Avoid Contractor Scams

By Author: Susan Hu
Total Articles: 4762
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Summer and fall are the busiest times of the year when it comes to home renovations but it also means high season for contractor scams. This may come as a surprise to some because it's not that often heard of; many people unfortunately, are ashamed of reporting that they've been duped. Often times, like with other types scams it's often that seniors are the most likely to be victimized -- but anyone may fall prey to a slick grifter. And once ripped off, it's highly unlikely to get that money back. So, how can you avoid a contractor scam? Knowing is half the battle. By being informed about what is typical to expect when exploring hiring options of a contractor and what isn't - these are the clues that should help to determine when the alarm bells should go off.

When to be Suspicious

Anyone who knocks on your door and offers a too good to be sounding deal because they are in your area already doing other projects is a prime example of an "opportunity" to be leery of. Be on the alert if the offer can only be made that particular day. Keep in mind that the law in most areas requires that such sales persons must ...
... be licensed with a business permit.

A representative from a large company such as a serviceman or repairman will be in uniform with an ID badge, along with business cards that have a physical address of the company. These aren't guarantees of trustworthiness but they certainly are more clues to legitimacy. If the offer seems legitimate and you'd like to investigate further, remember that it's important not to feel pressured into anything until you are satisfied with obtaining all the necessary information.

Is there a preferred method of payment? It's better not to pay in cash and if the demand is cash only, that's dodgy. Using a credit card or check creates a record of the transaction - don't forget to get receipts each time. Expect to pay 10 to 20 percent of the total job costs as a deposit after the contract is drawn up and signed. Be wary if more than that is demanded. If the project is comprised of many stages with a longer timeline, it's likely the contractor will ask for payments to cover material costs. If so, make sure to set installments to align with completed tasks and include all of this in detail in the contract.

Some terms to watch out for:

"Extra materials"
"Working nearby"
"Cash only/amazing or special/one day only/on the spot deal"
"Standard deposit (over 20%) "

The real way to protect oneself from unscrupulous charlatans is to know the best way to hire a contractor.

To start, the smart thing to do is to get recommendations from trustworthy sources like friends or neighbours. Ask around your community; businesses that use contractors such as real estate agents, insurance companies and local hardware stores can be good resources along with websites that offer prescreened company listings. Once you have found some companies of interest, it's important to check references. It's also a good idea to make sure there are no complaints against the company you're interest in and also that they are both insured and bonded. Ask if they offer warrantees on the completed work.

Call your local Better Business Bureau to confirm that the company has no complaints against them and if possible, visit a site of one of their current projects. Discuss which subcontractors or trades will also be required for your project. Larger projects may require specific trades such as a tile setter, plumber, electrician, etc. Some of these types of trades legally need a license to work. Such a license typically entails fulfilling certain educational requirements, competency tests and a paying a fee. If licenses are required, ask for the trade license number, which differs from a business or occupational license number. Most companies are bonded and insured meaning that they carry liability insurance (should property be damaged or bodily injuries arise), worker's compensation (to cover injuries) and are covered with alternate funds (bonding) for use in projects that go awry. Don't just take someone's word for it, call the contractor's insurance company and have them mail you a copy of the certificate so you know for sure the policy is in effect.

Make sure to interview at least three prospective contractors and get a detailed written estimate from each. It should be include breakdowns for materials, payment schedules, completion dates, etc. - not just a single written dollar amount for the total. Make sure that you're getting an estimate of similar scope, materials, etc. for each proposal because the type of materials used will make a big difference the in the final cost. Some contractors may try to undercut costs by using the cheapest materials or outlining only very basic work required. Don't fall for the lowest number - this will most likely cost you much more in the end. Having at least three estimates will get give you a closer idea of the true cost.

When you are certain about who you want to sign with, make sure everything is clearly laid out in the contract. The breakdown costs of all services, types of materials to be used, start and completion dates - including clean-up of the site - along with any warranty information. If permits are required, have the contractor obtain these. You may wish to include on the contract that you will hold back 10 percent of the total fee after the project has been "completed" for one month after the final finish date. This action is to protect against having liens placed on your home. If the main contractor never paid them, subcontractors are allowed to place liens against the home they worked on. This also allows time for the work to be properly inspected. It may be wise to hire a lawyer to go over the contract before signing should this be a large intensive project. Make sure that as the project progresses, keep every single scrap of documentation such as: proof of licensing, bonding, insurance, payments, invoices, communications, and of course, the contract.

With any business deal the old adage is true "let the buyer beware" but there's no need to get paranoid. By knowing what to expect and what to be wary of, first time renovators have nothing to fear when it comes to hiring the right company. With the right tools to select the best contractor, it's possible to build that dream house.
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