construction house 4

 

I work primarily in the luxury home market – which means almost all of my clients are relatively high net worth or very affluent, compared to the average American. And that’s a wonderful thing. But when it comes to having contractors come in to do home repairs, renovations or improvements, wealthy people have to be extra careful. Wealthy people – or people perceived as wealthy by the contractors and their employees – have been targeted and victimized by criminals before. While the vast majority of home projects get completed without a problem, the risk of criminal behavior is significant enough to consider taking some defensive measures to protect yourself and your family:

Before Construction 

  • Use a general contractor. Don’t try to be your own general contractor, unless you are, indeed, a general contractor! G.C.s carry a lot of insurance that serves to protect themselves, their subcontractors, their employees, and ultimately you, the customer! This adds a little to the final price estimate of any project. But it adds a lot of protection.
  • Use a contractor who’s been in business a while. Sometimes poor contractors will do a few jobs with inferior materials or workmanship, get complaints or lawsuits, and simply shut down and reopen with a different name. Look for contractors who have been in business for years. Some great ones will have complaints: Sometimes things don’t go according to plan, even for the best of them. Look for the ones who have a track record of addressing complaints in good faith and who have solid references from other homeowners in your community.
  • Ask to see their work. Depending on the nature of the project, many contractors are happy to give you some projects they did – especially exterior projects that you can see from outside the home. It’s easy enough to verify the work with the homeowner. That’s a great opportunity to get some inside baseball: Did the contractor complete the job in a reasonable amount of time? Were there any problems with employees? Did they do a good job keeping a clean and safe worksite? Did they do a first-class job with post-construction clean-up?
  • Match the contractor with the style of construction. A great contractor for traditional ranch-style homes may not be a good match for a very modern/contemporary design, look and feel.
  • Get background checks done. If you’re granting strangers access to your home, you can ask the contractor for a list of employees/subcontractors so you can do a criminal background check on every individual.
  • This is serious business: When you let a worker into your home, they often have the opportunity to steal, or find where valuables are stored, or disable a portion of your security system from within, identify what bedroom your daughter sleeps in, and get the general lay of the household. When Elizabeth Smart was kidnapped at knifepoint from her bedroom in 2002, her abductor was a handyman her father had hired to do some work on the house. He knew where her bedroom was and came back for her at night.
  • Get proof of insurance coverage – to include contractors’ liability insurance, commercial general liability and workers compensation insurance. Remember, if you use an uninsured contractor and someone gets injured or killed on the job, the injured party’s lawyers will come after That insurance coverage protects you and not just the worker.
  • Make sure that everyone who sets foot in your home to work on the property is covered under workers compensation. Not just the general contractors’ employees. This is critical to protecting yourself from the risk of worker on-the-job injuries.
  • Remember that your home value may exceed the total liability coverage the contractor carries. If this is a case, you may need to ask the carrier to get additional coverage for the job.
  • Don’t get too hung up on price. The lowest bidder isn’t the best.
  • Don’t obtain construction permits yourself. Let the contractor do it. Most jurisdictions require the contractor to fill out an affidavit verifying that workers compensation insurance is in place before they can get a construction permit. If you pull the permit yourself, you short-circuit this important legal safeguard.
  • Ensure financial capacity to complete the job. For example, you may want to get verification from the contractors’ commercial banker or lender that they have the wherewithal or line of credit to buy materials, equipment, etc. required to complete the project.
  • Have a contract. Don’t neglect having a detailed but flexible provision in place for change orders and cost overruns.
  • Have a detailed conversation with your property and casualty insurance agent before proceeding with the project.
  • Remember that your homeowners’ insurance coverage doesn’t protect you from faulty workmanship on the part of a contractor. Consider ensuring that the contractor carries this coverage before kickoff.
  • Consider having the general contractor take out a payment bond. In the event the G.C. can’t or won’t pay one or more subcontractors (thanks to bankruptcy, death, or some other unforeseen circumstance), the bond issuer will pay the subcontractor(s). Another technique is to verify that the funds to pay subcontractors are held in escrow. Otherwise, they can put a contractor’s lien on your home until they’re paid. If you’ve already paid the general contractor, this gets very unpleasant. In other words, if you don’t take steps to protect yourself and there’s a problem with the general contractor, it’s your problem!
  • Have the general contractor post a completion or performance bond.
  • Take out builders risk insurance. This is an endorsement or rider to your homeowner’s insurance policy. Otherwise, your coverage could be reduced during the construction period. This is especially true if you will be living elsewhere for a period of time while construction is going on, or if construction exceeds a certain percentage of the home’s value.
  • Update your homeowner’s insurance property inventory. You can use knowyourstuff.org.
  • Ensure you have umbrella insurance coverage in place. Standard home insurance policies rarely carry enough to adequately protect homes in the $500,000 and up category.