At this stage of the game, don't discount your gut. For example, if the contractor looks sloppy or unprofessional, trust your instinct. Don't spend time trying to figure out why you feel this way. Move on to the next one.

Check the references
Once you narrow down your list, call the references. Ask for three references from different periods of time. Since small contractors often change their staffs quickly, a reference from four years ago might not apply to the staff a contractor has today.

You can also contact the Better Business Bureau to check for any complaints against the contractor.

When talking to references, ask open-ended questions. "Don't ask, 'Do you think the contractor was a good contractor?'" says Winans. "Most people will say yes. Ask a question like, 'Tell me about something that occurred that made you think this was a good contractor.'"

Eugene Baldwin, a home improvement specialist with Clinton, Md.-based contracting firm Amerideck, suggests taking it a step further and going to see the work the contractor has already done, if possible.

Be wary of contractors that come looking for you. Also, get everything in writing and check the contractor out with trade organizations to see if he is legitimate.

If anyone demands all of the money upfront, steer clear. Likewise, a contractor that demands to be paid in cash is one you'll want to avoid as well. Any contractor you use should have a physical mailing address rather than a post-office box.

While cost is an important factor, don't assume that the contractor who offers the lowest price is the best one. If two contractors offer similar estimates and a third offers one that's extremely low, be wary. An experienced professional wants to get your business, but isn't likely to undercut himself in the process.

Once you make your choice, look carefully at the contract. If you're not sure about something, ask. Make sure it describes the job in detail and lists all materials that will be used. Also, make sure it lays out what is included and what is not.

The contract should also specify what will be done when the job is complete. You don't want to be stuck cleaning up after the contractors. If a contractor fails to pay for materials, a lien can be placed on your home. To avoid this, add a release-of-lien clause to your contract. Finally, any warranties or guarantees should be spelled out in the contract as well.

While it may seem like you are going through a lot of work, consider the amount of money you're planning to spend on your project.

The more time you invest upfront, "the less likely it is you're going to be scammed," says Winans.