How to Hire a Contractor: Bids, Licenses and Contracts

Hiring the right contractor matters as much as the materials you choose. Most problems homeowners run into (unfinished work, surprise charges, an unlicensed worker hurt on the job) trace back to a missing step at the start. This guide puts those steps in order. It uses the Federal Trade Commission (FTC) for nationwide consumer rules and California’s Contractors State License Board (CSLB) as a detailed state example, labeled “California.” Your state may have different rules, so check your state or local licensing office too.

Where do you find contractors to ask for bids?

Ask neighbors, friends and family who had similar work done, and look at the finished job if you can. For trades with a professional credential, use that body’s directory: for example, the International Society of Arboriculture lists certified arborists (see our tree care guide), and EPA lists lead-safe certified renovation firms for homes built before 1978 (see our lead-safe renovation guide). Be careful with anyone who knocks on your door offering a bargain or saying they have leftover materials from a job nearby; both the FTC and the ISA warn about door-to-door offers.

How many bids should you get, and how do you compare them?

Get several written bids. California: the CSLB says to get at least three written bids and to make sure they are based on identical plans, specifications and scope of work. The CSLB also says not to automatically accept the lowest bid and to beware of a bid that is much lower than the others, because it may mean a mistake, missing work or corners cut later.

When you compare bids, line them up item by item:

• the exact work and materials (brand, model, size, color where it matters),
• who gets and pays for permits,
• start and completion dates,
• cleanup and debris removal,
• warranties on materials and labor,
• the payment schedule.

How do you check a contractor’s license?

Licensing rules differ by state, and some trades are licensed by counties or cities. Ask the contractor which license they hold and look it up on the licensing board’s website. California: the CSLB says contractors must put their license number on business cards, bids and contracts, but that seeing a number doesn’t mean the license is valid, so check it online. When the contractor comes to your home, the CSLB suggests asking to see their pocket license and a photo ID to make sure the person matches the license.

Why does the contractor’s insurance matter to you?

If a worker is hurt on your property, who pays can depend on the contractor’s coverage. California: the CSLB says contractors with employees must carry workers’ compensation insurance, and that if an uninsured worker is injured on your property you could be financially liable. It suggests asking for a certificate of insurance, or the name of the carrier and agency, and verifying coverage for workers’ compensation and general liability. Check with your own homeowner’s insurer about what your policy covers.

What should a home improvement contract include?

Get everything in writing, including any promise made out loud. The FTC and CSLB both describe a written contract that includes:

• the contractor’s name, address and license number,
• a detailed description of the work and the specific materials,
• the total price and when each payment is due,
• who gets the building permits,
• estimated start and completion dates,
• your right to cancel, and notices your state requires.

California: the CSLB says a written contract is required for home improvement projects over $500 in combined labor and materials, and that changes after signing should be written on a signed change order that becomes part of the contract. The CSLB gives this example of being specific: “install oak kitchen cabinets, manufactured by Company XYZ, model 01381A, as per the plan,” not just “install kitchen cabinets.”

Can you cancel after you sign?

Often, yes, for a short time. The FTC’s Cooling-Off Rule (16 CFR Part 429) covers many sales made at your home of $25 or more and requires the seller to tell you that you may cancel “at any time prior to midnight of the third business day after the date of this transaction.” There are exceptions, so read the notice in your contract. California: the CSLB says you may cancel within three days of signing, that the cancellation should be in writing, and that it must be mailed before midnight of the third day.

How much should you pay up front?

Don’t pay the full price before work starts, and tie later payments to finished stages of work. Pay by check or card, not cash, so you have a record. Some states limit down payments. California: the CSLB says a contractor generally can’t ask for a down payment of more than 10 percent of the contract price or $1,000, whichever is less (a contractor with a blanket performance and payment bond on file with CSLB is the exception). Make the final payment only when the work is done and any required inspection has passed.

Is your home older than 1978?

If the job disturbs paint in a home built before 1978, EPA requires the contractor to be a lead-safe certified firm that follows lead-safe work practices. Ask for the firm’s certification before you sign. Our lead-safe renovation guide explains what to expect.

What are the warning signs of a bad contractor?

• Door-to-door offers, pressure to sign today, or a low price that expires today.
• Requests for cash only or full payment up front.
• No written contract, or a contract with blanks.
• A license number that doesn’t check out, or a person who doesn’t match the license.
• A bid far below the others.
• Asking you to get the permits yourself for work they will do.

Next, use our home maintenance checklist to plan what to fix first, or tell us which state’s rules we should add.