Hiring a contractor comes down to four things: verify the license and insurance yourself, get three written bids on the same scope, sign a contract that ties payments to finished milestones, and never pay a large deposit up front. This guide covers who does what on a job site, where to find candidates worth calling, how to read a bid, what a fair payment schedule looks like, how lien waivers protect you, and what to do when a job goes wrong.
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Last updated: August 2026 | By the HomeSimple Editorial Team | Reviewed against state contractor licensing boards, BBB Scam Tracker data, and Harvard Joint Center for Housing Studies research
Hiring a contractor comes down to four things: confirm the license and insurance yourself, get three real written bids on the same scope, sign a contract that ties payments to finished milestones, (learn more about home maintenance checklist 2026: every task by season (printable)) (learn more about best home ev charger installation companies of 2026) (learn more about best smart home devices 2026: 9 upgrades that actually pay for themselves) (learn more about best boiler installation and repair companies of 2026: brands, costs, and how to hire) (learn more about best fireplace installation companies of 2026: who to hire and what it costs) (learn more about best whole-home humidifier installation options of 2026: brands and services compared) and never pay much money up front. Homeowners who do those four things almost never end up in the situations that make contractor horror stories — the half-finished kitchen, the deposit that vanished, the lien filed by a subcontractor who was never paid.
This guide walks through the whole process, start to finish. Who does what on a job site. How to find candidates worth calling. What to check before you sign. How to read a bid. What a fair payment schedule looks like. How to handle permits, change orders, and the final walkthrough. And what to do when something goes wrong.
Americans are expected to spend roughly $522 billion on home improvements and repairs in 2026, according to Harvard's Joint Center for Housing Studies. Most of that money goes to skilled, honest people. A small slice does not — home improvement fraud consistently ranks among the riskiest scam categories tracked by the Better Business Bureau, with a median reported loss around $1,800. The difference between those two outcomes is almost entirely about the hour of homework you do before writing the first check.
A contractor is the person or company you hire to plan, manage, and perform construction work on your home. The word covers several different roles, and knowing which one you actually need is the first decision in the process.
General contractor (GC). Manages the whole job. Hires and schedules subcontractors, orders materials, pulls permits, handles inspections, and is responsible for the finished result. You have one contract and one point of contact. GCs are the right call for anything involving multiple trades — a kitchen, an addition, a whole-home renovation, a major repair after water or storm damage.
Specialty or trade contractor. Does one thing. A roofer, a plumber, an electrician, an HVAC company, a painter. Most states license these trades separately and more strictly than general contracting, because the work carries safety consequences. For a single-trade job — a furnace replacement, a water heater, a roof — hire the trade directly and skip the GC markup.
Design-build firm. Handles design and construction under one roof. Costs more up front, removes the friction of an architect and a builder blaming each other when plans don't match reality. Worth considering on additions and structural changes.
Handyman. Small repairs, typically under a state-set dollar threshold. Many states allow unlicensed handyman work below a certain project value — $500 in Maryland, $1,000 in California and Virginia, $2,500 in Georgia. Above that line, the same work legally requires a licensed contractor.
Owner-builder. You act as your own GC. You pull the permits, hire the trades, and carry the liability. It can save the 20% to 30% a GC would charge to manage the job. It also makes you personally responsible if a worker is injured on your property or a subcontractor isn't paid.
When you hire a general contractor, you are almost never hiring the people who will actually swing the hammers. The GC hires subcontractors. Your contract is with the GC. Your payment goes to the GC. But in most states, if the GC takes your money and fails to pay the subs, those subs can still file a lien against your home — even though you paid in full.
This is the single most important structural fact in the whole hiring process, and it drives several of the protections covered later in this guide.
The process has a shape. Skipping steps is what creates problems.
1. Define the scope. Write down exactly what you want done, in plain language, before you call anyone. "Replace the roof" is not a scope. "Tear off existing shingles down to the deck, replace any rotted sheathing at $X per sheet, install synthetic underlayment, architectural shingles in a color to be selected, new drip edge, new pipe boots, haul away all debris" is a scope. Bids you can compare require a scope every bidder is pricing.
2. Build a candidate list. Three to five names. Sources below.
3. Screen by phone. A ten-minute call eliminates most of the list. Ask about license number, insurance, whether they do this type of work regularly, and their availability window.
