Thinking of taking the lowest bid? 5 tips from homeowners who did!

March 15, 2017

By: Stacey Freed

How to tell if that low remodeling bid is a bargain — or not.

All Ed and Sheila Dornan wanted was to create a gracious entryway in their modest Ypsilanti, Mich., home. And because they’d had a wonderful experience with a local contractor before, they assumed everything would go just fine.

But this time, they chose a contractor who made a far lower bid than the others. Any guesses where this story is headed?

They said they were in a big hurry, and they thought [my estimate] was too high,” recalls remodeler Debra Moore, owner of Custom Design/Build in Ann Arbor. The Dornans had hired Moore a while back to upgrade their home’s exterior and renovate the master suite and family room.

But this time, the work was more complicated because it involved removing two structural walls, which had the domino effect of relocating electrical lines and heating ducts (never a cheap endeavor).

The Dornans chose a contractor’s bid that promised to do the work for less than half what Moore said it would cost — and in less time than her eight-week estimate.

A year later, their house was still under construction. They realized they’d made a big mistake.

It was a tough way to learn the perils of taking the lowest bid, but their experience provides a lot of insight on how to tell if a low bid is the real deal, or if it’s a giant red flag.

Here are five tips to help you avoid the same pitfalls as the Dornans

#1 Properly Vet Your Project:

Dreaming of an entirely brand-new kitchen? Thinking that $25,000 you’ve saved up ought to do it? When your highest bid comes in at $64,000 and the lowest at $29,000, you’re bound to snag the lowest bid because it’s the closest to meeting your expectations — even though your expectations are way off.

Research what projects cost in advance. Check out the National Association of REALTORS®’ Remodeling Impact Report (full disclosure: NAR is HouseLogic’s sponsor), which can help you get a guesstimate of how much various projects cost. For a complete kitchen renovation, for example, you’d learn that $60,000 is the average cost.

Suddenly that low bid looks more troubling than the high one.

#2 Properly Vet Your Contractor:

The Dornans’ low-bidding contractor was charming and a good salesperson, but, as it turned out, he wasn’t good at estimating costs or overseeing subcontractors.

Picking a contractor shouldn’t be purely a personality contest. That referral from a trusted friend seems like a great way to pick a contractor, but it has its faults.

“Whenever you get a reference,” Moore says, “check that the type of work you want done is similar to what the remodeler did for the person referring him or her to you.”

In the Dornans’ case, the friends who referred the low bidder had him do a much smaller project in their home that was nowhere near as complex as their project.

In other words, if you want a custom kitchen, don’t hire the guy who installed your friend’s new front door.

Visit a couple of projects done by the remodeler in question. See if the work is up to your standards and includes the type of changes you want done.

3 other things to know about contractors:

1. Are they licensed and insured? Contractors-license.org can point you in the right direction.
2. Do they belong to a professional association such as the National Association of the Remodeling Industry or the National Association of Homebuilders? That’s an indication they’re vested in their business.
3. What do online reviews from sites such as Angie’s List say?

#3 Compare Apples to Apples on Bids:

Everyone tells you to get bids from three different remodelers — which is smart! — but in order for those three bids to be accurately compared, they’ve got to be detailed, and they have to contain the same details.

“You’ve got to compare apples to apples,” Moore says. For example, if one estimate includes pulling permits and one doesn’t, make sure to ask about that cost. You don’t want a remodeler who’s going to start adding on costs down the road.

The estimate the Dornans got from their remodeler was not very comprehensive. But Moore says, the Dornans’ job included “some tricky structural and trim details that required design expertise and tight project management.” A too-brief bid didn’t account for such challenges and, unsurprisingly, the project reflected that poor planning.

When one contractor includes more detail in their bid, ask all other contractors to explain how they’d cover each of the costs mentioned.

#4 Motivate Contractors With Money:

It’s no secret that money motivates. And if your contractor gets too much too soon, there isn’t much to motivate them to stay on schedule — especially if their low bid has them running over budget.

The Dornans didn’t pay all at once, but their remodeler would periodically ask for money, which they would give him, and then he would disappear for awhile.

“Sometimes when that happens, it could mean that the remodeler figures out he’s in over his head, and then takes on another job to pay for the first one,” Moore says. That causes delays on your job.

The Dornans’ job was big — bigger than the low bidder thought. But if the Dornans had agreed on a payment schedule that required benchmarks and deadlines to be met before handing over more cash, they could have avoided the inconveniences (or been within their rights to fire the contractor).

#5 Build Trust With a Contractor:

Between the poor workmanship and the remodeler skipping off, nearly a year passed and the Dornans’ entry wasn’t completed. The Dornans called Moore back.

