When Jody Costello and her husband, Don, set out to add 700 square feet to their San Diego hillside home, they thought they knew what they were doing.
They made sure their contractor was licensed with the state and that no complaints were filed against him. They checked his references. They even went to his job sites. But they slipped up when they forked over nearly a third of the job cost upfront.
Under state law, the down payment for home-improvement projects cannot exceed $1,000 or 10% of the price, whichever is less.
The rest of their saga is documented on Jody Costello's website, ContractorsFromHell.com, which she created in 2000 to provide information and resources on home remodeling, hiring contractors and homeowners' rights.
"People assume if the contractor is licensed, that's enough," said Costello, who believes it is homeowners' job to ensure that their rights are protected.
Industry watchdogs agree that checking the license is only a baby step for homeowners embarking on a remodeling project. If you want a successful outcome, you must assume responsibility for making sure that the contractor is competent and fair and that the work is done correctly -- right down to the brand, style and finish of that new kitchen faucet.
"Homeowners have to put on their detective hats," said Costello, whose website gets 10,000 to 15,000 hits a month. She recommends checking court records for any litigation involving a prospective contractor, as well as checking out his liability insurance. "Contact the insurance company and get the coverage dates," she said. As extreme as it may sound, she and others recommend actually reading the policy, a feat for those homeowners who can't even wade through their own policies.
But there is good reason to be cautious. The Contractors State License Board investigates more than 20,000 complaints each year against contractors, about a quarter of whom are unlicensed.
Potential for trouble
The board files 400 to 500 "accusations" annually against licensed contractors, which can result in disciplinary actions including possible license revocation.
Arron Latt, managing partner of Encino-based Project Management Collaborative, is the guy who often gets the call after a building project spirals into trouble and lands in court.
"My specialty is forensics -- the problem jobs," said Latt, 72, a consultant who has more than 50 years in the building industry. He sees it all the time: owners who know little about construction and get in over their heads.
Among his tips to help homeowners avoid disaster:
* Visit the prospective contractor in his office. Be wary if he doesn't have one. Also beware if he says you won't need a permit. Find out the extent of his building experience and check three or four references.
* Be suspicious of a contractor who says it will save money to go with a "cost-plus" contract, one that calls for the owner to pay the contractor's costs plus a percentage for overhead and profit ranging from 8% to 25%. Instead, bargain for a "fixed-price" contract. That will leave it up to the contractor to lose money or turn a profit.
Agree to a cost-plus contract only if there is a guaranteed maximum cost and other safeguards built in.
* Make sure the contract details exactly what work is to be done, specific materials to be used and a completion deadline for each phase of the project. Specify a minimum of three bids for work to be done by each subcontractor. Also, make sure the contract contains an "audit clause" entitling you to inspect the contractor's books if a dispute arises.
Latt said he was called in for an audit after a client was billed $97,000 for labor on a project. "Maybe a third of it was legitimate," he said.
* Some owners hire a project manager -- a service Latt provides at a cost of $250 an hour -- to keep tabs on the project. You can do it yourself, but it calls for good organizational skills, time and patience.
You'll need to make sure the contractor or superintendent is on the job every day. Keep track of all materials delivered to the site and the hours workers are on the job -- a daily task the project superintendent is responsible for but something the owner should be on top of in case a dispute arises. Be wary if the contractor doesn't like your looking over his shoulder.
"It's always important for the homeowner to stay involved," he said. "A good contractor doesn't mind."
* Pay the contractor only when each work phase is complete -- payment for the demolition once that is done, payment for the foundation when that is done. A good contractor will have open accounts at supply houses to get the job underway.
To avoid liens later being placed against your property by unpaid parties, insist on "unconditional lien releases" at the time of payment from each supplier and tradesperson as proof they have been paid.
Latt served as a contributing editor for the book "Defect-Free Buildings -- A Construction Manual for Quality Control and Conflict Resolution," by Robert S. Mann, a Los Angeles construction lawyer, mediator and arbitrator. Published last year, the book is aimed at owners as well as contractors.
Inspect it yourself
Mann urges homeowners not only to talk with a prospective contractor's past clients but also to inspect the work that was done. Find out upfront whether the contractor has the money to start the job and finish it. He recommends going so far as to interview the contractor's subcontractors to find out if projects were completed on time and on budget, whether the workers ran into snags getting paid, whether the contractor seemed organized, and even whether the owners were satisfied.
If you still have time after that, talk to suppliers to see if the contractor has an open account.
"People are reluctant to do it," Mann said. Instead, they'll go with "a good feeling" they have about someone.
Even building contractors complain that owners don't do their homework. Their first questions to a prospective remodeler usually are how soon can you start, when will it be done and what's the cost, according to the National Assn. of the Remodeling Industry.
They should be asking how long the contractor has been in business, how many employees he has and how many projects he has done like this one. He should present a portfolio of his past projects.
"Our contractors encourage a lot of research," said Gwen Biasi, director of marketing and communication for Chicago-area-based NARI. The group's 7,600 members are screened for admission -- proper licensing and no negative reports from state agencies or the Better Business Bureau -- and held to a code of ethics.
But is it realistic to expect homeowners to do the legwork? Even Biasi admits she checked only one reference when she had her kitchen remodeled.
Once the project is underway, problems occur partly because homeowners don't know what they're getting into when they decide to remodel, according to Samantha Thompson, vice president of design for Los Angeles-based Custom Design & Construction. "They have unrealistic expectations. It's a painful process, it's dirty, and it takes a lot of money," she said. "People should know there will be a mistake on every project," whether it's delays or the wrong tile delivered.
If all the details are hammered out early in the plans and the contract, the project runs more smoothly for the homeowner and the contractor. Problems can arise, Thompson said, when owners can't make a decision or they make a lot of changes once the work begins.
"Your home remodeling project will live and die by that contract," cautions Jody Costello on her website. If it's not in the contract, don't assume it will be done because you discussed it with the contractor. For peace of mind, consider hiring an attorney to review the contract before signing it, especially on bigger projects, she advises.
Like that detailed liability insurance policy, consumers need to read all the fine print.
"People sign contracts without knowing what they're signing," Costello said.
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Tips for dealing with contractors
Among pointers for homeowners tackling a remodeling project are these from Arron Latt, managing partner of Encino-based Project Management Collaborative:
1 Visit the prospective contractor in his office. Beware if he doesn't have one. Also beware if he says you won't need a permit. Find out the extent of his building experience and check three or four references.
2 Don't be persuaded by a contractor to go with a "cost-plus" contract, one that calls for the owner to pay the contractor's costs plus a percentage for overhead and profit ranging from 8% to 25%. Instead, bargain for a "fixed-price" contract.
3 Make sure the contract details exactly what work is to be done, specific materials to be used and a completion deadline for each phase of the project. Specify a minimum of three bids for work to be done by each subcontractor.
4 Some owners hire a project manager. You can do it yourself, but it calls for good organizational skills, time and patience. You'll need to make sure the contractor or his superintendent is on the job every day, among other duties. Keep track of all materials delivered to the site and the hours workers are on the job.
5 Pay the contractor only when each work phase is complete -- a check for the demolition once that is done, a check for the foundation when that is done.
Planning a remodeling project? Here are some helpful websites to check out:
* Contractors State License Board: www.cslb.ca.gov/
* National Assn. of the Remodeling Industry: www.nari.org/
* Contractors From Hell: contractorsfromhell.com
* Better Business Bureau: welcome.bbb.org/
-- Jane Hulse
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Post comments and photographs of your home-remodeling experience at latimes.com/realestate/contractor.