4. Verify credentials yourself. License lookup, certificate of insurance, references. Do this before the site visit, not after.
5. Site visits and bids. Each contractor walks the job and prices your written scope. Expect one to three weeks for a written bid on a substantial project.
6. Compare bids on substance, not just price. The lowest number is frequently the most expensive one by the end.
7. Negotiate and sign a written contract. Scope, price, schedule, payment milestones, change order process, warranty, and how disputes get resolved.
8. Permits pulled — by the contractor. Under the contractor's license, not yours.
9. Work, progress payments, and lien waivers. Pay for completed work. Collect a lien waiver with every check.
10. Punch list, final inspection, final payment. Hold a meaningful retainage until the last item is done and signed off.
11. Warranty documentation. Get it in writing, filed somewhere you'll find it in three years.
The source of a name tells you something about the name.
Referrals from people who have had the same work done. The strongest signal available. Ask specifically about how the contractor handled a problem, because every job has one. A contractor who communicated well through a delay is worth more than one whose job happened to go smoothly.
Trade-specific associations. NARI (National Association of the Remodeling Industry), NAHB Remodelers, and local builders' associations maintain member directories. Membership is not a guarantee, but it filters for contractors making a business investment in their trade.
Manufacturer certification programs. Roofing, windows, and HVAC manufacturers certify installers who meet training and volume standards — GAF Master Elite, Owens Corning Preferred, Carrier Factory Authorized, and similar. These certifications often unlock longer material warranties that are unavailable to uncertified installers. On a roof or heat pump install, this can be worth real money.
Supply houses. Call a local plumbing, electrical, or lumber supplier and ask who they'd hire. These businesses see who pays their bills on time and who buys quality materials. They will usually give you two or three names.
Online marketplaces and review platforms. Useful for building a starting list, not for making a decision. Ratings can be gamed, and lead-generation platforms sell your contact information to multiple companies at once. Treat every name from an online source as unverified until you check the license yourself.
Your insurance company. After storm or water damage, insurers maintain preferred vendor lists. These contractors are vetted and often expedite claim work. You are not required to use them, and you should still get an independent bid for comparison.
Door-to-door solicitation. This is the origin point of a large share of home improvement fraud complaints — particularly after storms, when out-of-area crews follow weather events. A legitimate local contractor with a full schedule does not need to knock on doors. If someone shows up unannounced offering a discount because they "have leftover materials from a job down the street," that is a recognized scam script.
Anyone who can start tomorrow. Good contractors in most markets are booked out weeks to months. Immediate availability during a busy season is a signal worth asking about directly.
This is the part that protects you. It takes about an hour.
Licensing rules vary dramatically by state. Roughly 17 states — including Colorado, Illinois, Indiana, Iowa, Kansas, Kentucky, Maine, Missouri, Nebraska, New Hampshire, New York, Ohio, Oklahoma, South Dakota, and Wyoming — have no statewide general contractor license at all. In those states, licensing and registration happen at the city or county level. Texas has no statewide GC license either; contractors register with the municipality where the work is located. New Jersey requires Home Improvement Contractor registration with the Division of Consumer Affairs rather than a statewide GC license.
Where states do license, the dollar threshold that triggers the requirement ranges widely: $500 in Maryland for residential work, $1,000 in California and Virginia, $2,500 in Georgia, $4,000 in North Dakota, $25,000 in Tennessee, and $100,000 in Alabama.
What to do: Search "[your state] contractor license lookup" and go to the official state board or department site — not a third-party verification service. Enter the license number the contractor gave you. Confirm three things: the license is active, the name on the license matches the business name on the bid, and the classification covers the work you're hiring for. A license for general building does not authorize electrical work in most states.
Also check for complaints and disciplinary history on the same board site. Many state boards publish this.
Two coverages matter, and neither is optional.
General liability covers damage the contractor causes to your home — a dropped tool through a skylight, a fire from a hot-work operation, water damage from a mis-cut supply line. Look for at least $1 million per occurrence on any substantial job.
Workers' compensation covers injuries to the contractor's employees on your property. If a contractor has no workers' comp and someone is hurt on your job, you may be exposed. Workers' comp is a separate policy — it is not part of general liability and it is not covered by an umbrella policy. Requirements vary by state, and some states exempt sole proprietors with no employees, which is worth asking about directly.