It took six more weeks to finally complete the job because Moore had to correct a lot of the previous remodeler’s work. But because the Dornans knew and trusted Moore, they could be confident the work would finally be done — and done well.

Though getting three bids is always wise, factor the trust and personal experience into the bids of those you’ve worked with before. Paying a bit more for someone you know and trust can save a load of grief (and money) down the road.

“The whole episode caused Sheila and me much distress and extra expense,” Ed says. Now, they say, they understand the value of having a contractor they can trust. In fact, they “look on Debra as a good friend.”

Must vs. Lust: What do you really need in your new home?

March 4, 2017

By: Mandi Gubler

The super-simple (and fun) way to separate needs from nice-to-haves.

This article was contributed by Mandi Gubler, a DIYer and home decor blogger, who writes “Vintage Revivals” and believes “your house should look like you and no one else.”

When you embark on the home-buying process, your heart is filled with all the dreams in the world. It’s really easy to get caught up in the “I have to have ___________,  so I’ll cut back somewhere else ” game, even when you don’t actually know where that somewhere else is or if you can realistically cut back there.

This post will show you how to pare down the excess and make sure to get the things you really NEED.

Make a List of Wants:

Start by making a list of everything you want in your house. If you love it, jot it down. Have your spouse or partner do the same thing in a separate document.

Once you and your partner have everything down, start sorting your wants by order of importance. What’s your No. 1? Do you need large windows? How about a sunroom? Double sinks in the master? You get the idea.

Come up with your top 10, and then compare your list to your partner’s top 10. What things appear on both lists? Those items should carry more weight because you both want them in your home.

Highlight the Important Stuff:

Next, look at your list and consider:

• The things that can’t be changed without a massive investment. I’m talking things like square footage, window size, and number of bedrooms. This is your heavyweight list. These things should take priority in your home-buying decision.

• Features that are purely cosmetic, especially things that can be DIYed. These items should be moved waaay down the list or taken off entirely. Backsplash tile, paint color, and lighting can all be changed inexpensively and after you’re living in your house. You don’t want to pass up a fantastic house because you can’t see past a red accent wall.

At this point, you should have a combined list of 10 or so items.

My last tip is to figure out the priority of each one of the items. Ask yourself, would you be willing to give up item number 4, say, to have item number 5? Would you be willing to give up hardwood floors for a home theater room? This is the hardest question to answer, but it’ll put your must-haves in the right order.

I always picture this activity like an eye appointment when the doctor says, “1 or 2? OK, now 2 or 3?” Do that with your list! Pool or flooring? Flooring or yard size? Yard size or square footage? Make sense?

Bring Your List When You Look at a Home:

As you’re out looking at houses, keep your list handy. Maybe you’re not willing to give up hardwood floors for a jetted tub, but would you be willing to compromise for a jetted tub and extra square footage? Refer back to your must-haves list often. It’s easy to get distracted.

Here’s a quick checklist that I use when searching for a home. If you answer “yes” to all of these, then a “want” may be worth the splurge — that is, if you can be sure that you’ll be able to afford the feature (in terms of your monthly mortgage payments and living expenses).

1. Is it on both of your lists?
2. Is it something that’ll be extremely expensive and difficult to change or add?
3. Would you be willing to sacrifice something else to have it?
4. Would you feel like your house would be incomplete without it?

Happy house hunting!

What to Do About Dinner When Your Kitchen Is Being Remodeled!

February 24, 2017

By: Amy Howell Hirt

Tips for a temporary kitchen to keep mealtime a happy time.

Five months of bending over the bathtub to wash dishes during her kitchen remodel was no fun for homeowner and chef Christina Chavez. But her kids, on the other hand, delighted in the novelty of it all, turning dish drying into a game.

Sometimes, kids just have a better view of the world, seeing the adventure in everything. But when you’re the adult facing weeks, even months, of microwaveable meals and lame takeout that’ll bust your food budget (and probably add 10 pounds to your middle!), how do you find the fun in that?

These tips will keep the joy of cooking at home alive while your dream kitchen is under construction.

Scout the Perfect Location:

Like a perfect campsite, the spot for your temporary kitchen should be:

• In a low-traffic area
• As far from construction as possible
• Near a source of water

Places that may work include that barely used guest suite (especially if it has its own bathroom), the dining room, and even outdoors if you have a grill.

But think about electric outlets, Chavez warns, especially for a fridge. If you want to use your full-size fridge, make sure there’s an outlet that can handle it. And you may have to give up your icemaker.

If you hope to use the garage, check with your contractor first. This space often ends up becoming a workshop and break room for your remodeling crew.

