Horror stories abound of  general contractors who take money from homeowners and never complete a job. Even an honest contractor may be tempted to mark up materials and services to squeeze some extra cash out of a project.

If you have a renovation in the offing, the last thing you need is to worry that your contractor will take you to the cleaners. That’s why you should read — and heed — these six smart tips for working with a contractor.

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Do your homework

To find the right contractor for your project, the Federal Trade Commission (FTC) recommends you start by asking friends and family who’ve had work done about the person they hired or by posting on a referral service. Even if a contractor comes highly recommended by a friend, ask for a minimum of three references.

When you speak to the references, ask if the contractor completed the work on time and on budget. Find out if they would be willing to let you come by and see the finished space. Remember that just because someone else is happy with the work they’ve had done doesn’t mean you will be. Look for signs of rushed or sloppy work, such as offset tile or splotchy floor stain.

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Get multiple bids

Even if you have a specific contractor in mind, it pays to get multiple bids. Shopping around will give you a sense of what a particular job really costs and will help keep your contractor honest and competitive in his pricing.

Do the same if a problem arises in the middle of your renovation. If your contractor alerts you to sagging joists or hidden mold, ask for an estimate, but also tell him you’ll be getting bids from elsewhere. This sends the signal that even though you’re in a vulnerable position, you won’t get taken for a ride.

Look for a license

Although requirements vary by state, a licensed contractor typically has to pass a proficiency exam and carry insurance, which is important if he makes a mistake or someone is injured on the job. (You can check with your local building department or your state’s Consumer Protection Agency to find out about specific licensing requirements in your state.) Your homeowner’s insurance policy may even require you to hire a licensed contractor.

A licensed general contractor can oversee a complete renovation and typically hires subcontractors to handle individual elements like wiring or tiling. Request to see the licenses of any subcontractors your general contractor plans to use before work begins. Just as important, advises the Better Business Bureau, make sure your general contractor’s liability insurance covers the subcontractors he hires.

Pull the right permits

Building inspectors get a bad rap as government bureaucrats in the business of slowing down renovations. While it’s true pulling permits adds time and expense to any renovation, it’s a step worth taking. Your town’s building department oversees renovations to make sure work meets modern building codes. According to the International Code Council, if you don’t pull a permit, you’re basically banking on your contractor to perform the work properly. The issue with that is plenty of problems can’t be caught until it’s too late — an incorrectly wired outlet may work for years but can leave you vulnerable to arcing and electrical fires down the road.

Tell your contractor up front that you expect him to get permits, then call your local building department yourself to find out which ones are required. Your contractor may charge a fee for obtaining permits since it delays his work and often requires meeting an inspector at your house. If your contractor balks at the idea of getting permits, he’s basically saying that he doesn’t want someone to sign off on his work, a red flag that means you should find someone new.

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Dive into details

Ask for a detailed quote from your contractor, says the FTC. It’s the only way to understand what you’ll be paying for. The quote should include a line-by-line explanation of costs and a detailed list of materials. Make sure it specifies things like the thickness of drywall or the number of paint coats he’ll apply. An itemized breakdown helps keep everyone on the same page and makes it tougher for a contractor to mark up individual materials or services. It’s also a good way to help you keep costs under control by seeing how much certain elements add.

Negotiate the terms

Most contractors work by asking for some money up front to cover starting costs and for the balance to be paid in full at the end of the job. While putting down as much as 50 percent of the estimate is standard, your goal should be to dish out payments at various stages of the project to keep the contractor motivated. You've no doubt heard about contractors plowing full steam into a project, only to let the work fizzle after a check has cleared.

Ask your contractor to let you pay a small deposit and agree to additional installments at pre-determined intervals — for example, once all of the permits have cleared. If he needs cash to order materials for your job, you can offer to foot that bill and have the materials shipped directly to your house. Make sure to get the terms in writing. If the contractor seems desperate for a large deposit, it should be cause for concern. It may be he needs your deposit to finish work on another job.

As your project draws to a close, put together a punch list, a final account of all the little touch-ups that need to be completed. Set aside about 10 percent of the total cost and make clear that you’ll only pay it once the punch list is complete. 

Paul Hope, a trained chef and DIY enthusiast, has restored two houses and writes about food and homes.