What to do: Ask for a Certificate of Insurance (COI). Do not accept a photocopy handed to you by the contractor. Ask that the certificate be sent directly from their insurance agent, and confirm the policy dates cover your full project window. On larger jobs, ask to be named as an additional insured. This costs the contractor little and gives you standing under the policy.
Ask for three references from jobs of similar type and size, completed in the last twelve months. Then ask a fourth question most people skip: "Can I see a job you're working on right now?"
A ten-minute visit to an active site tells you more than any reference call. Is the site clean? Are materials protected from weather? Are the workers organized? Is anyone actually there?
When you call references, skip "were you happy." Ask:
Confirm the business exists as a business. A physical address, a permanent phone number, an EIN, and a business entity registered with the Secretary of State. Check how long they've operated under the current name. Contractors who dissolve and re-form entities to shed complaints and judgments are a known pattern.
Three bids is the standard, and the reason is not price shopping. It's calibration. Three bids on the same written scope tell you what the job actually costs, and they expose the outlier in either direction.
A one-page bid with a single number and a signature line is not a bid. It's a hope.
General contractors typically mark up 20% to 30% over their direct costs on residential work. That markup covers overhead — insurance, vehicles, office, project management, warranty reserve — plus profit. It is not padding. A GC working at 10% is usually either underestimating the job or planning to make up the difference in change orders.
On cost-plus contracts, where you pay actual costs plus a stated fee, the fee typically runs 15% to 20% for residential work. Cost-plus gives you visibility into every invoice and shifts material price risk to you. Fixed-price contracts shift that risk to the contractor, who prices it in. Neither is universally better. Fixed price suits well-defined work. Cost-plus suits jobs where scope genuinely can't be pinned down — historic renovations, structural repairs where the extent of damage is unknown until walls come open.
If two bids come in at $34,000 and $37,000 and the third is $19,000, the third contractor is not more efficient. One of the following is usually true:
Ask the low bidder directly to walk you through their number against the scope. An honest contractor with a genuine cost advantage can explain it. A contractor who gets defensive has told you what you need to know.
Several states cap what a contractor can collect before work begins:
Some states — Texas and Arizona among them — set no statutory cap, leaving it to the contract. In those states, apply the rule anyway. A deposit of 10% to 30% is normal and often legitimately needed for materials. A demand for 50% or more before anyone shows up is a reason to stop.
A sound payment schedule looks like this on a mid-size renovation:
| Payment | Trigger | Typical share |
|---|---|---|
| Deposit | Contract signing, materials ordered | 10%–30% (within state cap) |
| Draw 1 | Demo complete, rough framing done | 20%–25% |
| Draw 2 | Rough mechanicals in, inspection passed | 20%–25% |
| Draw 3 | Drywall, substantially complete | 20%–25% |
| Final | Punch list complete, final inspection, lien waivers received | 10%–15% |
The final payment is your leverage. Ten to fifteen percent held until the last item is finished is the difference between a punch list that gets done and one that doesn't. Contractors who understand the business expect this.
Never pay cash. Never pay by wire transfer, gift card, or peer-to-peer app to a contractor you don't have a long relationship with. Checks create a record. Credit cards add chargeback rights and, in some cases, purchase protection. Payment method fraud — where a "contractor" insists on an untraceable payment channel — is a standard element of home improvement scams.
This is the protection most homeowners don't know exists.
A mechanic's lien is a claim filed against your home by a contractor, subcontractor, or materials supplier who wasn't paid. It clouds your title, and it can be filed even when you paid your general contractor in full — if that GC failed to pass the money down.
A lien waiver is a signed document releasing those lien rights. There are four kinds:
As the homeowner, you want conditional waivers exchanged at the time you hand over each check, converted to unconditional waivers once the payment clears. On the final payment, request unconditional final waivers from the general contractor and from every major subcontractor and supplier before you release the last check. Put this requirement in the contract at signing, not at the end. It is standard practice in commercial construction and entirely reasonable on residential work.
The contractor should pull the permit, under their own license, with the cost included in the bid. Permits cost $50 to $300 for plumbing, electrical, decks, and fences, and $500 to $2,000 for larger construction and remodeling — commonly 0.5% to 2% of total project cost.
