Buying and renovating a home to suit your needs and your family is an exciting process. But choosing the wrong home renovation contractor can turn an exciting milestone into a costly lesson. Here’s one family’s experience and what we can all learn to avoid a bad home renovation contractor.
With one young child and another on the way, Charlie Walker* and his wife decided it was finally time to buy their dream home. (*Identifying information of those involved have been changed to protect their privacy.)
After a bit of searching, the Walkers found their perfect home. It had four bedrooms, a two-car garage, it was closer to the in-laws and was just under 20 years old. The best part? The outdated decor meant it came with a competitive price tag.
To become the dream home the Walkers had envisioned, this new home would need considerable renovation. New bathrooms, a new kitchen and new floors were on their reno list, as well as new fixtures, a ceiling upgrade, and new appliances. Although the scope of work was large, the Walkers were confident that they would see the renovations completed within a reasonable timeframe and budget.
Quite quickly, however, the Walkers’ dream home reno became a nightmare.
Rather than waiting eight weeks for completion of the job, the Walkers would end up waiting more than nine months — eventually having to hire another home renovation contractor to finish the job. Even worse, the Walkers ended up paying two mortgages on two homes for more than half a year, and exceeded their renovation budget by more than 30% just to get the job done. Add to that the cost of ongoing legal fees, and you’ve got a perfect storm of renovation mistakes.
How can you avoid these costly and painful home renovation mistakes? Here are seven important lessons the Walkers learned from their descent into reno hell.
Lesson 1: Experience Counts When It Comes to a Home Renovation Contractor
Even though Charlie had a list of tasks, he still wasn’t sure quite how to start renovating a house. So he began searching for a general contractor — the person tasked with overseeing the day-to-day aspects of a renovation job. He got in touch with Tim, an acquaintance he’d known for more than a decade who’d recently started his own home renovation company.
Although Tim was a friend who was looking for work, Charlie did his due diligence and requested a bid for the job from other general contractors, as well as Tim. When the bids came in, Charlie was surprised to see that Tim’s was the lowest. Even better, Tim’s bid came with the shortest timeline, meaning the Walkers would be able to move in — and stop paying two mortgages — sooner. Happy with the pricing and timeline, Charlie let Tim know he had the job.
What Charlie didn’t realize was Tim’s lack of experience as a general contractor may have prompted his lowball price for the job.
It can be difficult to figure out the “perfect” price for a house renovation, says Robert Koci, publisher of Canadian Contractor, a magazine geared towards Canadian home renovation contractors.
To help rein costs in and get an apple-to-apples comparison among home renovation contractors, Koci suggests establishing a firm budget from the outset.
“Customers are afraid to give a contractor a budget because they’re afraid a contractor will bid to the budget and not the price — and they will,” said Koci. But having a set target budget makes it possible to also focus on other priorities. For example, Some bidders may offer an extended warranty, others may offer to do the job faster, and the very experienced contractors will also point out areas where reno requests are too expensive, meaning you may have to go over budget.
As Koci reminds us: If building a house was like playing football, a general contractor would be the quarterback. They manage the budget, acquire materials, and hire subcontractors. A good general contractor can explain the reason for the placement of every nail, even though he’s not the one that hammered it in.
So, what should you take away from this lesson? When starting a home renovation, do the research ahead of time to establish a reasonable budget for each part of the reno. And don’t be afraid to look at the bid carefully. Remember, if one home renovation contractor offers to get the job done faster or cheaper than all the others, chances are this person either doesn’t have an accurate idea of the work required, or is low-balling to get the job before adding costs.
Lesson 2: A Handshake Isn’t Enough
As a next step, Charlie and Tim met to discuss the job details. They agreed that the entire house renovation would cost about $135,000 and would take eight weeks to complete, start to finish. Though Charlie mentioned getting a written contract, he didn’t insist on one. And at the time, he wasn’t convinced it was necessary. After all, he’d known Tim for more than a decade. What could go wrong?