If You Lack a Water Source:

If you don’t have a suitable water source inside your home, and you’re remodeling during warmer months, you can set up a sink/wash area outside, which works nicely if you decide to use your grill a lot.

For less than $100, you can pick up a folding table outfitted with a faucet and sink that connects to your garden hose.

But wherever you locate your temporary wash area, keep a utility bin (like the kind you see in restaurants for bussing tables) handy to load up and lug dishes.

Here’s a cool hack: Use a cooler with a drain plug. It can function as a utility bin and wash basin; use a hose outside or placing it in a tub or shower.

Ask Your Contractor for Help:

Check with your pro before you buy any supplies or break your back moving your refrigerator. Most contractors are happy to move and reconnect your fridge, and may be able to hook up a temporary utility sink for you to use in another room or outside.

Many remodelers also will loan clients amenities like a two-burner countertop stove, and some even include a temporary kitchen setup as part of their remodeling services.

Make a Plan for Countertops and Drawers:

For countertops: A folding table or well-protected dining table functions just fine for prepping meals and holding small appliances that don’t generate too much heat (think blender, microwave). With a little forethought, you can even relocate your existing countertop and cabinets after demolition begins, which is what Chavez did. But watch for rough spots that can damage your floor or give you a nasty splinter.

For drawers: Plastic storage bins or portable drawers on wheels that you can stash under the table, or a rolling cart with drawers provide a dust-free home for dishes, cooking utensils, ready-to-eat snacks, non-perishables, and basic cooking supplies.

Mallory Danks and her husband, who took on a three-month DIY kitchen remodel, made sure every cooking item had a place in rolling plastic drawers, making it easier to transition their living room back to its intended purpose after meals.

“You don’t want to feel like you’re living in your temporary kitchen,” she says. Wheels make it easy to roll the clutter away.

Stock It With Double-Duty Items:

Without a full-size stove or oven, you’ll have to MacGyver your meals, Danks says, and recommends thinking beyond your trusty microwave. Think multi-purpose (which will also make cleanup easier). For example:

• An electric kettle heats water for tea, oatmeal, soups, and even coffee if you use a French press (no need for a clunky coffee machine!).
• A newer electric pressure cooker does everything a range can — saute, roast, simmer, and warm. It also works as a slow cooker.
• A blender does both smoothies and sauces.
• An electric skillet makes everything from pancakes to pot roast.
• Microwave-safe dishes to store, reheat, and serve.
• Long-handled tongs flip burgers and serve salads.
• A glass measuring cup to also heat water in the microwave or scoop up sauces and soups.

The key is to be able to do the most common cooking tasks that make meal preparation easy for you (and to do that without over-packing your makeshift cooking zone). Otherwise, you might feel overwhelmed.

But if the idea of living without your pour-over coffeemaker makes you cry a little inside, then include it. Life is going to be disruptive enough without giving up the little joys.

Protect Furnishings in the Temporary Location:

There’s a reason wall-to-wall carpeting isn’t standard kitchen fare. Cooking and cleanup are hard on flooring and furnishings, so relocate or cover anything of value in your temporary kitchen, recommends Chavez.

“I learned the hard way that you should cover your dining room table,” she says, recalling a hot pot that left a mark.

Don’t forget to remove area rugs to keep them free of stains and make cleanup a little easier. Or, use an older rug that you plan to replace after the remodel.

Make Cleanup Easy (Without Hurting the Earth):

Stock a minimal supply of dining and cooking supplies. Allot each family member just two plates, bowls, cups, drinking glasses, and sets of utensils. That way, doing the dishes becomes a necessity after a meal or two, and there’s never too many dishes to be daunting.

But, still, there’s something to be said for using disposable gear when you’re living sans-dishwasher. For those times, buy disposable plates and utensils that are biodegradable, made from sustainable materials, or even compostable. Plus you’ll be using a whole lot less water.

Let the adventure begin!

Are you getting the home tax deductions your’re entitled to?

February 22, 2017

By: Dona Dezube

Here are the tax tips you need to get a jump on your returns.

Owning a home can pay off at tax time.

Take advantage of these home ownership-related tax deductions and strategies to lower your tax bill:

Mortgage Interest Deduction:

One of the neatest deductions itemizing homeowners can take advantage of is the mortgage interest deduction, which you claim on Schedule A. To get the mortgage interest deduction, your mortgage must be secured by your home — and your home can be a house, trailer, or boat, as long as you can sleep in it, cook in it, and it has a toilet.

Interest you pay on a mortgage of up to $1 million — or $500,000 if you’re married filing separately — is deductible when you use the loan to buy, build, or improve your home.