If a contractor asks you to pull the permit as an owner-builder "to keep it simple" or "to save money," decline. That request transfers liability from their license to your name. The permit holder of record is responsible to the building department for code compliance, including work done by subcontractors. A contractor who wants your name on the permit may be unlicensed, may not qualify to pull it, or may not want a record attached to their license.
It is also illegal in most jurisdictions for a hired contractor to perform work under a homeowner's owner-builder permit.
Work done without a permit doesn't disappear. It surfaces during a future sale, an appraisal, or an insurance claim. Consequences include stop-work orders, fines, forced removal of finished work, a denied insurance claim on any loss traced to unpermitted work, and a buyer's demand for price reduction or retroactive permitting at closing.
Every change to the scope — even a small one, even one the contractor suggests — gets a written change order signed by both parties before the work happens. It should state what changed, the cost impact, and the schedule impact.
Verbal change orders are the most common source of end-of-job disputes. The contractor remembers agreeing to add it; you remember agreeing to consider it. Write it down. Every time.
Budget a 10% to 20% contingency for legitimate discoveries. Older homes hide things — knob-and-tube wiring, undersized joists, rot behind siding, asbestos in flooring adhesive. A good contractor flags these immediately with photos and a written change order. A contractor who "finds problems" every week without documentation is running a different play.
Hiring on price alone. The cheapest bid becomes the most expensive job often enough that it's a cliché in the trades.
Paying a large deposit. The most common vector for total loss. About one in ten Americans report having been the victim of a contractor scam, with an average loss of roughly $2,426.
Skipping the license and insurance check. It takes fifteen minutes and it's the highest-value fifteen minutes in the whole process.
Accepting a verbal agreement. Home improvement contracts must be in writing in most states above a modest dollar amount. Even where they don't have to be, they should be.
Signing a contract with no completion date. Without one, "we'll get back to it" has no consequence.
Letting the contractor supply your only references. They will supply their best three. Ask to see an active job site, check the license board for complaints, and search the business name plus "complaint" and "lawsuit."
Paying in full before the punch list is done. Once the money is gone, the last 5% of the work takes months, if it happens at all.
Not collecting lien waivers. You can pay for a job twice. It happens.
Responding to storm-chasers. After hail, wind, or flooding, out-of-area crews arrive fast, take deposits, and leave. If you've had storm damage, work with a local licensed contractor and coordinate with your insurer. Our guide to preparing your home for hurricane season covers the insurance side in detail.
Rushing because of pressure. "This price is only good today" is a sales tactic, not a real constraint. Materials pricing does move, but a legitimate contractor will hold a written bid for a stated period.
Prices vary enormously by region, but the structure is consistent.
Hourly vs. project pricing. Trade contractors often price by the hour for diagnostic and repair work — commonly $50 to $150 per hour depending on trade and market — and by the project for installations. General contractors price by the project.
GC management fee. 20% to 30% over direct costs on typical residential work; 15% to 20% as a stated fee on cost-plus contracts.
Where your money goes on a typical remodel: roughly 40% to 50% labor, 35% to 45% materials, 10% to 20% overhead and profit, plus permits at 0.5% to 2%.
Budget the contingency. Ten percent on new construction and straightforward installs. Fifteen to twenty percent on renovations of homes older than 40 years. If you can't fund the contingency, the project is too big for the budget.
What drives cost up: structural changes, moving plumbing or electrical, custom rather than stock materials, tight schedules, difficult access, and permit-heavy jurisdictions.
What legitimately brings cost down: flexible timing (booking trade work in their slow season), keeping fixtures in their existing locations, choosing stock sizes, and bundling related work into one mobilization.
When the credentials check out on more than one contractor, the deciding factors are usually these:
Communication quality during bidding. How a contractor communicates while trying to win your business is the best version you will see. If they're slow to respond now, expect worse later.
Specificity of the bid. The more detailed proposal usually reflects the more careful estimator.
Schedule realism. A contractor who says eight weeks when the other says three weeks may simply be honest.
Who is actually on site. Ask whether the person selling you the job is the person managing it, and who your daily point of contact will be.
Warranty terms in writing. One year on labor is common; two years is better. Confirm what's covered and what voids it.
