How to Hire a Contractor: Bids, Contracts, Payments and Red Flags

The contractor you choose matters more than almost any material you pick. A good one keeps a project on budget and up to code; a bad one can leave you with unfinished work, liens on your house or repairs that have to be torn out. A little homework up front prevents most problems.

1. Find candidates

Start with recommendations from neighbors, friends and local building supply stores, and look for contractors who specialize in your type of project. A kitchen remodeler, a roofer and a foundation specialist are very different businesses. Aim for at least three candidates.

2. Check license, insurance and history

• License: many states and cities license contractors. Look the company up on your state's licensing board website and confirm the license is active.
• Insurance: ask for certificates of general liability and workers' compensation insurance, and verify them with the insurer. Without it, you could be liable if a worker is injured on your property.
• Reputation: read online reviews, check complaints with your state attorney general or consumer protection office, and ask for references from recent, similar projects.

3. Compare bids the right way

Give every contractor the same written scope of work, then compare bids line by line: materials (brand and model), labor, demolition and disposal, permits, and allowances for items not yet chosen. A bid that is far lower than the others often leaves something out or relies on change orders later. The cheapest bid isn't automatically the best one.

4. Get a written contract

A solid contract should include:

• The contractor's legal name, address and license number.
• A detailed scope of work and the specific materials.
• Start and completion dates.
• The total price and a payment schedule tied to completed milestones.
• Who obtains permits and schedules inspections (usually the contractor).
• How change orders are priced and approved, always in writing.
• Warranty terms for workmanship.
• Cleanup and disposal responsibilities.

Federal rules generally give you three business days to cancel a contract signed in your home for more than a small amount; many states add their own protections.

5. Pay smart

• Keep the deposit modest. Some states cap it; California, for example, limits most home improvement deposits to 10% of the price or $1,000, whichever is less.
• Pay by check or card, not cash, and keep records.
• Ask for lien waivers from the contractor and major suppliers and subcontractors as you pay, so nobody can file a lien against your home for unpaid bills.
• Hold the final payment until the work passes inspection and every item on the punch list is finished.

Red flags

• Door-to-door offers, especially after storms, and pressure to sign today.
• Cash only, or a large payment before any work begins.
• Suggestions to skip permits "to save money."
• No physical address, no license number or no proof of insurance.
• Vague, one-line bids with no materials listed.

Ready to budget your project? See our cost guides for kitchens, bathrooms and roofs, and compare ways of paying for a renovation.

Prices are typical U.S. ranges and vary by region, home and contractor. Always get several local quotes and follow local building codes; hire a licensed professional for electrical, gas and structural work.