If you take on another mortgage (including a second mortgage, home equity loan, or home equity line of credit) to improve your home or to buy or build a second home, that counts towards the $1 million limit.

If you use loans secured by your home for other things — like sending your kid to college — you can still deduct the interest on loans up $100,000 ($50,000 for married filing separately) because your home secures the loan.

Prepaid Interest Deduction:

Prepaid interest (or points) you paid when you took out your mortgage is generally 100% deductible in the year you paid it along with other mortgage interest.

If you refinance your mortgage and use that money for home improvements, any points you pay are also deductible in the same year.

But if you refinance to get a better rate or shorten the length of your mortgage, or to use the money for something other than home improvements, such as college tuition, you’ll need to deduct the points over the life of your mortgage. Say you refi into a 10-year mortgage and pay $3,000 in points. You can deduct $300 per year for 10 years.

So what happens if you refi again down the road?

Example: Three years after your first refi, you refinance again. Using the $3,000 in points scenario above, you’ll have deducted $900 ($300 x 3 years) so far. That leaves $2,400, which you can deduct in full the year you complete your second refi. If you paid points for the new loan, the process starts again; you can deduct the points over the life of the loan.

Home mortgage interest and points are reported on Schedule A of IRS Form 1040.

Your lender will send you a Form 1098 that lists the points you paid. If not, you should be able to find the amount listed on the HUD-1 settlement sheet you got when you closed the purchase of your home or your refinance closing.

Property Tax Deduction:

You can deduct on Schedule A the real estate property taxes you pay. If you have a mortgage with an escrow account, the amount of real estate property taxes you paid shows up on your annual escrow statement.

If you bought a house this year, check your HUD-1 settlement statement to see if you paid any property taxes when you closed the purchase of your house. Those taxes are deductible on Schedule A, too.

PMI and FHA Mortgage Insurance Premiums:

You can deduct the cost of private mortgage insurance (PMI) as mortgage interest on Schedule A if you itemize your return. The change only applies to loans taken out in 2007 or later.

What’s PMI? If you have a mortgage but didn’t put down a fairly good-sized down payment (usually 20%), the lender requires the mortgage be insured. The premium on that insurance can be deducted, so long as your income is less than $100,000 (or $50,000 for married filing separately).

If your adjusted gross income is more than $100,000, your deduction is reduced by 10% for each $1,000 ($500 in the case of a married individual filing a separate return) that your adjusted gross income exceeds $100,000 ($50,000 in the case of a married individual filing a separate return). So, if you make $110,000 or more, you can’t claim the deduction (10% x 10 = 100%).

Besides private mortgage insurance, there’s government insurance from FHA, VA, and the Rural Housing Service. Some of those premiums are paid at closing, and deducting them is complicated. A tax adviser or tax software program can help you calculate this deduction. Also, the rules vary between the agencies.

Vacation Home Tax Deductions:

The rules on tax deductions for vacation homes are complicated. Do yourself a favor and keep good records about how and when you use your vacation home.

If you’re the only one using your vacation home (you don’t rent it out for more than 14 days a year), you deduct mortgage interest and real estate taxes on Schedule A.

Rent your vacation home out for more than 14 days and use it yourself fewer than 15 days (or 10% of total rental days, whichever is greater), and it’s treated like a rental property. Your expenses are deducted on Schedule E.

Rent your home for part of the year and use it yourself for more than the greater of 14 days or 10% of the days you rent it and you have to keep track of income, expenses, and allocate them based on how often you used and how often you rented the house.

Homebuyer Tax Credit:

This isn’t a deduction, but it’s important to keep track of if you claimed it in 2008.

There were federal first-time homebuyer tax credits in 2008, 2009, and 2010.

If you claimed the homebuyer tax credit for a purchase made after April 8, 2008, and before Jan. 1, 2009, you must repay 1/15th of the credit over 15 years, with no interest.

The IRS has a tool you can use to help figure out what you owe each year until it’s paid off. Or if the home stops being your main home, you may need to add the remaining unpaid credit amount to your income tax on your next tax return.

Generally, you don’t have to pay back the credit if you bought your home in 2009, 2010, or early 2011. The exception: You have to repay the full credit amount if you sold your house or stopped using it as primary residence within 36 months of the purchase date. Then you must repay it with your tax return for the year the home stopped being your principal residence.

The repayment rules are less rigorous for uniformed service members, Foreign Service workers, and intelligence community workers who got sent on extended duty at least 50 miles from their principal residence.

Energy-Efficiency Upgrades:

The Nonbusiness Energy Tax Credit lets you claim a credit for installing energy-efficient home systems. Tax credits are especially valuable because they let you offset what you owe the IRS dollar for dollar, in this case, for up to 10% of the amount you spent on certain upgrades.

