real estate

Hire a Contractor Who Measures Up

Insist on a license or you forfeit your legal and insurance protections.

Looking for someone to do a home-improvement project? An ad on Craigslist or a flier left at your door might promise low-cost labor with a quick turnaround. But it's no deal if the contractor isn't licensed, bonded and insured.

When a contractor is licensed, you have legal and insurance protections that you wouldn't otherwise -- and you have some assurance that you're not hiring an outfit that thrives on quick, shoddy work and then disappears. An unlicensed contractor also isn't likely to get the permits and line up the inspections necessary to make sure the job meets local building codes (failing to do so could cause headaches when you want to sell your home).

Most states and municipalities require a license for anyone performing a home-improvement project that requires labor and materials above a certain cost threshold -- for example, $200 in New York City and $1,000 in Hawaii. (A handyman performing minor repairs usually doesn't need a license.)

To get a license, contractors must meet requirements for training and experience, pass a criminal background check and post a surety bond, which shows that they intend to comply with building codes and make good on their work. They must also provide proof of general liability and property-damage insurance, which covers injuries to employees and damage to your property or your neighbor's, as well as coverage for worker's compensation. In most states, licensed contractors must contribute to a "contractors' recovery fund," which is used to compensate homeowners who have obtained a judgment in a civil suit against a contractor.

Check it out. When a contractor submits a bid, ask to see his picture ID as well as his contractor's license to make sure the names match up. Verify the contractor's license number with your state or municipal licensing agency either by phone or online. Licensing agencies keep a record of complaints against contractors and any legal actions. You can also check a contractor's complaint record at the Better Business Bureau.

Ask contractors -- and on a larger project, any subcontractors who aren't the contractor's full-time employees -- for a copy of their certificate of insurance to verify that their coverage is current. It's smart to make sure the contractor's insurance limit is sufficient to rebuild your home should the worst happen -- say, the house catches fire and burns to the ground, says Scott Spencer, worldwide appraisal and loss-prevention manager at Chubb Personal Insurance.

Chubb also recommends that you include a "hold harmless" clause in the contract that exempts you from liability if, for example, workers are injured or your neighbor's property is damaged. Just in case, check the limits of your own homeowners policy to be sure it covers any damage or injuries that might occur during the project. The contractor -- not you -- should pull the permits and handle inspections for your project. That ensures that the contractor is on the hook if the work doesn't meet the local building code.

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