1 - Get Recommendations

Start with your friends and family and then check in with the National Association of the Remodeling Industry for a list of members in your area. You can also talk with a building inspector, who'll know which home renovation contractors routinely meet code requirements, or pay a visit to your local lumberyard, which sees contractors regularly and knows which ones buy quality materials and pay their bills on time.

2 - Do Phone Interviews

Once you've assembled a list, make a quick call to each of your prospects and go through these questions to ask a contractor:

• Do they take on projects of your size?


• Are they willing to provide financial references, from suppliers or banks?


• Can they give you a list of previous clients?


• How many other projects would they have going at the same time?


• How long have they worked with their subcontractors?

The answers to these questions will reveal the company's availability, reliability, how much attention they'll be able to give your project and how smoothly the work will go.

3 - Meet Face to Face

Based on the phone interviews, pick three or four contractors to meet for estimates and further discussion. A contractor should be able to answer your questions satisfactorily and in a manner that puts you at ease. Tom says that it's crucial that you two communicate well because this person will be in your home for hours at a time. On the other hand, don't let personality fool you. Check in with your state's consumer protection agency and your local Better Business Bureau before you hire a contractor to make sure they don't have a history of disputes with clients or subcontractors.

4 - Investigate the Facts

Now that you've narrowed your list, put your research to use. Call up former clients to find how their project went and ask to see the finished product. But Tom says you shouldn't rely on results alone. Even more important, visit a current job site and see for yourself how the contractor works. Is the job site neat and safe? Are workers courteous and careful with the homeowner's property?

5 - Make Plans, Get Bids

You have your short list of contractors whose track records seem clean and whose work ethic looks responsible. Now it's time to stop looking back at past work and start looking forward to your project. A conscientious contractor will want not only a complete set of blueprints but also a sense of what homeowners want out of a project and what they plan to spend. To compare bids, ask everyone to break down the cost of materials, labor, profit margins and other expenses. Generally materials account for 40 percent of the total cost; the rest covers overhead and the typical profit margin, which is 15 to 20 percent.

6 - Set a Payment Schedule

Another important tip for hiring a contractor is to workout a payment schedule ahead of time. Payment schedules can speak to a contractor's financial status and work ethic. If they want half the bid up front, they may have financial problems or be worried that you won't pay the rest after you've seen the work. For large projects, a schedule usually starts with 10 percent at contract signing, three payments of 25 percent evenly spaced over the duration of the project and a check for the final 15 percent when you feel every item on the punch list has been completed.

7 - Don't Let Price Be Your Guide

Throw out the lowball bid. This contractor is probably cutting corners or, worse, desperate for work—hardly an encouraging sign in a healthy economy. Beyond technical competence, comfort should play an equal or greater role in your decision. The single most important factor in choosing a contractor is how well you and he communicate. All things being equal, it's better to spend more and get someone you're comfortable with when hiring a contractor.

8 - Put it In Writing

Draw up a contract that details every step of the project: payment schedule; proof of liability insurance and worker's compensation payments; a start date and projected completion date; specific materials and products to be used; and a requirement that the contractor obtain lien releases (which protect you if he doesn't pay his bills) from all subcontractors and suppliers. Insisting on a clear contract isn't about mistrust. It's about insuring a successful renovation.

Finally, remember that as soon as a change is made or a problem uncovered, the price just increased and the project just got longer. The four most expensive words in the English language? "While you're at it...."