How do you find a good contractor?
Q: My husband and I have found it impossible to find a contractor to build a small family room and deck off the back of our Chicago home over the last four years.
While it is a modest project, there are structural issues and some unusual elements, including relocating basement steps while avoiding a grease trap. Most of the builders who have been available – even before the pandemic – are non-licensed. They either want us to take on the job of getting the building permits from the city or they are willing to go ahead with the work without a building permit.
Do banks offer a list of good contractors?
Even though we don’t need a loan to complete work, we are beginning to think the only way to move forward is by borrowing money from our bank. That entitles us to hire one of their vetted, licensed contractors. How much more would taking a loan add to the cost of a project like ours?
A: At first glance your question seems to be about the costs relating to a loan. But your real issue is finding a contractor to do the work on your addition.
Architects may help you find a good contractor – and pull permits
For you to obtain the permit, you’ll need to hire an architect, who may have a contractor on staff or work with good contractors regularly. That architect will draw up the plans for the family room and other alterations to your home. The architect (or someone in the firm) can obtain the necessary building permit from the city. Or, the homeowner can work directly with the city or municipality through the permitting process.
It’s quite common, by the way, for contractors to look for ways to avoid obtaining permits. They’d much prefer to hand that chore over to the homeowner.
The good news is some municipalities streamline the permitting process for homeowners that do it themselves. You should look into the process of getting your own permit and figure out what you will need to do. We suspect that even if you go through your bank, you’ll have to get the required permit yourselves.
Hire a licensed contractor and tradesperson
We do believe you should hire a licensed contractor to do the work. Having said that, be aware that not all municipalities require contractors to be licensed. In some states, a general contractor is required to be licensed. Other states license home repair companies but not the contractors it employs. In some areas, municipalities will require the license. But if the municipality does require the license, you should hire someone who is licensed. The local municipality may require the contractor to be listed on the building permit and they may not issue the permit if the contractor is not licensed by the municipality.
Also, be aware that some trades may need to be licensed by the municipality or state, even if the contractor is not required to be. Electricians, for example, may need to be licensed by the state.
If you are able to hire a lender-approved contractor, we suspect they’d be licensed. But be aware that not all “recommended” contractors are licensed or insured. Be sure to check all recommendations and credentials during the interview process.
In a slower real estate market, it may be easier to find a good contractor
Is the real estate market slowing in your neighborhood? A silver lining may be that more local contractors are looking for business. Ask your friends and neighbors if they’ve had a good, recent experience with a contractor. It’s not easy finding a good contractor but there are many out there. Talk with your real estate agent to get a list of contractors and tradespeople they have used over the years.
If you go the bank route, ask the lender what the costs will be for a loan. We suspect they’ll be quite high. You can expect to pay closing costs that may include closing fees, lender charges, title insurance policy fees and municipal recording fees and charges. In addition to these fees, the lender may treat the loan as a construction loan. That might add additional fees for disbursements to the contractor, site visits, and costs to review the lien waivers that they will require of the contractor, subcontractors and suppliers.
Lenders aren’t the best place to find a good contractor
Lastly, you shouldn’t forget that you’ll also need to pay interest on the money you borrow from the bank. While interest rates on fixed rate mortgages may be between 5.5 and 6.5 percent depending on the loan product and the length of the loan, you could see interest rates several points higher than that on a construction loan.
If your project costs $100,000, going the lender route could increase your costs by $5,000 to $10,000. That’s a lot of money to pay just to find a contract willing to pull permits.
Finally, no matter where the contractor recommendation comes from (friends, family or a lender) doesn’t mean that contractor will be the least expensive or best available. You still need to shop around to make sure that the contractor’s pricing matches your expectations and needs for the project. Plan to get at least three estimates so you have a baseline for comparison.
Read more about home repairs and contractors: