Buying a House and Making It a Home

While house hunting in the Bay Area, you and your spouse have found the perfect home. It’s well-situated close to a high-rated school district, it’s within a decent commute to your work, it has a nice pool and landscaped backyard that really made a lasting impression and it has the quintessential Victorian architecture for which San Francisco is famous. Since its an older home, it will require some remodeling, but it’s available for immediate occupancy and it’s not enough to stop you from moving in. Find out more in this section about the best ways to find a remodeling contractor, the questions to ask when interviewing a contractor and what to include in the remodeling contract. Also find out which remodeling projects in the Bay Area provide a great return on investment.

According to the National Association of the Remodeling Industry (NARI) (, the remodeling market is a $275 billion industry and is expected to continue to experience significant growth. It is estimated that more than 1 million homes per year undergo major renovation or remodeling. In the Bay Area, there are many professional builders and remodelers to select from, and most are members of local chapters of the National Association of Home Builders (NAHB), an organization of professionals in the residential construction industry.

Working With Contractors in California
In California, a builder, remodeler or contractor may not construct new homes or engage in remodeling projects that change the living area of the home or that cost more than $500 for interior renovations without first registering with the Contractors State License Board (CSLB) ( The CSLB protects consumers by licensing and regulating California’s construction industry.

There are about 300,000 licensed contractors in the state, in 43 different licensing classifications.

In addition to educating consumers about contractors and construction law, CSLB activities include administering examinations to test prospective licensees, issuing licenses, investigating complaints against licensed and unlicensed contractors, issuing citations, suspending or revoking licenses and seeking administrative, criminal and civil sanctions against violators. In Fiscal Year 2011–12, CSLB helped recover nearly $36 million in ordered restitution for consumers.

California takes contractor licensing very seriously. The CSLB’s Statewide Investigative Fraud Team (SWIFT) works to eliminate unlicensed contractors working in California. Undercover sting and sweep operations are conducted weekly around the state, so SWIFT encourages consumers to report unlicensed activity.

Top 10 Tips When Hiring a Contractor
The CSLB wants your remodeling project to go as smoothly and as professionally as possible, so it offers the following Top 10 tips to know when hiring a contractor or remodeling professional:
  1. Hire only state-licensed contractors.
  2. Check a contractor’s license number online at or by calling (800) 321-2752.
  3. Get at least three bids.
  4. Get three references from each bidder and review past work in person.
  5. Make sure all project expectations are in writing, and only sign the contract if and when you completely understand the terms.
  6. Confirm the contractor’s workers compensation insurance policy for employees, and ask about liability insurance to cover any property damage.
  7. Never pay more than 10 percent down or $1,000, whichever is less. Don’t pay in cash.
  8. Don’t let payments get ahead of the work.
  9. Keep a job file of all papers related to your project, including documentation of all payments.
  10. Don’t make the final payment until you’re satisfied with the job.

Contractor Selection
At this point, you’ve had a chance to review the improvements and additions you’re interested in making to your home. Now, you need to begin the contractor selection process, which is the most important decision in a remodeling project. Nearly half of all projects signed by a remodeling contractor are the result of client referrals. An additional 22 percent of jobs are the result of word-of-mouth referrals. By following these guidelines, you will be better prepared to make an informed decision that best suits your needs.

Employ a home improvement contractor with an established business in your area. Local firms can be checked through references from past customers in your community or through local organizations. Local remodelers are compelled to perform quality work that satisfies their customers so their business will survive. Following are a few suggestions for finding local contractors:
  • Local Chapters of the NAHB. Explore the website of the Building Industry Association (BIA) of the Bay Area ( to find searchable databases of NAHB-member professional builders located in the Bay Area.
  • Local Chapters of NARI. The Bay Area has several local chapters of NARI that provide a great resource for remodeling projects. At their websites, click on Find A NARI Pro and select a professional by specialty to find local professional perfect for your project. Following are the chapters available in the Bay Area depending on your area of residence:

When you meet with a potential contractor, ask for the following items:
  • Current copy of his license (Call or visit CSLB at to verify compliance with the law)
  • Copy of the remodeling contractor’s certification of insurance for the name of his or her insurance agency to verify coverage (Most states require a contractor to carry workers compensation, property damage and personal liability insurance. Make sure the contractor’s insurance coverage meets all the minimum requirements.)

