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7 Essential Guidelines for Homeowners Engaging Contractors

LS Carlson Law, Esq. January 4th, 2024

When it comes to home improvement or construction, the contractor you choose is as crucial as the project itself. A misstep in selection can lead to disputes, financial loss, and endless headaches. Our latest podcast episode, featuring seasoned Real Estate & Contractor Dispute Attorney Shelby Daws, Esq., delves deep into this subject, providing homeowners with invaluable tips on how to navigate the hiring process and protect their interests. As a law firm experienced in contractor disputes and real estate law, we've distilled Shelby's wisdom into a must-read guide for anyone embarking on a construction project.

Tip 1: Verify the Contractor's License
The first line of defense against contractor disputes is due diligence—begin with a license check on the Contractor State License Board (CSLB) website. A licensed contractor not only demonstrates legitimacy but also ensures adherence to state regulations. Take the few minutes to confirm the status of their license and ensure it's active; it's a minor investment of time that can save you significant trouble down the line.

Tip 2: Check for General Liability Insurance
Before signing any contracts, confirm that your contractor carries general liability insurance. This is your financial safety net should any property damage or injuries occur during the project. Shelby emphasizes the importance of not just taking the contractor's word for it but calling the insurance carrier to verify coverage. It's a straightforward process that adds an extra layer of protection for you as a homeowner.

Tip 3: Ensure Workers' Compensation Insurance is in Place
Workers' compensation insurance is another non-negotiable. This protects you from being liable if a worker is injured on your property. A lack of workers' comp insurance can result in the homeowner's nightmare—being sued for injuries occurring on their property. Again, verification is key; use the CSLB website and follow up with a call to the insurance carrier to confirm the details provided.

Tip 4: Contractor Bonds – A Necessary Security
A bonded contractor is often a reliable contractor. The bond is a form of financial assurance that compensates you if the contractor fails to fulfill the terms of the contract, including completion of work and payment of subcontractors or suppliers. It’s vital to check that the bond is valid and sufficient to cover the scope of your project. Shelby notes that while the bond isn't a catch-all solution, it's an indication of the contractor's credibility and seriousness.

Tip 5: Obtain Multiple Bids
Gathering multiple bids is a strategic move that can give you leverage and insight into the market rate for your project. Shelby advises homeowners to seek at least three bids and to scrutinize both the high and low offers. A bid that’s too low can be as alarming as one that’s excessively high, often indicating subpar materials or labor.

Tip 6: Document All Change Orders
Change orders modify the original contract and can affect both the project’s cost and duration. Ensure every change order is in writing to avoid disputes. Verbal agreements are precarious and can lead to misunderstandings or disagreements later in the project. A written record provides clarity and a reference point for both parties, affirming that all modifications are agreed upon and understood.

Tip 7: Release of Lien for Each Payment
Last but certainly not least, after each progress payment, insist on a release of lien from the contractor. This document confirms that the subcontractors and material suppliers have been paid and prevents them from placing a lien on your property for nonpayment. Shelby underscores this as a crucial step to eliminate the risk of becoming entangled in payment disputes between the contractor and their suppliers or subcontractors.

Each of these tips serves as a strategic piece of advice from a contractor dispute attorney's perspective, ensuring you are well-prepared to manage and mitigate the risks associated with home improvement and construction projects.

At LS Carlson Law, we understand the complexities and challenges that can arise from real estate transactions and construction projects. As experienced contractor dispute lawyers and real estate attorneys, we advocate for preventative measures to avoid disputes. However, if you find yourself in a situation that escalates into a legal matter, our expertise as both contractor dispute attorneys and real estate lawyers positions us to defend your interests vigorously.

Remember, while these tips can significantly reduce the likelihood of contractor disputes, they are not a substitute for professional legal advice tailored to your specific situation. For comprehensive legal guidance or representation in a dispute, reach out to our team of \real estate attorneys and contractor dispute lawyers at LS Carlson Law. We are committed to ensuring that your construction and real estate endeavors are not just successful but also secure.

Video Transcript

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
I'm Shelby Dawes. I'm a fourth year associate. And the topic that we have today, it's about tips and like best practices for homeowners when they're going to hire a contractor.

