Californians spend more than $10 billion on construction and home remodeling each year. Many homeowners have discovered that improving their present residence with an updated kitchen, an additional bathroom, new windows, or a new roof can be a more prudent investment than purchasing a new residence. However, adding a room or updating a kitchen can cost more than a new car, and consumers should take some time and care in planning a costly home improvement project. Unfortunately, most consumers spend less time choosing a contractor than they do choosing a car.

This booklet provides advice for consumers on steps to take to:

• select a licensed and qualified contractor;
  
• negotiate a clear contract;
  
• prevent disputes with the contractor; and
  
• resolve disputes between the consumer and the contractor when they arise.

This booklet, by the California Contractors State License Board, is a brief summary of some of the things you as a homeowner can do to avoid costly mistakes and misunderstandings in dealing with your contractor.

Most contractors are competent, honest, hard working and financially responsible. However, contractors are in business to make money. A responsible and informed consumer knows that "the buyer beware" principal car help prevent frustration and disappointment when preparing to make a major decision. By carefully considering what you want done to your property, what it will realistically take to do the job, and what kind of professional should be brought in to do the job, you may avoid many of the headaches often associated with remodeling.

In order to minimize the chances that you will be the one with such a complaint, you should understand that planning is the first step in the process. Before you do anything else, ask the question:

What do I want done?

A silly question? Not at all. Plan carefully exactly what you want done, what you want it to look like when finished, and how much you have to spend.. Thoughtful, carefully prepared plans will be helpful in getting accurate bids from contractors. You may wish to seek the advice of an architect or draftsperson. Remember that, in general, if something you want is not shown on the plans, you will not get it.

Planning for Energy Conservation

When planning your project, be sure to consider energy efficiency. An energy-efficient home or building costs less to heat or cool, is quieter and more comfortable, and will sell faster and at a higher price.

California law requires new and remodeled buildings to meet or exceed certain energy efficiency standards. Aiming for optimal energy efficiency can have significant financial benefits, such as:

• Rebates or low-interest loans from utility companies;
• Rebates from the manufacturers of energy-efficient products and appliances;
• Energy-efficient mortgages and other advantageous financing incentives from lending institutions.

Additional information on California's energy efficiency standards is available from the California Energy Commission, 1-800-772-3300 (916-654-5106 in the Sacramento area).

When remodeling your home, you may wish to obtain financing for the project through a personal loan, a home equity loan, a credit union, an insurance policy, a bank or a savings and loan. Your contractor may be able to help you secure financing, but it is important for you to investigate different sources of funding to compare the amount, interest rate, terms, and tax considerations.

Banks and lending institutions may offer Federal Housing Administration (FHA) loans for home improvements. FHA requires that the lender approve any contractor arranging for an FHA loan, but does not guarantee the work or the contractor. Beware of anyone who tells you that the FHA approves the contractor's work or endorses the contractor.

If you cannot pay for a project without a loan, it is a good idea to add a clause to your contract stating that it is valid only if you obtain financing at a particular rate.

If your project is the result of damages covered by your insurance, check with your insurance company to determine the extent of coverage before signing a contract.

When deciding among the various loan sources, you should ask about possible prepayment penalties. Because lenders frequently package their loans to consumers to allow for interest earnings over the life of the loan, they sometimes provide for prepayment penalties that enable them to capture a portion of those earnings and the expenses of paperwork involved if the life of the loan is shortened by an early payoff. For example, with a prepayment penalty clause in your loan agreement, if you sell your property before the loan is due, you could be required to pay the loan in full, including the prepayment penalty. In some home improvement loans, this penalty can be very high and should be a consideration.