When you solicit bids from several different home-improvement contractors, make sure they are bidding on the same scope and quality of work. Discuss variations in bids and beware of any bid that is substantially lower than the others.

Questions to ask potential contractors
Timing and money are the most common questions a home-improvement contractor hears, but during an interview with homeowners when they should be asking about credentials and verifying business practices, what is often heard is, “When can you start? When will it be finished? How much will it cost?”

According to NARI, these simply aren’t enough. Yes, timing may be “everything” in comedy, but that certainly isn’t the case when it comes to remodeling. If you are going to have a successful remodeling project, you need to learn the right questions to ask and how to ask them. NARI members offer a list of questions that you should ask.
  • How long have you been in business?
  • Who will be assigned as project supervisor for the job?
  • Who will be working on the project? Are they employees or subcontractors?
  • Does your company carry workers compensation and liability insurance? (Always verify this information by calling the agency. A copy of an insurance certificate does not let you know if the policy is still current. Even if the certificate has an expiration date, you cannot tell if the insurance has been canceled by either party.)
  • What is your approach to a project such as this?
  • How many similar projects have you completed in the past year?
  • Can you provide a list of references from those projects?
  • Can you provide a list of business referrals or suppliers?
  • What percentage of your business is repeat or by referral?
  • Are you a member of a national trade association?
  • Have you or your employees been certified in remodeling or had any special training or education, such as earning a Certified Remodeler (CR), Certified Remodeler Specialist (CRS), Certified Lead Carpenter (CLC) or Certified Kitchen & Bath Remodeler (CKBR) designation?

It’s also important to realize that sometimes it’s not the answers you get that are significant, but what you don’t get. Asking the right questions is not enough. You need to pay attention to your instincts and to what information is missing.

Unlike your accountant or stockbroker, your remodeler will be a part of your daily life and available for on-the-job education. He or she will be privy to your personal life, more so than your doctor or lawyer. Your contractor will know how you look early in the morning and how well behaved your dog is. It makes sense that you should take some time to carefully select this person and make sure that it is someone to whom you can ask questions.

Proper Planning is Important
For considerably less money than a new home, careful planning of improvement projects will let you update your home, increase the value of your investment and customize your living space. As part of the planning process, look over your property carefully. What repairs are needed? What improvements would you like to make? Think ahead and determine your future needs. Professional remodeling contractors can help you in your planning by outlining options and discussing the improvements you can make within your budget. Be sure to review your homeowners insurance policy and make adjustments for the added value of the work being done.

Think About Design and Function
Design and function should be foremost in your mind if you’re thinking of adding a room or converting an existing one. When planning a larger, more complicated project, give thought to details, such as intended use of the space; flow of the space; where you want electrical outlets, telephone jacks and cable hook-ups located; the type of lighting required; your current and future storage needs; and whether you want to include luxury items. These details will enable your home improvement to better suit your needs and your lifestyle.

A professional remodeling contractor or design service should be consulted about design and function of any remodeling project. He or she also can help you with time- and money-saving hints.

Comply With Local Codes and Permits
Building codes have been established by most cities, towns and counties. They vary considerably from one jurisdiction to another. A building permit generally is required whenever structural work is involved or when the basic living area or footprint of the home is to be changed. Ask your real estate agent or your insurance agent about the local requirements in your area. Also, if you live in a deed-restricted community, be sure to review your copy of the homeowners agreement. Under some agreements, it’s your responsibility to notify your homeowners association if you intend to make any home improvements. This may include getting the plans approved by a design committee.

