For contractors considering a home construction project, it’s important to make sure everyone is on the same page before the contract is signed. Here are some important questions contractors should ask the homeowner before the construction project gets rolling. Their answers to these questions will help you decide whether the project is worth it, and prevent payment problems down the line.
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Why contractors should prequalify the homeowner
While it’s true that you need sales to fuel the fire, not every job is going to be worth it. You should be looking for customers to prove their value to the project as well.
The homeowner is going to vet the experience and work history of their contractor. You owe it to yourself and your employees to prequalify the homeowner, too. Most contractors feel like it’s their job to prove themselves to the customer.
After all, growing your business is dependent on consistently engaging in mutually beneficial relationships. No one should feel like they got ripped off or misled—including you.
6 Questions to Ask the Homeowner
What if you could avoid a potential payment problem before a project even starts? There are hundreds of web pages outlining questions homeowners should ask contractors, but what about the other way around?
Asking some pointed, direct questions at the start of a project could help avoid payment trouble down the road. Here are 6 questions to ask the homeowner before construction begins.
1. Have you ever completed a remodeling or construction project?
Asking questions to gauge the homeowner’s experience with construction projects can be crucial to how the build moves forward. If they’ve never been part of a project, you’ll likely have to hold their hand and explain everything as the process goes forward. That’s okay, as long as they’re coachable. With green or first time homeowners, communication will be paramount to avoiding issues.
Conversely, if you get the “I could do it myself, but I’m too busy” type, you know you’re in for a bumpy ride. The quote should probably reflect that.
If they tip their hand and mention that they’ve been part of several projects before, it might be worth digging around to see if their past projects had payment issues. Ask the GC or a sub on one of those projects what the homeowner was like to work for. What is their payment process like? Were there any issues? The construction industry is incredibly small, after all. You can get a lot of the information you need by talking to the right people.
2. Is there a mortgage on the property? If so, which bank?
Your goal should always be to protect your payments on a construction job. If you end up in a payment dispute, some states require you to send certain documents to the mortgage holder.
Even if it’s not required, getting the mortgage lender involved can help put extra pressure on the homeowner to pay. If you don’t ask for this information at the start of a project, you may have to do some detective work when you’re up against a deadline.
Depending on the lien priority rules in your state and when the loan was created, the mortgage bank may have priority over your claim in the event of a lien. It’s critical to get this information before the shovel hits the dirt, when your relationship with your customer is still in good standing.
3. How are you paying for the renovation?
Many payment disputes can be traced back to the source of the project funds. Asking questions about how the homeowner is funding the construction — and who is managing those funds — can help the contractor assess whether they are up to the task.
Some financing is obvious, like 203k loans and other government-backed loans. But what if the homeowner’s parents are funding the project? Families argue all the time, and that could affect your payments.
What if they’re using a home equity line of credit (HELOC)? Wouldn’t you want to know the point at which their budget runs dry, if they start adding change orders or requesting premium materials on the project?
In some scenarios, the homeowner’s funding may have everything to do with how you structure your contract. A time and materials contract might look good if you get the feeling that the funding might run dry at some point before the project is complete.
4. Do you have design plans or drawings for the project?
Many homeowners start a project without a clear picture of what they want, and end up changing the specs multiple times throughout the job. This can make it nearly impossible to prepare an accurate estimate, and increases the chances of a payment dispute down the line.
The more detailed you can get at this point, the better. If they are working with an architect or design professional, there’s a better chance that they have thought through each detail and made firm decisions based on the situation on the ground.
5. Can I see a credit report?
Until you’re done with the project and receive your payment, you are setting the credit terms. You decide the late payment policy and any incurred interest rate (in some states). And if there’s a payment issue, you’re probably the one carrying the interest on the materials purchased.
You may not need to ask for a credit report on every project. But if you’re filling a large order of custom cabinets, or quoting a massive addition, there’s nothing wrong with requesting a report.
If they’ve got good credit, that’s great. Strongly worded terms on late payments will probably be all it takes to keep the payments on schedule. If they’ve got a history of collections or other payment problems, watch out. You might want to price this project to be worth your risk.
6. What do you know about mechanics liens?
The homeowner answer to this question can tell you whether they take their payment responsibilities seriously. If they know the risks of non-payment, they’re probably more likely to pay you on time. With owners that don’t know anything about liens, now is the time to set clear expectations. The last thing you want to deal with is a homeowner who tries to walk away, claiming that the contractor’s work didn’t measure up.
Educating the homeowner about how mechanics liens work can help avoid a lot of your payment headaches throughout the construction project. You don’t want to scare your customer off, but the truth is they probably have no idea about contractor lien rights.
Every state has their own mechanics lien rules, required notices, and deadlines. Take the time to explain each document and what it does. This is also the perfect time to explain your company’s credit policy. They need to know if they don’t pay you (or any contractor, for that matter), there may be a lien against their property.
This shouldn’t be a contentious conversation. It’s all in how you frame it. Let them know how important it is to you that you work with an informed customer and that everyone gets a fair shake. This goes back to the mutually beneficial relationships mentioned earlier.
Educating the homeowner about mechanics liens is actually the perfect way to show that you have the homeowner’s interests in mind. In a way, you are effectively protecting them from other unscrupulous contractors who will do shoddy work and file a lien anyway.
The time to ask is now.
To really leverage the answers to these questions, you need to ask them in the project’s initial steps. That means ask the homeowner these questions when you show up on their site or at their home for the sales call. Don’t hop out of your truck asking for a credit report, but do find out what you can before submitting a quote.
A red flag or two doesn’t necessarily mean it’s a bad project. You can adjust a contract or a quote to account for small problems. But when there are red flags across the board, you know payment issues are inevitable. You can pass on the project altogether and concentrate on better projects with your ideal clients.