Real Estate Attorney and Host, Luke Carlson, Esq.
Okay. And what's interesting about you is this is sort of in your DNA.

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
Yes.

Real Estate Attorney and Host, Luke Carlson, Esq.
You know this very well.

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
Yes. I'm a carpenter's daughter. My dad's in construction. He does cabinets and millwork. So So I grew up in the family business, worked for him like every summer throughout college and in high school. So I really learned how the business was run and saw what my dad did too, even though he's in commercial. A lot of the things that I think that a lot of homeowners don't do, they do it in commercial to protect because they protect themselves way better, I think.

Real Estate Attorney and Host, Luke Carlson, Esq.
Right, because it's a business, right?

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
It's a business, yeah. So a lot of the things that I've learned just through my dad and being part of the family business and working there and seeing when things blow up and then he changes his approach so it's really just kind of also like years of how he

Real Estate Attorney and Host, Luke Carlson, Esq.
trial and error and you've absorbed that over the years and because i gotta say you gave me this breakdown and i will say it's the holy grail i mean if homeowners or some of our clients had this beforehand they wouldn't be our clients, these are these are phenomenal tips now a handful i think are self-evident but you have some that that are tremendous in terms of protecting oneself. So we can just jump right into it. I think you have a total of seven.

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
Seven, okay. Seven's a good number.

Real Estate Attorney and Host, Luke Carlson, Esq.
Yeah, it is, lucky number.

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
Yeah. Well, so this also, yeah, this is probably self-evident, the first tip I have, but I think a lot of people don't really necessarily always know about it, but the first thing you should do is go to the CSLB website, which is for the Contractor State License Board, and check to see if the contractor that you're going to hire and before you hire them is licensed because that is huge.

Real Estate Attorney and Host, Luke Carlson, Esq.
That's easy to do. It's like two minutes.

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
Two minutes.

Real Estate Attorney and Host, Luke Carlson, Esq.
Do it on your phone.

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
Yeah, you can do it on your phone. And like also make sure it's active because they could have a license that's no longer active.

Real Estate Attorney and Host, Luke Carlson, Esq.
Okay.

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
But that page is like a source of great information.

Real Estate Attorney and Host, Luke Carlson, Esq.
Okay, so that's step one. You meet the contractor. That contractor is amazing in terms of what they're saying.

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
Yeah.

Real Estate Attorney and Host, Luke Carlson, Esq.
They then leave, first thing you jump on your phone and you cross-reference.

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
Yes, 100%. And also, too, I think is important as well is that because they'll have like classifications for their license. And so say you're going to get plumbing work done in your house and your contractor, their license is for like millwork or cabinets. That's a, do you want them to be doing plumbing work at your house? Because, I mean, everyone has their specialty. So I think that's important as well.

Real Estate Attorney and Host, Luke Carlson, Esq.
So it's almost two parts that you're looking at. You're looking to first see if they're even there. If they appear, okay, great. But then what is their classification? And does it jive with what they're doing at your property?

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
Yes.

Real Estate Attorney and Host, Luke Carlson, Esq.
Okay, tip one. That's easy.

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
Tip one. And then the next tip, which I think is really big, is confirming that they have commercial general liability insurance. Before you sign a contract, to all this thing these things can be done before you sign the contract should tell you that they have whether or not they have commercial general liability insurance and also the insurance carrier and you can call and it'll be like here is their insurance and here's a number to call you should call okay and confirm their coverage 100% and why is that well because if anything happens then and if they're not insured you're pretty you're kind of screwed if they were to mess up on the job if they did you know shoddy work and they're not insured who you don't i mean

Real Estate Attorney and Host, Luke Carlson, Esq.
It's a safety net

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
it's a huge safety net

Real Estate Attorney and Host, Luke Carlson, Esq.
so it's not enough just to see it you should actually call follow up and do your due diligence i think what you're getting at though

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
yeah you definitely need to do the due diligence especially because i know that i see insurance certs circling around all the time it's a pdf i've seen them altered

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
easy to falsify

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
we all can edit a pdf so call and see when if they have coverage the policy period also