A Well-Written Contract is Essential
Before any remodeling work can begin, there must be a complete contract. This holds the job together and ensures that all parties involved agree to the same vision and scope for the project. According to NARI, following are some key areas you should look for in a contract:
  • Be sure the contract includes the contractor’s name, address, phone and license number.
  • It details what the contractor will and will not do.
  • Your contractor should detail a list of materials for the project in your contract. This includes size, color, model, brand name and product.
  • The contract should include the approximate start date and substantial completion dates.
  • Study all required plans carefully. Insist that you approve them and that they are identified in your written contract before any work begins.
  • Federal law requires a contractor to give you written notice of your right to, without penalty, cancel a contract within three business days of signing it. This is provided that it was solicited at some place other than the contractor’s place of business or an appropriate trade premises such as your home.
  • Make sure financial terms are understood and spelled out in the contract. The total price, payment schedule and any cancellation penalty should be clear.
  • A warranty covering materials and workmanship for a minimum of one year should be written into the contract. The warranty must be identified as either “full” or “limited.” The name and address of the party who will honor the warranty (e.g., contractor, distributor or manufacturer) must be identified. Make sure the time period for the warranty is specified.
  • A binding arbitration clause is also a good inclusion in the event a disagreement occurs. Arbitration may enable you to resolve disputes without costly litigation.
  • Thoroughly review the entire contract and make sure you understand it before signing it.
  • Consider the scope of the project and make sure all items you’ve requested are included. If you do not see a specific item in the contract, consider it not included. Never sign an incomplete contract. Always keep a copy of the final document for your records.
  • Consider having a legal professional review the contract before it is signed.

Under California Law
By law, anyone in California who contracts for or bids on a construction project valued at $500 or more (total labor and materials) must be licensed by the Contractors State License Board (CSLB). To qualify for a license, a contractor must verify four years of journey-level experience in the trade, pass both a trade and license law examination and post a license bond. Since 2005, all new contractors are required to pass a background investigation that includes a criminal background check by the FBI. Contractors are required, by law, to put their CSLB license number in all advertisements. Unlicensed operators are required to say they are not state-licensed in their advertisements.

First-time unlicensed offenders often are issued a Notice to Appear (NTA) for misdemeanor charges of contracting without a license or illegal advertising. The NTA carries a maximum penalty of six months in jail and/or up to a $5,000 fine. Additional convictions raise the fines to $10,000 and a mandatory 90-day jail sentence.

When you hire a prime contractor to do construction on your home, he or she typically hires laborers and subcontractors to do some of the work, and purchases materials for the job from materials suppliers. No one would dispute that a homeowner should pay for goods or services provided to improve their home. If the contractor or the subcontractors, workers or suppliers that provide goods or services to improve your property aren’t paid, they can file a mechanic’s lien on your home.

A mechanic’s lien is a “hold” against your property that, if unpaid, allows a foreclosure action, forcing the sale of your home. It is recorded with the County Recorder’s office by the unpaid contractor, subcontractor or supplier, meaning that any of these unpaid entities can claim a lien against the property until they are paid.

The prime contractor has a direct contractual agreement with the homeowner, so if unpaid, he can sue on the contract and record a mechanic’s lien. Subcontractors, workers and suppliers don’t have a contract with the homeowner, so if the homeowner pays the prime contractor only for some of the work, and thus the prime contractor fails to pay the laborers, subcontractors and materials suppliers, their only recourse is to file a mechanic’s lien on the home.

If you receive a Preliminary 20-Day Notice, don’t panic. The preliminary notice isn’t a lien; it is a notice that a subcontractor or supplier has provided or will be providing goods and services to improve your property and could file a lien claim if they are not paid.

Keep track of these notices so you know who has a potential claim against your property. Subcontractors and suppliers must provide you with this notice in order to maintain their right to file a lien. If they don’t provide you with the notice, they lose the right to file a lien.

Contractor Warranties in California
According to the California Business and Professions (CBP) Codes and the California Civil Code, there are basically three contractor warranties that are laws in California.

One-Year Warranty: New Construction and Remodels
The standard “one year expressed limited warranty” also known as the “Fit and Finish Warranty” is an industry standard and a California law (Civil Code 900). Thus, it is considered an implied warranty. Even though the state has adopted a standard of the warranty, a written warranty is always better to obtain. With a one-year written or implied warranty you are required to file a complaint within the one-year period (CBP Code Section 7091-c).

