If you own a home there is a very good chance you’ll need a contractor at some point. And when it comes time to hire that contractor you want to be sure you are not only getting a good price and the quality of work you’re expecting, but you want to know if your contractor is a fraud.
As a contractor myself, I find it upsetting that my industry is so rife with fraud. So many people are taken advantage of and it gives all of us legitimate contractors a bad reputation. It makes it hard to trust any contractor.
According to a new study, one in 10 Americans has fallen victim to a contractor scam. That’s 10% of the general public, meaning approximately 33 million people have been defrauded by a contractor in some way shape or form. Baby-boomers and Millennials suffered the worst at 15% and 13% respectively. Gen-X and Gen-Z faired better, but any fraud is too much fraud.
Signs Your Contractor is a Fraud
How can you avoid being scammed? No matter what their scam is there are some tell-tale signs you are dealing with a shady contractor. If you get a whiff of one of these seven signs your contractor is a fraud your antennae should go up.
That being said, a contractor who shows one of these signs isn’t necessarily a fraud. There may be good reason why they are doing it, but you should dig into the details and understand the why before proceeding. When you see multiple signs that’s when it’s probably safer to walk away.
They Won’t Pull Their Own Permits
If a contractor is going to be doing work on your home that requires a permit then they should be pulling the permit themselves. That protects you against substandard work. Yes, it will slow things down and cost a bit more, but it’s for your protection.
If your contractor refuses to get permits (which require inspection of his work by a city or county) that is a red flag. What are they hiding? Moreover, if they ask you as the homeowner to pull the permit for them that may be a sign that they aren’t licensed properly and, therefore, unable to pull their own permits. Another major red flag.
They Won’t Show Licenses or Insurance
Most contractors require some kind of licensing. It could be a state license or city license, it just depends on your municipality. If a potential contractor won’t furnish a valid copy of their license then it’s best to simply move on. For a handyman or landscaper it’s probably no big deal, but for a major renovation licenses are almost always required.
Did you know that if your house was built before 1978 your contractor is required to have a RRP license from the EPA? This license makes sure the contractor knows how to follow lead-safe work practices to protect you and your family. Many people have no idea and hire unqualified contractors here.
The same goes for insurance. General liability insurance protects you against damage they may inadvertently do to your home and belongings. Worker’s compensation insurance protects you from being sued by their employees or subcontractors who may get hurt on the job. You want to know that they have appropriate insurance.
Ask for Certificate of Insurance (COI) from your contractor. This will show what insurance they have, what levels of coverage they have, and when it expires. It’s a standard form that is easy for them to get from their insurer.
They are “Working in the Area”
When a contractor comes to your door telling you they’d love to give you an estimate because they are “working in your area” this may be a sign of a fly by night operation. Admittedly, I have used this tactic (as have other legitimate contractors) to drum up business in a neighborhood where I would like to be working more or when we are expanding into new areas. So, this isn’t a sure fire warning sign.
If a contractor comes to your door with this explanation just make sure you check them out to see if they are legitimate before you sign a contract on the spot. Take your time and don’t sign anything on this first meeting before you have a chance to do your due diligence.
They Offer Low-Ball Bids
You want to be a savvy consumer, right? That means getting multiple estimates for work so you have a sense of what the price should be. having just one quote doesn’t give you any idea if the price is too high, too low or just right.
I recommend getting at least three estimates. If all of them are within 10-20% of each other then you can usually feel confident that the scope is similar and everyone is legitimate. If, however, you get one extremely low price that should be a HUGE warning sign that something is not right.
In these cases it’s usually one of two things that is happening:
- The scope isn’t the same – In this case the contractor left something out of the scope
- They purposely undercut their competition – In this scenario they are just trying to get the job and don’t care what the actual costs of the job are
When this happens the result is usually the same. They will inevitably come back during the course of the project with massive change orders that will likely end up costing more in the end than the pricier initial estimates you dismissed.
Or they will stop work when they realize how much money they are losing on the job leaving you stranded with a half finished project and an MIA contractor.
They Don’t Do Written Estimates
“We don’t do written contracts, a handshake is all I need. After all I trust you.” Nope. Don’t do it. Don’t engage a contractor without a clearly worded contract that spells out the scope of work in detail and shows the prices for everything.
Contracts should also cover how change orders are handled. Is this a Fixed Price contract or Costs+ (where the contractor submits receipts for the work and you pay those receipts plus a markup to cover their hard work). Can the contractor engage sub contractors? Don’t sign anything until it is abundantly clear to all involved parties what work is going to be done, by whom and for how much…in writing.
They Require Massive Deposits
Some jobs require big deposits while others require a smaller percentage deposit. It’s your job as a savvy consumer to know what is appropriate for your project. The contractor will need some money upfront to cover their out of pocket costs so they can go buy things for you and to defray some of their costs for mobilization and pre-construction work.
For a typical remodeling project a deposit of 10% to 20% is common and expected, but a very large percentage of 50% or even 100% can be a red flag that your contractor may just be trying to take your money and run.
Window replacement more commonly requires deposits between 20% and 50% regularly because the contractor is buying your product and it’s not returnable by them so if you don’t pay they are stuck with a bunch of windows they can’t use.
It’s best to avoid any deposit above 50% for most contractors unless there is a special circumstance. This keeps you safe from a contractor running away with your money. If they are asking for lots of money upfront proceed with caution and understand why.
They Have No Reviews or Website
You looked up your contractor on-line, right? They have some kind of website, even if it’s basic? Do they have any reviews on Google, Yelp, Angie’s List, NextDoor, or Houzz? Contractors don’t need hundreds of 5-star reviews, but if they don’t have any reviews that can be a red flag.
You’ve been in business for 10 years and have zero reviews?? How can you be sure they didn’t just start this business last week and are lying about their experience.
Additionally, if they have bad reviews they are worth reading and understanding. Check if they replied to the bad reviews and if the response makes sense. Don’t just rely on a book of “testimonials” they carry around with them because those can easily be fabricated. Do your homework.
Final Thoughts
Remember not every contractor is out to get you. Working with a contractor can really be a pleasure if you find the right one. Knowing if your contractor is a fraud is not too difficult to tell if you look for these signs above.
One sign is a little warning sign, two is concerning and three should be a blaring red light telling you to run the opposite direction. If you find the right contractor your project can even be enjoyable! You just have to do the hard work of vetting contractors to find the one that stands above the rest.
Founder & Editor-in-Chief
I love old houses, working with my hands, and teaching others the excitment of doing it yourself! Everything is teachable if you only give it the chance.