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
and that's also very quick that's a that's another two three minute maybe five if you're on hold

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
yeah, so this one i think is huge and it's probably i think the most important is confirming that they have workers compensation

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
oh i love this topic

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
insurance for their employees so and this is also on the CSLB website it'll say either you know this is their insurance carrier for the workers compensation and you know the phone number the policy it says it has that out as well I would still call and confirm and then oh what's another good thing

Real Estate Attorney and Host, Luke Carlson, Esq.
well briefly on that one because that's interesting so let's say they don't and let's run a scenario, workers show up, they go to the roof, they fall off the roof. The expectation is the homeowner's, it's not my thing. That's on them. But without that, that's not the reality.

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
No. So if they, you know, their employees gets hurt at your property and they don't have any workers' compensation to cover their injury, they're coming after you as the homeowner.

Real Estate Attorney and Host, Luke Carlson, Esq.
Massive liability.

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
That's, it's huge. I mean, especially, I mean, construction's dangerous, you know, there's accidents all the time. I mean, I know just at my dad's in his shop, someone like cut their finger off and it was traumatizing but he is workers comp yeah you know it's it's a big deal i mean even like they're hurting their backs and you know all that stuff but um that is really that's huge and also i think what's important too is that so on the website it shows the um the insurance coverage or it'll say this contractor or sorry licensee or whatever it says has no employees and is exempt from workers compensation requirements

Real Estate Attorney and Host, Luke Carlson, Esq.
red flag

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
red flag, it's very unlikely that a contractor is going to have no employees a one-man shop first of all that's kind of making me think is this guy that like can he do that on his own? he doesn't have any workers no one that does like the labor?

Real Estate Attorney and Host, Luke Carlson, Esq.
it's unlikely they'll admit that as well i mean they're not going to disclose how they're representing to the contractors board. So this is just getting behind the curtain, really verifying something that you're not necessarily going to see at the forefront.

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
When I see that the contractor says that they're exempt, I'm thinking they have employees that are misclassified as independent contractors because workers' compensation insurance, it's expensive. They don't want to have to. So they're just treating them as independent contractors when and they could very well be misclassified, then that employee who's treated like an independent contractor gets hurt at your property.

Real Estate Attorney and Host, Luke Carlson, Esq.
Blows back to you.

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
Blows back to you. They have no insurance coverage.

Real Estate Attorney and Host, Luke Carlson, Esq.
That's a big one. I think that's huge.

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
Yeah. Like, I don't want to be prejudiced against someone who doesn't have employees, and maybe it's really true, but it should, you know, ring the alarm.

Real Estate Attorney and Host, Luke Carlson, Esq.
Well, I think it's also the nature and scope of the project that they're agreeing to, right? Totally. If it's a one-person shop and they're overhauling your entire house and they don't have employees that's you can't do that

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
what also kind of rings the alarm i guess is that with when they are exempt when they say they're exempt from insurance it's kind of making me think well are they just they have no employees and they're just hiring unskilled laborers that they just find like what's the quality of their subcontractors that they're hiring

Real Estate Attorney and Host, Luke Carlson, Esq.
so then beyond so actually that's interesting because you're going beyond legal to an extent because one is the legal ramifications of it but you know also you're going into quality. Quality though becomes relevant if you hire them to do a beautiful job they don't that also becomes a legal issue right breach or negligence i guess you could argue so that's also telegraphing a potential problem down the road, okay i like that.

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
All this stuff too when it comes to the general liability insurance and the workers comp that is supposed to be in the contract, the home improvement contract so, there's very specific provisions that have to be in one of the contracts for home improvement so whenever you're getting work done at your property it's like it's so detailed down to the font size but i think what's more important is that yeah you can have all this stuff that's in your contract you can have them say oh yes i have workers compensation or i have general reliability but if you don't go and do your due diligence this contract means nothing, they put it in there for protecting you know the purpose of the law is to protect the homeowner but what protection do you have if you don't

Real Estate Attorney and Host, Luke Carlson, Esq.
well especially if it's falsified it's not going to be a defense if the employee comes after you

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
the next tip that I have, tip number four, would be also on the CSLB website, they have the contractor's bond. So check to see that they have the bond, that that's all good.

