Remodeling Industry and the Remodelers’ Council of the National Assn. of Home Builders.

Once you’ve narrowed down your list, it’s time to obtain bids. Insist on specific bids, said Doug Duchene, a Huntington Beach contractor. “The bid should be detailed and should include specifications for each trade, like stucco and finished carpentry.”

Unless you know the contractor very well, most professionals recommend staying clear of cost-plus contracts, which include the cost of materials and labor plus a fixed percentage for overhead and profit. “Cost-plus is an open ticket,” Duchene cautioned. “If you have a lazy contractor, he won’t shop out materials, or may even go for the highest bid.”

Rather, look for a fixed-price contract or cost-plus not to exceed a certain figure. But, don’t necessarily go with the cheapest bid.

“Bids should be within 10% or 15% of each other,” said Brentwood real estate attorney Don Sherwood. “Be suspicious of the builder who is 50% less than everyone else, because halfway through the project, he may run out of money.”

Besides the bottom line, owners need to weigh other factors. “In comparing bids, make sure that the same quality of materials and same time schedule are in place,” said NARI’s Campbell. “For instance, if $15 per yard carpeting is included, owners may need to sit down with the contractor and see samples.”

Negotiating the Contract

Regardless of the job size, owners should have a contract, according to Campbell. “If everything has been specified in advance, it leaves less to interpretation,” he said.

Contracts should include items such as start and finish dates, total price, process for handling changes, payment schedule and method for resolving disputes. Contracts may contain allowances for items such as floor coverings, fixtures and appliances. If you want to upgrade these items, the difference in cost is your responsibility.

According to attorney Sherwood, the most important provision in the contract is knowing what you are buying. He recommends that owners meet with both builder and architect to outline what is and isn’t included, and to follow up with a letter of agreement besides the contract.

Completing the Project on Time and on Budget

When time is critical, owners may consider adding an incentive for completing the job on schedule. However, these bonus/penalty clauses, either a daily sum or percentage, are generally not popular among contractors.

“Incentive clauses may cause the contractor to rush through the job,” said Campbell, of the remodeling trade group. “Sometimes shortcuts are more costly in the long run.”

Owners should avoid onerous penalties. “The factor that builders have the least control over is time,” Sherwood said. “They’re at the mercy of the weather and subcontractors. A builder will certainly work to make a bonus, but if he sees he’s going to get into the penalty period, you’re increasing the possibility he won’t finish the job.”

Bonuses may benefit both the builder and owner, especially on jobs that require moving out, such as second-story additions. “Since there’s a cost involved in maintaining two residences, the bonus may actually represent a dollar saving to the consumer,” Sherwood said.

Another way to keep the project on course is to meet regularly with your contractor and architect. “Throughout the project, there should be meetings once a week or every two weeks, where the owner brings a list of questions,” said architect Crossman. “To keep on schedule and budget, it’s important to narrow them down.”

Take a second-story addition, for example. “No one’s been up there before and it turns out there’s a terrific view, where no window was planned,” said architect Bailly. “That kind of change can be made for a modest cost if it’s done during the framing stage.”

Most remodeling professionals suggest that owners budget an additional 10% for unexpected changes. Changes are a part of the process, but every change adds to the price. To avoid surprises, ask your builder if a particular change is going to cost extra. If it will, request a written estimate.

Payments

Contracts should identify the percentage a homeowner withholds until the job is completed. “The retention percentage, typically 10%, gives you some protection the builder is not getting ahead of you,” said Sherwood. Since most of us don’t know what percentages should be allocated to the various project stages, such as framing, plumbing and electrical, it’s helpful to have an architect do a reality check on the payment schedule.

Subcontractors can record a mechanic’s lien on your property if they aren’t paid by the contractor. “If you receive a preliminary notice from a subcontractor, make sure that your contractor gives you partial lien releases when you make interim payments and a final lien release when the work is completed,” Sherwood said.

Ask the builder to save all labels, model numbers, warranties and instructions for future repairs. Inspect the job several days before completion and develop a checklist of problems or changes required before making the final payment.

Resolving Disputes

If you believe work is being done improperly or inferior materials are being used, stop work immediately and insist that your doubts be resolved. Discuss a written list of specifics. Withhold money and write a letter stating the problems and what you want done. Often, the architect can bridge the gap between homeowner and contractor.

If these methods don’t work, you may file a complaint with the local chapter of the contractor’s professional association, the Contractors State License Board or the Better Business Bureau.

“A complaint probably intensifies bad feelings,” Sherwood said. “Unless there’s an ethical dispute, like the contractor isn’t paying his subcontractors, homeowners are better off keeping things on a level where there’s communication, like arbitration.”

Most contracts provide for mediation by the American Arbitration Assn., usually paid for by the losing party. Depending on the dollar value of the dispute, consumers also have two direct legal options, small claims and municipal court.

Tax Benefits

Residential remodeling offers two tax benefits. If you finance the improvement with an equity loan, the interest on the loan may be tax deductible. When you sell your home, the cost of the remodel adds to the cost basis of the property, reducing your capital gains tax. For this reason, save all project receipts and records, including those for architect and contractor.

Minimizing Stress

Even the smallest remodeling project can test your sanity. It’s important to focus on ways to relieve the stress.

“People should order their immediate environment in a comparable way to that prior to the remodel,” advised West Los Angeles clinical psychologist Dr. John Curtis. “For instance, if homeowners are moving, they should try to find a similar size home in an area close by. If the parents normally go to a movie on Saturday nights, they should continue to do so.”

Maintaining familiar routines is equally important for children. Curtis recommends that parents encourage children to talk about their feelings regarding project annoyances, such as moving out or having workmen around the house.

Another way to lessen stress is to temper expectations. “There’s a lot of room for human error,” Curtis said. “Things may so slower than planned, and even the best contractors can’t control everything.”

Susan Jaques is a West Los Angeles free-lance writer.