Picking a good contractor: Explained

Are you looking to flip a house? Repair a rental?  Update your own home?

More likely than not, you'll need the help of at least one contractor.  There are tons of contractors to choose from, whether you use craigslist, angieslist, your local REIA or word-of-mouth ... and picking the right contractor for the job can make all the difference in the world.

This post will focus mostly on contractors used for renovations or flips, but the same principles apply to repairs in your home or rentals.

1) Contractors should have an identifying number and insurance: in my area, this identifying number is referred to as a HIC# (Home Improvement Contractor Number) and it is only possible to obtain if you purchase insurance first.  There are also many varieties of professional registration (electrician, plumber, etc.).  Contractors should at the very least have insurance to cover liability, damage, and their vehicle.  There are also other insurance, like worker's comp or builder's risk that are very helpful, but not in ways that would necessarily directly effect you (contractor insurance is an entire post unto itself).

Thought: any contractor that cannot produce this information for you upon request may not even have it, and should be avoided

2) Contractors want contractors, to protect them: Contractors need contracts to make sure that they get paid.  The lay out the rules of the game ... and they keep property owner from shifting the goalposts in the midst of the work.  Contracts also lay out a clear payment schedule, which helps to ensure timely payment for work in progress or completed.

Thought: any contractor that doesn't want to work off of a contract may not understand contract law, or may be trying to do something that contract law expressly prohibits.

3) Contractors have a method to support their quoted price: Contractors don't just make up numbers, there is a method to the bottom line.  This method is in their mind at all times, and they should be able to explain it to you on demand.  I'll use my own work as an example.

Drywall (Framing Excluded, sheet=32 sq. ft.):

• Prep Space (Pull nails or staples, etc.): $4/sheet
• Materials: $13/sheet (purple board and thicker sheeting is less profit for me, because they are much closer to the $13/sheet price)
• Hanging: $12/sheet
• Mud: $10/sheet
• Prime: $4/sheet
• Paint: $8/sheet

Square footage is measured, and then multiplied by 1.1 (simple) or 1.3 (more complicated) to accommodate the need for more cuts, and therefore more sheets.  To me this means that I can measure a space, and multiply the number of sheets by $51, and then again by 1.1 and 1.3 and have a quoted range right there, before I've even left the proposed work site.

Thought: any contractor that cannot explain their quote process either just makes it up as they go, or hasn't ever quoted that kind of work before.  Good contractors can admit when they are new to something, or that it's something they don't know much about.

4) Contracts contain specific language and limitations: Contract law in your state will make clear distinctions about things like the allowable size of a down-payment (PA: 1/3 of total contract, with the exception of special-order materials), the length of the penalty-free right-of-rescission period(PA: three days), and describe the process by which you can receive a lien waiver, which means that once the work is done and paid for, there is no longer any way that a contractor can legally lien your property for payment for the work.  Contracts also define your relationship, the contractor should be an independent contractor, and this should be explicitly stated and acknowledged with signatures.

Thought: contractors are aware of the benefits for you of a contract being signed, and they should want those same benefits for you too.  There's never a good reason to not sign a contract for work.

5) Contractors want to buy materials, and they want to arrange for their transport: This might be the most important aspect of this entire discussion.  Good contractors want to have control over the availability of the materials on their work site.  They don't want to wait for you to order what they need, they want it to already be there waiting to be used.  They would rather you pay them the money they need to purchase the materials than wait for you to get around to it.

Thought: any contractor who says that they "can't buy/get/transport" materials has a very good reason, and you should be very, very concerned about it

6) Contractors are not your employees, and this is the best thing ever:  Independent contractors DO NOT fall under your insurance, which is why it is critical that they have their own.  You don't provide them with materials, they buy their own.  You don't tell them when to work (e.g. you cannot demand that they be on site at a certain time, but you set reasonable boundaries).  Those are all things that you do to employees.  If you buy materials for an independent contractor, or set their hours, they can be interpreted as employees by any to all forms of government.  This means that if they get hurt or die while working at one of your sites, without regard to the reason why or how, you could lose everything.  THAT MEANS IF SOME GUY SHOWS UP TO WORK DRUNK, FALLS OFF A LADDER, AND DIES, YOU COULD LOSE LITERALLY EVERYTHING THAT YOUR BUSINESS OWNS.  You have to make absolutely sure that you keep the relationship clearly defined, for your own protection.

Thought: you can always negotiate the cost of materials, but don't ever put yourself in a situation that creates undo liability for you and your business by agreeing to do something as silly as buy materials because you think you can get a better deal.

BONUS FUN FACT:  If you pay a contractor and they work really, really slowly, you might decide to fire them.  In this case you could sue them for Specific Performance, meaning you are suing them because they didn't do something that they agreed to do.  But if you pay them and they do nothing at all (they never come to site, never bring materials to site, etc.) just call the police and report a theft.  They took some amount of money from you, which is theft (this tip was given to me by a magistrate when suing someone for Specific Performance who had done nothing).  You might be surprised how quickly they either start the work, or return your money when law enforcement gets involved.