Real Estate Attorney and Host, Luke Carlson, Esq.
Okay. Explain the bond though, because there's this notion of piercing the bond. Let's go into why a bond is important. What does it do? Why does it benefit the homeowner?

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
Yeah. Well, you can file a claim against a contractor's bond. It's kind of almost like an insurance in a sense where if the contractor violates the business and professions code you can file a claim against the bond amount to recover damages which is great right because you can get like a certain sum but the most amount you can get is $25,000 and that's new it used to be $15,000 which is not a lot of work on a home

Real Estate Attorney and Host, Luke Carlson, Esq.
it's like uh it's like the hallway

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
yeah especially with inflation yeah so that should never really be someone's end-all be-all like i'll fall back on i can always you know make a claim against our contractor's bond okay but that's not going to cover

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
but is it somewhat of an indication of okay the contractor has a bond it shows a little bit of a heightened level of sophistication

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
yes that's very true and that's all on the website the california state license board website but that's why i think going back to the insurance, check all those three because the bond isn't going to get you a lot of money for your damages so

Real Estate Attorney and Host, Luke Carlson, Esq.
that's something it's something the end-all be-all

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
you got the hallway covered

Real Estate Attorney and Host, Luke Carlson, Esq.
yeah if that

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
So that i think is a good one oh we're already on tip number number five i'm really flying through this

Real Estate Attorney and Host, Luke Carlson, Esq.
You are flying through it

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
Okay tip five is obtain multiple bids so tip one through four that was what you should do with each contract that you get from a from a contractor now you should be getting multiple of them

Real Estate Attorney and Host, Luke Carlson, Esq.
What is realistic? Is that five, ten, three? What would you recommend as a bare minimum?

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
I would say three and obviously be wary of the super high ones and be wary of the super low ones because super high tells me they may be overcharging you super low tells me they're subcontracting out work that's really cheap.

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
So you're you're recommending a goldilocks approach—the beds there's three beds one's too hard one's too soft this one's just right.

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
Yeah, I haven't heard that story in a really long time.

Real Estate Attorney and Host, Luke Carlson, Esq.
I just saw the movie, my kids are watching Puss and Boots, and there's a whole thing on Goldilocks, so it's top of mind for whatever reason.

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
Take the Goldilocks approach. Because, again, that goes to another not necessarily a legal approach, but think about the quality of work.

Real Estate Attorney and Host, Luke Carlson, Esq.
Yeah.

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
And I guess it also kind of comes back to the fact of if the bid's super low and they're just hiring some laborers that they find who probably aren't insured then you got the liability again you know so it's quality but also you don't want to come back to bite you later.

Real Estate Attorney and Host, Luke Carlson, Esq.
Makes sense I like that one. It seems obvious but you know I think some people they want to get the project done they meet with one contractor they're like okay this is fine but spend the extra time once you lock yourself in these projects I mean these can be six to eight month month projects ultimately so it's a relationship that's gonna be ongoing for quite a while

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
You're going to have to deal with them for a long time. On a daily. So you should kind of like them.

Real Estate Attorney and Host, Luke Carlson, Esq.
Is that a tip, that you have to like them?

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
No, but I'm going to add that. You should like them. You should get along with them because you're going to be emailing and talking to them a lot.

Real Estate Attorney and Host, Luke Carlson, Esq.
Do you like them? Yes, no, maybe.

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
Yeah. I mean, even just with that, like you should, once you've hired a contractor, especially if you have like a full remodel, it's like a full-time job for yourself. You really should be watching their work because you should, I mean, I guess here's another tip I was thinking of. You should not pay for work that has not been completed. So you need to do your homework of watching them so you don't get an invoice and just pay it and the work hasn't even done or the materials not even purchased so there's work on your end so then if you're gonna be working with this person you should also like them

Real Estate Attorney and Host, Luke Carlson, Esq.
Okay I agree.

Real Estate Attorney and Host, Luke Carlson, Esq.
All right what tip are we on now?

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
Tip number six. Now you've hired your contractor, you found a good bid, they're licensed, insured, bonded, you like them...No verbal change orders.