Payment schedule they propose. A contractor who proposes a milestone schedule and offers lien waivers without being asked has done this properly before.
How many contractors should I get bids from?
Three, on the same written scope. Two doesn't give you enough calibration; more than four wastes everyone's time and gets you a reputation among local contractors for shopping.
How do I check if a contractor is licensed?
Search for your state's official contractor licensing board and use its license lookup tool. Enter the license number and confirm the license is active, the name matches the business on the bid, and the classification covers your work. In the roughly 17 states with no statewide GC license, check with your city or county building department instead.
How much should I pay a contractor up front?
Between 10% and 30%, and never more than your state allows. California caps it at $1,000 or 10%, whichever is less. Maryland, Maine, Pennsylvania, and Tennessee cap it near one-third. If a contractor asks for 50% or more before starting, treat it as a serious concern.
What insurance should a contractor carry?
General liability, ideally at least $1 million per occurrence, and workers' compensation if they have employees. Ask for the certificate to be sent directly from their insurance agent, and check that policy dates cover your full project.
Can a contractor put a lien on my house if I already paid them?
Not the contractor you paid — but their unpaid subcontractors and suppliers can, in most states, even though you paid your GC in full. This is why you collect lien waivers with every payment and unconditional final waivers from the GC and major subs before releasing the final check.
Should I pull the permit myself to save money?
No. When you pull the permit as an owner-builder, you take on liability for code compliance and job-site injuries. A contractor asking you to pull the permit is asking you to absorb their risk, and it may mean they aren't licensed to pull it themselves.
What if my contractor stops showing up?
Document everything in writing. Send a written notice referencing the contract's schedule terms and giving a specific deadline to resume. If that fails, file a complaint with your state licensing board — many can order restitution — and check whether the contractor is bonded, since a claim against the bond may recover funds. Small claims court covers disputes up to your state's limit, typically $5,000 to $15,000.
Do I need a written contract for a small job?
Most states require a written home improvement contract above a modest threshold, often $500 to $1,000. Below that, get an emailed scope and price at minimum. Email is a written record.
What's a fair retainage to hold until the end?
Ten to fifteen percent of the contract, held until the punch list is complete, final inspection passes, and lien waivers are in hand.
Should I use a general contractor or hire trades directly?
Use a GC when the job involves multiple trades that must be sequenced. Hire trades directly when the job is one trade — a furnace, a water heater, a roof. Acting as your own GC on a multi-trade job saves the management fee but transfers scheduling, liability, and coordination to you.
How long should a contractor hold their bid price?
Thirty days is standard. Some hold 60 or 90. Material-heavy bids may hold for less. Ask for the expiration in writing rather than accepting time pressure verbally.
Is a contractor's warranty worth anything?
It's worth exactly what it says in writing and what the business's stability suggests. A one-year labor warranty from a company that has operated under the same name for fifteen years means something. The same warranty from a business formed four months ago means less. Manufacturer warranties on materials are separate and often longer — and on roofing, windows, and HVAC, they frequently require certified installation.
What should I do at the final walkthrough?
Walk every room with the contractor and a notepad. Open and close every door and window. Run every faucet and flush every toilet. Test every switch and outlet. Check paint lines, caulk, grout, and trim in daylight. Write the punch list, both parties sign it, attach it to the contract with a completion date, and release final payment only when it's done.
How far in advance should I book?
Four to twelve weeks for most trade work in normal conditions; longer in peak season and after regional storm events. Booking off-season — HVAC in spring or fall, roofing in late winter — often gets better scheduling and occasionally better pricing.
Start with the scope. Write down what you want done, in detail, before you make a single call. Everything downstream — the quality of your bids, your ability to compare them, your protection in a dispute — depends on that document.
Then build your list of three, verify every license and certificate of insurance yourself, and hold the line on the deposit.
If you're ready to identify contractors in a specific trade, these guides break down what to look for and who does the work well:
And if the project is being driven by a home you're planning to sell or borrow against, our guide to what home equity is and how to use it covers the financing side.
This guide is general information for homeowners, not legal advice. Contractor licensing, deposit limits, lien rights, and permit requirements are set by state and local law and change over time. Verify current rules with your state licensing board and local building department before signing a contract. For disputes involving significant money, consult an attorney licensed in your state.
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