Hiring a trustworthy contractor to work on your home can be challenging. While there is an element of “going with your gut” on who you think will be the best to work with, there are some criteria that you should use to determine whether or not a contractor can even be a contender.
Simply put, they need to be licensed, bonded, and insured. I’m sure these terms aren’t new for you, but maybe you don’t understand exactly what they are and why they’re important. Let’s break each of them down.
There are two different licenses that could be important depending on what state you live in. In some states, contractors may need a business license to operate legally. In other states, what we’re referring to when we talk about licenses is their contractor’s license. It’s important to note that not every state requires a contractor’s license for every type of home improvement service.
For instance, our Illinois division of the company is not required to have a contractor’s license for painting and remodeling work, but our Wisconsin division is. So, check out your local laws for more clarification. (Side note: plumbers and electricians are almost ALWAYS required to have a license – no matter what state they work in.)
Overall, hiring a company with a contractor’s license in an area that requires it provides many benefits for you as a homeowner, but let’s go through the top two.
First, it gives you the peace of mind that your contractor has gone through hours of educational materials and testing to obtain the license. Because of all the information they had to learn, they’ll be extremely knowledgeable on local ordinances / code to make sure your renovations are done properly and pass inspection.
Additionally, if you are doing any major renovations such as an addition or structural changes, it will likely require permits from the city/county. In the areas that require your contractor to be licensed (like in WI), no permits will be granted unless they can show proof of a license.
Licensing is pretty simple to understand, but let’s dig into what it means for your contractor to be bonded. When a contractor is bonded, it means they’ve purchased a surety bond through either an insurance or surety company. As a homeowner, this bond can protect you in the event that your contractor doesn’t complete the work as required by your contract or if they do poor work.
If your contractor doesn’t finish their work and you aren’t able to get your money back from them, your next step would be to make a claim with the state contractor’s board. You’ll have to prove the work is unfinished and then you may be able to be repaid from the company they set up the bond with (depending on how big of a bond the contractor set up originally).
Overall, regaining lost money in these types of situations, even with a bond, can be difficult and time consuming and there is no guarantee the bond will cover the amount you’re seeking. While they can be a nice added assurance, we often recommend using reviews and past customers as a way to protect yourself from incomplete work in the first place. If your contractor can’t provide you with past reviews or references, consider it a red flag!
There are two different types of insurance your contractors should carry – liability and worker’s compensation. Liability insurance covers any damage done to your property as well as any bodily harm caused by the contractor’s work. For example, if they are using a ladder and break a window, the insurance will cover the cost of replacing the window. Let’s say someone stepped on glass from that window before they realized it was there, the insurance would also cover medical expenses required to heal those injuries. It’s important to realize that liability insurance is not the same as a bond – it will not cover the cost of redoing poorly done work.
Worker’s compensation insurance protects the homeowner from any liability for employee injuries. For example, if a painter falls off of a ladder and injures their back, this insurance would cover all of their medical expenses (regardless of how it happened). Without this insurance, you would have to use your own homeowner’s insurance and pay out of pocket any amount over that policy. There is an exception for certain contractors who don’t legally need this insurance. If the owner of the company you’re using is the only employee, state law may not require them to carry the policy.
It’s a best practice to ask for proof of insurance from your contractor and ensure the coverage will cover a worst-case scenario for your home. For instance, if your home is worth $500,000, but the liability coverage is limited to $250,000, you may not be fully protected! If your contractor cannot provide you with a copy of their current certificate of insurance, do not work with them.
If you can find a contractor who can provide past client reviews / references and is licensed, bonded, and insured, you’re setting yourself up for a much less stressful home improvement experience.
If you have multiple contenders who fit these criteria, choose the contractor who you feel most comfortable with and who is best at communication. Good luck!
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"Matt and the 3rd Gen Team are a class act. He is really big into clearly communicating with us where things stand. And all the work he has done has been top notch. I'd highly recommend them!"Bob H. in Madison, WI