Hiring a Contractor

It's official, the housing market is in a slump.

With a record number of homes on the market, mortgage rates rising and an affordable-housing shortage, many families are deciding to stay put. Sales plunged more than 4% between June and July, with a drop of at least 10% predicted for the year.

Builders of new homes are among those feeling the pain.

Pulte Homes (PHM Quote - Cramer on PHM - Stock Picks), the nation's biggest homebuilder, announced it doesn't expect to meet its third-quarter earnings forecast, and lowered its forecast for the year.

KB Home (KBH Quote - Cramer on KBH - Stock Picks) recently sold its 49% stake in land for the Anaverde development in Antelope Valley, Calif., citing current market conditions. And in August, Toll Brothers (TOL Quote - Cramer on TOL - Stock Picks), a luxury-home builder, blamed the slowdown for its 19% decline in quarterly profits.

When the housing market loses its momentum, sprucing up or enlarging existing homes has more appeal than moving to a new place.

A room addition, a revamped kitchen or an upgraded bathroom can make a home more livable, and even boost its resale value once the housing market springs back to life.

It's easy to spend hours poring over decorating magazines, catalogs and color swatches to find the styles and materials that will morph the old homestead into a dream house. But the key decision in any home-improvement project is finding an honest, reliable contractor.

In 2005, the national average price for a midrange kitchen remodeling was close to $44,000, with an upscale job costing more than $81,000. The price can soar even higher if a contractor does shoddy work, goes bankrupt or simply skips out after cashing your first payment check.

Plus, you'll be sharing living space -- and your dreams for your home -- with this person, so it's important to do your homework even before seeking an estimate. Taking the time to find the right contractor can help the project more run smoothly from start to finish.

Assessing the Terrority

Start with an extensive list of contractors, as some will be out of the running before you choose at least three to bid on the job.

Word of mouth is one of the best ways to gather names: ask neighbors, friends and relatives who've had work done lately if they're pleased with the job and willing to recommend their contractor.

Local lumberyards and building material suppliers always have contacts in the remodeling business. Ask for names of contractors who buy high-quality materials and pay their bills on time, a good indicator of solvency.

Building inspectors, too, can make referrals. They have firsthand insight about the level of a contractor's work, as the inspectors must certify that jobs pass code requirements.

Further, professional associations such as the National Association of the Remodeling Industry, National Kitchen and Bath Association, Associated General Contractors of America and the National Association of Home Builders all have information about member contractors nationwide.

Narrowing the Field

Next, prepare a list of questions and call the contractors who received top marks from your sources.

Ask how long the company has been in business, if it has experience with projects of your type and size and if it will be available when you want the job to begin.

Make sure the contractor is willing to provide financial references from suppliers and banks and a list of previous clients, as well as current proof of license, liability insurance and workers' comp coverage.