Four-Year Warranty: All Contractors/All Jobs
A licensed contractor is required to give a warranty on items installed under his or her license to be free from defective installation, including but not limited to the local codes and manufacturers’ installation requirements for up to four years after the completion of a job. The claim may be made on any defect, either known or unknown, and discovered within the four-year period (CBP Code Section 7091-a). A licensed contractor can be held liable for repairs and damages caused by the defective installation. A licensed contractor who fails to meet the minimum installation requirements can be sued in a court of law and a complaint can be filed with the CSLB.

Ten-Year Warranty: Structural Defects
A licensed contractor and/or the engineer on record is required to provide a warranty on certain engineered components that they are to be free form engineering defects, miscalculation or omissions. Such defects could be site stability, foundation integrity, site retaining walls and roof framing. These may be considered latent defects, which lay dormant and are undiscoverable without certain expertise or disaster, and include foundation settling, excessive sagging of beams or other framing, which may be undersized, show unusual site movement and the like.

Paying for the Work
It is normal for a contractor to ask for partial payment in advance and, provided you have taken the precautions recommended, you should expect to provide a part of the cost before the work begins. However, it is notorious that scammers involved in door-to-door ripoffs will ask for payment in full in advance and then abscond without completing (sometimes without even starting) the job. In California, contractors cannot ask for a deposit of more than 10 percent of the total cost of the job or $1,000, whichever is less regardless of the project.

Even with a reputable business and a sound, written contract in place, you should not pay in full until the work is complete and you have inspected it yourself and found it satisfactory. A partial payment schedule usually will specify what part of the job has been done when a payment is due. Inspect the work and make sure the contractor has met the schedule before you make your payment.

If you are asked to sign a certificate of completion, do not do so until all the work is completely finished, the site is cleaned up and you are satisfied.

Working With Remodeling Professionals
Before work begins, ask your remodeling contractor what inconveniences may occur while the project is under way and plan for them accordingly. Be sure your contractor is aware of vacations or special events so he or she may schedule their jobsite time appropriately. Following are other points to consider:
  • Consider moving personal property from construction areas and declare all work zones off-limits to children and pets.
  • Put all changes in writing if your remodeling project is modified while work is being done. Both parties should sign the amendment.
  • Keep a job file including contract, plans, specifications, invoices, change orders and all correspondence with the contractor.
  • Request that a contractor’s Affidavit of Final Release be provided to you at the time you make final payment and a final waiver of mechanic’s lien. This is your assurance that you will not be liable for any third-party claims for nonpayment of materials or subcontractors.

— Determining the Scope of the Project
Depending on your needs and the size or complexity of your intended remodeling project, there are several different options for you to explore before finalizing your plans.

Building a home involves many different skilled professionals. As you learn about the process, it’s important to know the roles that key professionals play. Following is a brief summary of job titles and descriptions in the homebuilding process.

Architects represent the most highly educated and trained category of designers. The title requires a college degree and state certification. Architects are able to translate ideas into detailed plans and material specifications. They also can oversee your project while it is in progress and are an excellent resource for other professionals, since they already have established a pool of designers and general contractors with whom they have worked in the past.

Designers are skilled in the design and building process, but are not licensed or regulated in most states. If you’re planning to work with a designer, verify his or her experience and professionalism. You’ll want to review the designer’s portfolio and look for design degrees from accredited universities and membership and/or certification from professional organizations, including the American Institute of Building Design (AIBD), the National Council of Building Designer Certification (NCBDC), the National Association of the Remodeling Industry (NARI) and the American Society of Interior Designers (ASID) among others. These organizations help ensure professional standards of education, field experience and adherence to a code of ethics.

Residential Designers (Space Planners) are trained to use space most efficiently and tend to focus on floor-plan design, detailed lifestyle evaluation and design functionality. If you’re considering a floor plan, a family room, bathroom or kitchen, consult a residential or interior specialist. This specialist can spend additional time and attention on specific areas of the home that are especially important to you and your family. Often, residential designers’ expertise can overlap with interior designers because they both offer advice about the latest trends and products.

