Six Tips to Beat Contractor Woes, as Renovation Insurance Comes to NYC
MANHATTAN — With shoddy work, ballooning costs, contractors leaving behind half-completed jobs, renovation woes are common across the city and have become especially problematic in Sandy-affected neighborhoods where contractors swooped in, sometimes taking advantage of owners looking to rebuild.
Homeowners have had little recourse when jobs go awry — until now. Starting Wednesday, a company called Bolster is set to make New York the first city with access to renovation insurance.
“If there’s a misuse of funds or poor quality worksmanship, our insurance pays out," Bolster’s founder Fraser Patterson said. "Basically, we guarantee the job is done on budget.”
Patterson knows his way around construction sites. He started working as a carpenter in his native Scotland when he was 16 and later became a general contractor for high-end properties in London.
He also has a degree in mathematics.
He combined his construction background and accounting savvy to try to solve the hassles and financial of having renovation work done.
The web-based platform will let New Yorkers work with vetted and underwritten contractors for a fee of as high as 5 percent of the total renovation project, Patterson said.
Bolster’s insurers will check contractors’ background and make sure they’ve done similar types of jobs. For example, the company will check that contractors' businesses haven’t gone bankrupt and returned to the industry under a new name.
New York City's home renovation market is the country's largest by nearly 25 percent, according to Patterson.
New York City residents spent $11 billion on contractors in 2012, and some 60 percent of Manhattan home buyers remodel in their first year after moving in, said Patterson.
New York also has a highly regulated remodeling market and a very old median age of housing stock — at 52 years — so renovations are a constant, added Patterson, whose company is partnering with the American Institute of Architects and real estate firms such as Douglas Elliman.
Projects carry big financial risks for both homeowners and contractors, Patterson added.
A $20,000 renovation project that swells to a $40,000 project, for instance, can be devastating for owners, Patterson said, but contractors have legitimate concerns, too.
“Contractors are concerned about not getting paid,” he said, “and there’s a huge amount of money to be paid for materials.”
To help clarify expectations, Bolster’s mobile app will have a checklist, documenting each step of the project. It will also include a contract and “Consumer Bill of Rights on Contracting for Home Improvements,” modeled on a template from the city’s Department of Consumer Affairs, which regulates contractors.
Patterson added: “We’re saying you can feel comfortable giving the money upfront because you’re insured.”
Patterson’s top tips for homeowners before renovating:
1. Have a fixed-price contract from the get-go to reduce financial risks
“Often you’ll have contracts with time and material and costs plus,” he said. “Stay away from them. They’re absolutely toxic.”
2. Be as specific as possible about what you want done
Ask your contractor exactly what he or she is installing and taking out, and tell the contractor what products you want and where to get them.
“I can’t emphasize the term specificity enough,” he said. “This significantly reduces the chance of disputes.”
3. Have a task schedule for payment so you only pay for what’s been completed
Have a task schedule that clearly outlines what you’re paying for and when you’re paying — and only pay once a particular task is finished, Patterson advised.
He also suggested ignoring “rules” like you should never pay more than 10 percent up front, since that might be hard on a contractor if materials are costly.
4. Motivate the contractor by proving that he or she will be paid
Patterson suggests putting money into an escrow account, for example, to show you’re dedicated and have the funds to complete the job.
If contractors know you’re committed, he said, “They won’t get distracted by another project.”
5. Know what change orders are
Change orders often result in a project’s cost going up — and can cause disputes. Know whether a contractor is making a change order because you changed your mind or because something had to be altered due to the contractor's error or an unpredictable event.
6. Never ever pay in cash.
“You’re putting you’re home at risk,” Patterson said. “There’s no paper trail if something goes wrong.”