Avoiding a written home renovation contract is a huge mistake, but not for the reasons you may think, says Koci.
“You don’t want a contract just as a legal backstop,” he explains. In a nightmare scenario, a contract doesn’t guarantee you’ll get your money back without resorting to litigation. So you shouldn’t consider it your main legal recourse.
“The primary reason for a contract,” explains Koci, “is to prove that the guy you are trusting to be your quarterback is organized, understands what he’s about to do and is comfortable around project management.”
A good contract from an experienced home renovation contractor should set out the scope of work, the overall budget, pay schedules, expected milestones and work materials required for the job. If the contractor you’re about to hire doesn’t willingly offer you this type of contract, you may want to reconsider choosing them to complete your reno.
“A poorly written contract is a major red flag,” says Koci.
Lesson 3: Know Before You Pay
Deal sealed by a handshake, Tim asked Charlie for a cash deposit of just over $20,000 to get started. Charlie would then make additional lump sum payments in the coming weeks, confident that Tim would stick to the budget in their informal agreement.
But the lack of written contract set the tone. Charlie wasn’t provided a payment schedule, or a schedule of milestones — estimated dates of when specific jobs would be completed. Instead, he simply signed digital invoices from Tim to transfer the funds.
Expect to Pay a Deposit
So what should homeowners take away? Koci is clear: “It’s normal to ask for a deposit.” The deposit allows the home renovation contractor to buy the initial materials and supplies to start the job — materials and supplies you’re responsible for covering. But after the initial deposit, you shouldn’t have to fork out any additional funds until the first milestone is reached (unless major, unforeseen problems arise).
Expect to Pay a Management Fee
After paying a lump sum, Charlie popped into his would-be dream home, only to find it empty. No workers, few materials and it was already a week into the job. Concerned, Charlie went back to the invoices and started to read everything. He was shocked to learn he was being charged a 20% management fee on top of his fixed price.
A management fee isn’t all that unusual in a home renovation contract. Typically, a fixed contract includes materials and subcontractor costs, but also administration fees, overhead and profit. These additional expenses are often called a management fee.
A “time and materials” contract for smaller projects or tasks with an uncertain timeline can also include a management fee on top of the cost of materials and the time needed to complete the job. This fee can be anywhere from 5% to 20% of the total project cost.
However, in many fixed contracts, the management fee is already baked into the total price. That’s why it’s important to ask for a project cost breakdown so you can make sure you’re not being charged both a profit mark-up and a management fee. If a contract uses both fees, it’s the construction equivalent of having your cake and eating it, too.
Lesson 4: Use Multiple Methods to Track the Progress of Your Reno
A little over a month into the job, Charlie was surprised when his in-laws, who lived around the corner from the new house, told him no one was working on the house.
This was troubling. The whole reno was supposed to be done in eight weeks, and Charlie knew any delay would seriously jeopardize the deadline. Worse, he’d delayed selling his old house while the new one was being renovated. This is a strategy known as a “bridge,” which meant Charlie was making mortgage payments on two houses as well as paying for renos. Any delay would mean paying more out of pocket.
Concerned, Charlie asked Tim about the delays, and was told “not to worry.”
Still concerned, Charlie paid a surprise visit to the job site a few days later — and was greeted by two police cruisers parked in the driveway of his new home. Apparently, Tim had been loudly arguing with some subcontractors and the police were called.
Though Charlie’s behaviour seems reasonable, Koci explains that it’s a waste of time to drop-in randomly on your house renovation job. Work may stop and start at odd times, depending on when sub-trades can fit your jobs into their tight schedule.
Rather than just dropping in at the renovation site, Koci suggests solidifying the initial contract, which should include a construction schedule and milestones, and using that to monitor progress.
Lesson 5: Materials Matter in a Renovation
One aspect of the renovation Charlie was looking forward to was being able to see his vision of a dream home come to life. He rightfully expected that he and his family would end up with a beautifully updated home, and that the reno would add value to the property. It would have brand-new hardwood floors, custom granite countertops, and premium bathroom fixtures, all high-quality.
At least, that’s what he thought he and Tim had agreed on.
But after the run-in with the police, Charlie started checking into the work and found an abundance of cut corners. A low-quality laminate was used instead of higher quality flooring in the basement. Engineered hardwood was substituted for hardwood, and $700 toilets were replaced with lower-quality models that cost a fraction of the price.
At this point, Charlie confronted Tim, who asked Charlie to sign a “scope of work” agreement to settle the disagreements. But this new document was nothing like the original agreement, so Charlie refused to sign. Tim then walked off the job.
This is another reason a detailed contract is important. It allows you to specify the type and quality of materials you prefer — sometimes right down to the model number of appliances.
Charlie realized that he’d have to find another home renovation contractor to finish the job. It sounded like a simple solution, but the problems were only just beginning.
Lesson 6: Choose Licensed Tradespeople
The renovation mistakes kept mounting up. Besides skimping on supplies, Charlie felt that the work of the subcontractors was atrocious. The drywall sanding was so rough that professional painters refused to even start the job. Nails had been shot through the engineered hardwood. Appliances were simply dropped in place without being connected to the home’s utility lines. But even worse was the problems with the plumbing and electrical components.
Charlie says he felt pressured into not hiring a licensed electrician based on the belief that the house was previously wired by a licensed electrician. He recalls terms like “piggy-back” and “coupling” being used to explain how electrical and plumbing would be added during the home renovation.
“If you’re a contractor, you probably do have guys who can do a little of everything,” says Koci. But these jack-of-all-trades workers shouldn’t replace licensed professionals when it comes to larger or more complex jobs. For instance, explains Koci, wiring an addition, rewiring an entire home or upgrading an electrical panel isn’t a job for the generalist.
There’s also the matter of accountability. Licensed electricians provide warranties on the work they do. If a wire short circuits, they’ll have to come back and fix it or face legal repercussions.
As a general rule of thumb, if you need to pull permits, you should hire a licensed tradesperson to complete the job.
Because a licensed electrician and plumber were apparently not used during Charlie’s home reno, the potential for danger and serious damage increased significantly. Improperly installed plumbing resulted in flooding from an upstairs bathroom, and live pot lights were buried between the floor and ceiling, which is a fire hazard. There was water leakage in a bedroom. Finally, the toilets were running with hot water, which affects utility costs, and would eventually cause the toilet to crack. To fix these issues, Charlie had to pay independent professionals another $35,000 out of pocket.
Lesson 7: End a Bad Reno Quickly
Charlie admits he let his fear and personal relationships cloud his professional judgment. Looking back, he now sees the red flags and where he made key renovation mistakes.
“If you get to this place, it’s not the time for making peace,” says Koci. His advice: If you’re going to sever ties with a home renovation contractor, do it as early and as firmly as possible.
So what happened with Charlie’s house renovation? Almost a year later, Charlie and his family finally moved into their dream home turned reno nightmare. Tim alleges Charlie still owes him back wages, and has placed a lien on Charlie’s house to secure those wages, which could be a big problem if Charlie wants to sell or refinance. Charlie is convinced he doesn’t owe Tim any money. Altogether, Charlie paid approximately $325,000 out of pocket to complete the job — more than double the estimated initial cost of the renovation.
“It’s beyond embarrassing,” says Charlie, lamenting not only the money lost but the ongoing stress. “Next time, I would have a contract that itemizes everything,” he says. “Right down to the grout.”
If you’re looking to upgrade your home, use these lessons learned by the Walkers to help you find a home renovation contractor that will ensure the job is completed on time and within budget. If you’re searching for the perfect fixer-upper to update, head over to Zolo for a comprehensive look at homes in your area.