Structural Engineers need to be consulted if your project requires any structural alterations to an existing building. The role complements the work of architects, who are the spatial and aesthetic experts of building design and construction. A structural engineer can provide advice on any strengthening required and the design of new lintels, beams, walls or foundations that may be needed. Structural engineers also can perform a site inspection to establish the nature of the ground and design suitable foundations for the building.

Kitchen and Bathroom Designers provide expert product knowledge within their specialties, but they may lack construction experience or miss design opportunities associated with additions or movement of walls, according to building experts. If the project involves high-dollar budgets in which expensive cabinets, materials and appliances will be used, consider either of these professionals.

Home Center Staff Designers are an easy, immediate and cost-effective way to learn about basic design ideas. You can check your local home-center store to learn about classes it is offering or simply visit the store and discuss with staff designers what you’re planning to build. You will find that design skills among the staff varies widely. Also, be aware that the staff will recommend solutions using their store’s products.

Interior Designers and Home Decorators are specialists who offer advice on furniture, wall coverings, colors, styles and overall physical appearance of your project. While not essential to the process, these professionals can save you both time and money by helping you narrow down your choices and utilizing professional discounts for materials, such as furniture, home accessories, wallpaper or paint. Communicating your personal style and preferences is important when you meet with an interior designer or home decorator. Be prepared to show examples of styles you like that you’ve found in magazines or books. Based on your input, these professionals will develop ideas that will work for the space and help create a setting that represents your artistic sensibility. Keep in mind that while an interior designer also may do some interior space planning, most of them usually focus on interior decorating by selecting finishing touches such as carpets, drapes, paint colors, fabrics and furnishings. You may find that their duties overlap or can be interchangeable with those of both residential designers and interior decorators.

Draftspersons primarily prepare technical drawings of designs created by others although some can assist with the design. These days, most drafters work in Computer Aided Drafting and Design (CADD) programs. You already may have a good idea of a floor plan you like; if that’s the case, it’s not uncommon to hire a draftsperson to draw the blueprints and have them checked by an engineer before speaking with general contractors to bid, apply for permits and build.

As you speak with these various professionals in the home-building process, look for people whose experience, designs and ideas best reflect your taste and sensibilities. There also should be good communication flow and understanding about the project. After all, it’s about building your new home, one of the largest investments you’ll make in your lifetime and the center of your family’s life.

— Other Remodeling Resources
Following are other ways to look for remodeling professionals in your area:
  • Jobsite signs: Pay particular attention to homes with signs from their contracting companies on their lawn. Is the site clean? Are tools and materials being handled in a responsible manner? Are there dust covers over the owner’s belongings to protect them?
  • Local media coverage: Look for articles about local remodelers. Also check out local home-improvement columns in the newspaper and on TV and radio talk shows in your area. They can be a great source for finding a qualified, reputable and personable contractor.
  • Seminars: Attend local seminars on home-improvement topics. Some firms host free seminars on how to choose a remodeler and other interesting remodeling topics. Check your local newspaper community news section for information.
  • Home tradeshows: Each fall, American Consumer Shows hosts an event that bring consumers together with the latest homebuilding and remodeling trends and the vendors that supply them. You’ll find events like these are great places to gather information about companies and make an initial contact with potential contractors. Later it is possible to meet with them at their places of business or in your home.

The Push For Greener Homes
Residents in San Francisco and the Bay Area place a high premium on sustainability and conservation. The culture of the region is very much one that fosters and promotes green building and activities to promote the environment and its preservation. Following are a few local and national programs and resources for homeowners interested in building and remodeling with green standards in mind.

A recent study conducted by economists at the University of California, Berkeley and University of California, Los Angeles called “The Value of Green Labels in the California Housing Market” is the first to provide statistical evidence that, holding other factors constant, a green label on a single-family home in California provides a market premium of up to 9 percent compared to a comparable home without the GreenPoint Rated label.

