Paying cash for home renovations – good idea or not?
December 28, 2008
QUESTION BY A BLOG READER:
My contractor suggested that I pay him cash for home renovation work and save money. Is it a good suggestion?
REPLY BY MODERATOR:
The answer given here is aimed at home renovation scene and tax situation in Ontario, Canada. The contractor is asking to get paid in cash to avoid paper trail of his income. He wants to conceal part or all of income from this job to avoid paying taxes.
He is promising to give the homeowner a discount (usually no GST), but he saves a lot more for himself if he does not pay the taxes he wound have to pay on a properly documented job.
Why should homeowner refuse this seemingly generous offer from the contractor? The homeowner may save some money, essentially by being an accessory to tax fraud, which is a criminal offence.
· The homeowner exposes himself to prosecution by tax authorities.
· The homeowner will not have written documentation of the job and receipt for his payment.
· The homeowner may not be able to get follow-up service or warranty repairs from the contractor.
· Also, any manufacturer’s warranties (for example for installed windows) may not be honored by the manufacturer without proper documentation.
· Furthermore, if the contractor was obtained through ReliableConnections.com contractor referral service, the homeowner must give up the benefits offered by ReliableConnections.com, including Reliable Cash Rebate and Reliable Assistance.
Simply by considering these factors, the homeowner should conclude that it is a bad idea to pay in cash. Additionally, consider that the contractor is ready to commit a tax fraud (in collusion with his customer). What other fraud, dishonesty or shady business is he possibly involved in? Can a homeowner trust a contractor who is willing to cheat on taxes and encourages others to do same, to treat his customers honestly?
Should I be My Own General Contractor?
December 14, 2008
QUESTION BY A BLOG READER:
I am planning a major renovation of my house. Should I be my own General Contractor? Could I save money by not hiring a General Contarctor?
REPLY BY MODERATOR:
This question is frequently asked by homeowners contemplating major renovations or the construction of a new home. The question cannot be answered by a simple yes or no, the correct answer is, “it depends.”
It depends on the homeowner’s willingness, ability and readiness to assume the role of general contractor. But what exactly does a general contractor do?
Let us review what a general contractor (GC) must do over the course of a typical project. One of the many definitions of the term “general contractor” that can be found on the Internet is as follows:
The central figure in most construction pyramids, the person hired by the owner to plan and oversee the entire job. Often hires subcontractors who specialize in the various trades required for the job (ie., plumbers, electricians, framers, carpenters, etc.).
So, in light of all these tasks that are the responsibility of a GC, should a homeowner take on the role himself or herself? Clearly, it requires a great deal of time, ability, and knowledge to oversee all these tasks closely and properly. Also, keep in mind that a GC will typically make a gross profit on a project in the range of 20% to 30%, but a homeowner typically will not save that entire amount if s/he cuts out the general contractor because there are financial costs inherent to these tasks. As well, the homeowner will benefit from the GC’s involvement in many ways that may partially or completely offset the added cost of using general contractor.
So you decide. Clearly, the size and scope of the project comes to bear on your decision: A smaller project is certainly easier to oversee than a large, complicated one. Consider whether you have the time, resources, and know-how to undertake the job of GC, and weigh the costs and benefits of doing it yourself versus hiring someone experienced. Whatever you choose, good luck with your project!
More complete treatment of this subject can be found in a recent newsletter published by ReliableConnections.com and available here.
How much deposit should I pay to a contractor?
December 14, 2008
QUESTION FROM A HOMEOWNER
I am renovating kitchen, two washrooms and installing hardwood floor in the dining room. How much should I pay as a deposit to my contractor or renovator when I sign the renovation contract and before the contractor starts working?
ANSWER BY OUR EDITOR
The answer to this question is not straightforward. The deposit the contractor or renovator is asking for is serving several purposes:
- Commitment money – the renovator needs to make sure that the homeowner is serious about his home renovation project and that he is not going to change his mind later.
- Trust money – the contractor want to make sure that the homeowner has the money to pay for the kitchen and bathroom renovation and that he is going to pay him in full upon completion of the job.
- Protection against loss – the renovator want to make sure that if he buys custom material specifically for this homeowner’s renovation project, he is not going to get stuck with the material if the homeowner changes his mind about the project, or about the selection of the materials.
- Working capital – the contractor needs money to get started on the project, especially if it involves the purchase of large amount of construction material up front.
As you can see, all these reasons are for the benefit of the contractor. The homeowner is naturally motivated to pay as little as possible, or nothing, at the start of the home improvement project. Some homeowners believe that there is an “industry standard”, or “usual” deposit that is charged by contractors and renovators. That is strictly speaking not correct. The amount of the deposit needs to be negotiated as part of the home improvement contract, just as the total cost is negotiated. It boils down to the question of thrust. If the homeowner and contractor trust each other they will settle for low, or no deposit. If the contractor doubts the homeowner’s trustworthiness, or ability to pay, he will insist on large deposit. Conversely, if the homeowner does not trust the contractor, he will be reluctant to pay large deposit. However, if the homeowner does not thrust the renovator, perhaps he should reconsider hiring him in the first place.
Answer provided by Ivan Koval, President, ReliableConnections.com