The credit carries a lifetime cap of $500 (less for some products), so if you’ve used it in years past, you’ll have to subtract prior tax credits from that $500 limit. Lucky for you, there’s no cap on how much you’ll save on utility bills thanks to your energy-efficiency upgrades.

Among the upgrades that might qualify for the credit:

• Biomass stoves
• Heating, ventilation, and air conditioning
• Insulation
• Roofs (metal and asphalt)
• Water heaters (non-solar)
• Windows, doors, and skylights

File IRS Form 5695 with your return.

When it’s time to get an accountant to do your taxes!

February 18, 2017

By: Alaina Tweddale

Do you need a CPA? Or will a regular accountant do?

You are soooo dreading doing your taxes this year. Gone are the days when you used to sit down with a glass of wine and fill out your 1040 EZ. Remember that time you finished and hit the “submit” button just as you swallowed the last sip?

Not this year. Unless you want to pay a ton in taxes, you’re going to have to itemize. You did it last year, and it wasn’t too bad. But this year, you did some freelancing. And you moved. And it’s going to take a whole lot more time than one glass of wine.

Maybe it’s time to hire a pro. But do you really need a certified public accountant? And can you justify the expense?

The Differences Between CPAs and Other Tax Experts:

First you need to know there are different types of tax experts. And not all accountants are CPAs. So if you’re thinking that an independent CPA and someone at H&R Block or Jackson Hewitt (or your buddy who studied accounting in college) are pretty much the same, don’t count on it. Basically,

• An accountant is someone who studied accounting.
• CPAs are accountants who pass rigorous testing from their state board on a regular basis. The designation usually requires a degree. Not every CPA specializes in taxes.
• An “enrolled agent,” or EA, is an accountant who has received certification from the IRS. Being an EA doesn’t require a degree like CPA. But it does verify they know tax law.
• A tax preparer at pop-ups like H&R Block or Jackson Hewitt is trained on tax software to help taxpayers file their returns. They aren’t required to be CPAs or EAs.
• Only CPAs and EAs can legally represent you if the IRS challenges your return.

There’s nothing wrong with visiting a pop-up preparer like H&R Block if your return isn’t all that complicated, says Cathy Derus, CPA and founder of Brightwater Accounting in Illinois.

“It’s when you start generating other income — perhaps you launch a business or own rental property — [or experience a big financial change] when it makes sense to ask for a little extra help,” she said.

When It’s A Good Idea to Hire a Tax Pro:

When you buy your first house — Many of the expenses related to buying a home and having a mortgage are deductible. But only if you itemize. And that’s what the experts are best at.

When you move to a new state — There’s a good chance you’ll have to file two state returns for the year you move. And each state is a little bit different in terms of state tax owed — zero in some states, a flat amount in others, and graded by income bracket in most.

When you become a landlord — “When you own investment property, you become a small business owner,” says Tai Stewart, accountant and owner of Saidia Financial Solutions in Houston. That means new records to keep and a new tax form, Schedule E, to complete.

When you buy a vacation property — Especially if you rent it. And especially if it’s in a different state.

When you work from home — There’s a lot of potential money-saving deductions that can vary widely depending on the type of business and how much space it takes up in your home. “If you have a Tax TipAvoid the onerous record keeping for the regular home office deduction with the simplified method — $5 per sq. ft. up to 300 sq. ft., capped at $1,500. Trade-off: Much less paperwork, but possibly a smaller deduction, too.home office, you can deduct for the square footage you use for work as well as a portion of your utilities, mortgage interest, and property taxes,” says Stewart.

When you make home improvements — Energy-efficient upgrades like installing a new heating and cooling system, water heater, or insulation may qualify for tax credits. But that can change depending on the year. Same goes for medically necessary home improvements that aren’t paid by your employer or insurance.

When your home’s value is reassessed — The tax man doesn’t always get it right, and sometimes your home may be valued at more than it should be. An expert will be able to pull the data together to appeal it.

So, How Much Do Accountants Cost?

H&R Block will do your taxes for about $150, while a CPA or EA may add $100 or more to that fee ($260 on average last year).

You can definitely DIY all these tax scenarios and save the fees, but with CPAs and EAs, the extra cost may be worth it. Especially if you run your own business. Or you own more than one home. “An accountant can help you analyze your spending choices and even act as a consultant,” says Stewart. Best of all, they’ll be by your side if the tax man ever comes after you. That alone could be priceless if the time comes.

Oh, and one last tip: If you decide you want to hire a CPA or EA, best not to wait until the last minute. You may not find one.