Build It Green is a membership-supported nonprofit organization whose mission is to promote healthy, energy- and resource-efficient homes in California. Its slogan is “Smart Environmental Solutions from the Ground Up” so since 2003, it has offered a comprehensive package of local government support, professional training, collaboration forums, consumer education and green product marketing to a range of stakeholders.

The following three strategic objectives guide the work of Build It Green:
  • To drive policy development: Build It Green partners with government to establish credible and accessible green-building policies that promote private-sector innovation and provide consistent guidelines statewide.
  • To increase supply of green homes: Build It Green trains building professionals on latest best practices and connect green product suppliers with consumers.
  • To stimulate consumer demand: Build It Green builds awareness of the benefits of green building by providing GreenPoint Rated as a trustworthy, recognized brand for green homes.

Build It Green’s program development strategy has been to incubate good ideas in the San Francisco Bay Area and then expand them statewide, helping to establish California as a role model to other states and the nation for developing pragmatic solutions to environmental challenges. It strives to design its programs to have wide-reaching policy impacts that positively can impact many Californians.

Energy-Efficient Mortgages (EEMs) are available for homebuyers purchasing energy-efficient homes. EEMs allow buyers to qualify for larger home loans based on quantifiably low monthly energy bills. Ask your lender to explain the EEM products provided by Fannie Mae, Freddie Mac, the Federal Housing Administration (FHA) and the U.S. Department of Veterans Affairs (VA). It is even possible to refinance a home with an EEM to make it more energy efficient. Visit to learn more.

Developing A Realistic Remodeling Budget
Review the following simple tips from NARI about developing a budget.

— Determine What You Can Afford
It may seem obvious, but often homeowners may expect a remodeling contractor to create the budget for them. This is not a good idea. Following are some better ways to begin the process:
  • Keep a reserve. Once you determine how much you can afford to spend on a remodeling job, decrease that amount by 10–20 percent. This reserve should be put away to cover any change orders or incidental charges accrued along the way. This will prevent a frantic scramble for additional funds at the end of the project.
  • Keep “change orders to a minimum.” It is easy for a homeowner to say, “A little more on this fixture doesn’t matter. It’s very little money.” Unfortunately, having that attitude also makes it easy to overextend a prepared budget. While it’s rare that any remodeling project proceeds without a single change order, homeowners can keep them to a minimum by sticking to their original plans. A change order is a written document detailing any requests to alter, change or remove any items in the contract or project. There are four key origins of a change order:
    • The homeowner initiates one because they have changed their mind about the design or a specific product.
    • Unexpected damage was found (e.g., termites).
    • A code violation is uncovered that affects the project.
    • The proverbial “while you’re at it…” phrase can annihilate a budget. While it’s tempting for a homeowner to have his remodeling contractor complete handiwork, it’s good to remember that any work not specified in the original contract will have an additional cost attached to it.

If the job requires financing, shop around for the best terms on the financing, including the interest rate, terms of the payout and finance charges. As with any financing agreement, you should calculate the entire cost of interest and charges for the term of the loan.

A home-improvement company may offer financing, but this is not necessarily the best option even though it may seem easy to arrange the financing and the work contract at the same time. Be aware that some contractors will have you sign a credit contract to pay a certain price for the work plus a finance charge then immediately sell the right to collect on the contract for 20–50 percent less than the contract price. That usually means you could have gotten the work done for 20–50 percent less by paying cash or arranging financing yourself.

Check with your bank or credit union to learn about loan programs and interest rates. Ask your real estate and insurance agents for mortgage broker referrals, and check the business pages in the San Francisco Chronicle and The San Francisco Examiner for any advertised promotions from lending institutions.

One financing option that has re-emerged is the FHA 203(k) Home Construction, Rehab Loan from the U.S. Department of Housing and Urban Development (HUD). This is a version of a construction loan specifically designed for rehabilitation or remodeling of existing owner-occupied homes, including single-family and two- to four-unit buildings and condominiums. The advantages include an increase in loan limits and the low FHA down-payment requirements.

Whether remodeling your home for personal use or resale, make sure you hire the right construction professionals that will ensure the quality of the work and a true return on your investment.
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