1. Check references
Ask any contractor how long they have been in business and for a list of prior customers and then call each one to make sure that the work was completed on time and on budget. Go out and take a look at the work that was done so you can judge the workmanship yourself. You may also consider doing a credit check on the contractor as well. Also make sure that the contractor is licensed and that they carry insurance should any accident occur, causing injury to any worker or damage to your property or any neighbour's property.
2. Will the contractor be obtaining a building permit?
In most renovations, at least one permit is needed, whether electrical or building, so be extremely wary of anyone who tells you that they do not need any permits. By applying for and obtaining a proper permit in advance, you can be sure that the City will do a proper inspection when the work is completed to make sure that everything was built correctly. This will be important for any potential buyer if you are planning to sell after the renovations are complete. In my experience, title insurance companies will always question when purchase prices dramatically increase and if they hear that there was a renovation, they will immediately ask for proof of permits. If these are not produced, then it is unlikely that any future buyer would be insured if the work turned out to be faulty and the City later required major repairs.
3. No cash deals
Contractors or owners may offer to do the work for cash in order to obtain a discount. Besides this being against the law, you will have no proof of payment if the work is poorly done and problems arise later. You will also likely not have a written contract that you can point to for assistance.
4. Tie payments to work milestones
Do not pay more than 10% as a down payment, and then make sure that you do not pay out more than the work completed at different intervals. As explained to me by a construction project manager and home inspector, make sure that the contractor also provides you with proof at every stage that any sub-trade that is being used has also been paid for the work done.
5. Make sure everything is clear and in writing
It goes without saying that you must have a written contract setting out clearly the work that is being done, everything that is to be included and the stages of payment. If you expect a certain type of handle for your cabinets, get it in writing so that there is no confusion. If there are appliances, include the brand name, model number and colour. The contractor should restore any damage to the driveway or landscaping as a result of the work completed. If you are getting a warranty, how long will it be for and what will it cover. If there are any warranties being supplied by sub-trades, these should also be transferred to you upon completion of the work. Consider an arbitration clause to solve any disputes, to avoid costly legal proceedings. - by Mark Weisleder.