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
So, I mean, I don't know, do you think people understand what a change order is? Should I explain that?

Real Estate Attorney and Host, Luke Carlson, Esq.
I would, because sometimes there's a change order, but they don't recognize it as a change order.

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
It's kind of like an industry term. Here's a good way to explain it: You have your contract and it says you know we're gonna put on you know this wall three windows on this wall two windows, over there door and then you're like, you know this first wall i think it'd look better with two windows instead of three but, your contract is charging you for three you have three that's in the plans, a change order would be to change that work from three windows to two windows or three windows to four windows it could increase the price, itcan add more work or less work but it's changing from the original it's a modification of the contract.

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
Yeah i think that's good to recognize too. You have a very black and white approach to it, any sort of modification alteration irrespective of how minimal or de minimis right that that is a change order and it should be documented it should be in writing and in the expectation should at least be memorialized in some way.

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
They're required to be in writing but, i see a lot of times they're not and even if they're not in writing they're still like enforceable in the sense that the contractor can still collect payment for that work under like equitable principles but i think the more important thing of getting it in writing is that everyone knows what the work that's changed you know i mean everyone's on the same page has the same expectations of like this wall is going to have three windows or two windows and it's not you know there's not going to be a conflict later of oh why are you charging me for three when it was supposed to be two so a change order should say the scope of work that's going to be done if it's adding to the contract price or reducing it and then also to change the progress payments because that's gonna it's i mean change orders are inevitably going to slow things down right and it should also so have reference to if that's going to change the project completion date, which it probably will.

Real Estate Attorney and Host, Luke Carlson, Esq.
Well, it's good just to have that paper trail, but also what happens, especially on these big projects, you know, a lot is happening. There's a lot of movement. And sometimes the homeowner may forget sort of what that change was. Or in the inverse, you know, a change was made. The contractor was told, hey, I need A, B and C. That's a change. The contractor says okay great I'll do it doesn't do it and now there's a dispute over whether there was an actual change order and if it's not in writing it's hard for the homeowner to enforce hey on a Tuesday as I was leaving to my kids soccer practice I told you to do this.

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
It seems overly formal and maybe it's gonna add more time to the whole project but it's worth it. I mean yeah your contractor's gonna have to go back to his office and type up a new document maybe change the plans but it's in the grand scheme of things better to do it, you have the extra few minutes in your day.

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
Tip number seven—the grand finale, after you've made payment, in construction they're going going to have progress payments as the work is being completed so you're going to be paying multiple times but after you've paid for that work that's been completed you should request and receive a release from the contractor saying basically all the lien claims are released so that it's fully satisfied. Hhere's a is a better way to explain it...So if you have a contractor and he's subcontracting out for the guy who's going to do the marble in your kitchen so he found a guy who cuts the marble, he installs it. Your contractor pays that subcontractor but you paid your contractor for the marble and the labor but he then doesn't take your money and go pay the sub. The sub can file mechanics lien on your property

Real Estate Attorney and Host, Luke Carlson, Esq.
and we see a lot of those.

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
We see them all the time and that's why it's so important to get a release to ensure that the guy who does the marble can't then say hey i didn't get paid

Real Estate Attorney and Host, Luke Carlson, Esq.
yeah it severs off any potential liability from contractor malfeasance in essence, right? it's it's the contractor who pockets the money tells the subcontractor to go kick rocks now you have at least a shield if someone comes and tries to attack yeah subsequent to the project being over, no i actually think that's a great tip

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
The lien claim, it's released they can't file in

Real Estate Attorney and Host, Luke Carlson, Esq.
yeah because a lot of times i mean we talk to our clients and the job is just over in the sense that they packed up one day and left but to get some sort of formal nail in the coffin for lack of a better word that just closes out the account, severs any further liability i mean that's a clean break at that point

Real Estate Attorney and Host, Luke Carlson, Esq.
Shelby thank you for being here your list was golden

Real Estate & Contractor Dispute Attorney and Guest, Shelby Daws, Esq.
well thank you for having me

Real Estate Attorney and Host, Luke Carlson, Esq.
and hopefully we'll have you back soon.

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