While most contractors are honest professionals, a few bad apples can turn your dream renovation into a nightmare. As a homeowner, you must be vigilant to protect yourself from unscrupulous people trying to exploit your trust and hard-earned money. This guide will help you identify unscrupulous tactics and red flags as you learn how to avoid contractor scams.
Identifying Contractor Red Flags
Before signing a contract or handing over money, look for little warning signs indicating a contractor is not trustworthy. You have a lot of money on the line, so it behooves you to watch the process carefully.
Even if you don’t see any warning signs from our list, secure a short list of references for any contactor you may hire. Then, follow up and contact those references to ask specific questions about the contractor. Such as:
- Did workers show up on the job site on time?
- Did previous customers experience permitting delays before or after the job?
- Was the contractor responsive by phone or text to handle issues that arose?
- Were there any quality issues or warranty issues?
Don’t be afraid to ask hard questions. You’re getting reading to spend good money with someone you barely know.
Shabby Equipment
One of the first indicators that a contractor may not be reliable is their appearance and the condition of their equipment. While not every reputable contractor will have a truck, uniforms, or the latest technology, how they present themselves and maintain their tools is telling. A lack of professionalism could translate to subpar work.
The Low-Ball Offer
When reviewing bids from multiple contractors, beware of offers that seem too good to be true. A bid significantly lower than the rest can indicate that the contractor is inexperienced or knows how to cut corners.
Some unscrupulous contractors use a low initial bid to win the job and then add costs later. Others use inferior materials that are cheap or skip essential steps to keep costs down.
There are also scams in which contractors start the project but abandon it before it’s complete. Other contractors are inexperienced and do a poor job, leaving you with an expensive repair.
If the person says they have a “special low price” that you should keep a secret, that’s a sign to walk away.
Second-Rate Materials
Contractors who claim to have discounted materials on hand are likely using materials that are low quality, fail to meet building codes, or that they obtained through questionable means. Reputable contractors typically order materials specifically for each job rather than keeping large inventories.
If contractors insists on using materials they already have, homeowners should ask for detailed information about the products and verify their quality independently.
High Up-Front Payments
While it’s common for contractors to require a deposit, especially for custom-ordered materials, be cautious of requests for large up-front payments. A general rule of thumb is to avoid paying more than 20% of the total project cost before work begins.
Contractors who demand a large payment beforehand may be trying to secure funds for other projects or may not intend to complete the work as promised. Check that payment schedules are clearly outlined in the contract and tied to specific project milestones.
Cash-Only Transactions
Contractors who insist on cash-only payments or offer discounts for cash should raise immediate red flags. This practice often indicates that the contractor is avoiding taxes, operating without proper insurance, or using your job to fund another. It leaves homeowners without a paper trail, making it difficult to prove payment if disputes arise later.
Legitimate contractors are willing to accept checks, money transfers, or credit cards and provide detailed receipts for all transactions.
Lack of Physical Office or References
Contractors who operate solely with a cell phone and post office (P.O.) box can be difficult to track down if issues arise. Homeowners should look for contractors with a physical office, even if it’s a home office, and verifiable local references.
Before hiring, homeowners should check with the Better Business Bureau (BBB) and their local Home Builders Association for complaints, read reviews on trusted review sites, and verify the contractor’s license with state licensing boards. If possible, reach out to previous clients.
Pressure to Sign Immediately
High-pressure sales tactics are a common red flag in contractor scams. Legitimate professionals understand that homeowners need time to review contracts and compare bids. Contractors who push for immediate signatures or claim their offer is only good for a limited time often try to prevent homeowners from doing due diligence.
Many states have “cooling-off periods” that allow homeowners to cancel a contract within a few days of signing. Always read over a contract and ask questions before you sign.
Warning Signs During the Project
Even after carefully vetting a contractor and signing a contract, homeowners should remain vigilant throughout the project. Certain behaviors or issues that arise during the work can indicate problems.
Unexpected Price Increases
Once a contract is signed, the price should remain firm unless the homeowner changes the scope of the work or the job is “cost-plus.” Contractors who say materials grew more expensive or that you need additional work without prior agreement may be inflating the project’s cost.
You aren’t responsible for their underbidding or cost estimation mistakes.
Contract Violations
A contractor attempting to alter the agreed-upon payment schedule or violate the contract terms can indicate cash flow problems or poor project management.
Homeowners should firmly adhere to the original contract terms and resist pressure to make early payments or accept substandard work. Submit your final payment only when you’re satisfied the job is complete.
Subpar Materials or Workmanship
During regular walk-throughs, pay attention to the materials used and the quality of work performed. If the materials don’t match the contract or the work appears shoddy, address these issues immediately with the contractor.
For example, a scammer may use ⅜-inch plywood where the contract calls for ⅝-inch. Or a 2-inch layer of gravel may be added when a 4-inch layer is specified. These tactics save the contractor money but leave you with a sub-par construction.
Document your concerns with photos, emails, and text messages if you dispute the work later.
Payment Issues With Subcontractors
If subcontractors or material suppliers approach homeowners directly about payment issues, it can indicate that the primary contractor is not managing the project’s finances.
Always communicate with the main contractor about these concerns. In most cases, the subcontractors contract with the main contractor, not you, and you aren’t responsible for paying them. However, if the subcontractors remain unpaid, they could place a lien on your home. Contact a lawyer right away if this occurs.
How To Protect Yourself From Contractor Scams
Taking proactive steps can significantly reduce the risk of falling victim to a contractor scam. Use these tips to protect your home and bank account:
- Maintain detailed documentation. Keep a comprehensive record of the project. Maintain a daily journal, noting progress and any issues. Take regular photos of the work. Keep copies of contracts, change orders, communication, and receipts. This documentation can be invaluable if legal action is necessary.
- Research and verify. Before hiring a contractor, verify licenses and insurance coverage. Check multiple references, including recent and older projects, and research the contractor’s online presence and reviews. Consult with local building departments about any required permits.
- Get everything in writing. A contract should include a clear project timeline with start and end dates and specific materials, including brands and grades. It should also detail a payment schedule tied to project milestones and procedures for handling changes or disputes. Document any amendments in writing. Never rely on verbal agreements or promises.
- Be cautious with payments. Never pay in full up-front. Instead, tie payments to completion of specific project phases. Instead of cash, use checks, money transfers, or credit cards to have proof of payment. Keep receipts and records of all transactions, and consider using an escrow service for larger payments.
- Trust your instincts. Trust your gut and seek other opinions if something feels off about a contractor or their proposal. It’s better to delay a project than to rush into an agreement with a potentially untrustworthy contractor.
- Get multiple quotes. Don’t go with the first quote you receive or a quote from someone who walked up to your home to offer their services because they were “in the area.” Compare professionals and their quotes to find the best contractor for the job.
What To Do If You Suspect a Scam
If homeowners believe they have fallen victim to a contractor scam, they should take immediate action:
- Document everything, including all interactions and evidence of poor work or contract violations.
- File complaints with local law enforcement, the BBB, and state licensing boards.
- Consult a lawyer to review legal options for recovering losses or enforcing contracts.
- Consider reaching out to local media consumer advocates who may be able to investigate the situation.
- Write reviews and share experiences with neighbors and online communities to help prevent others from falling victim to the same scam.
Final Thoughts About Avoiding Contractor Scams
Navigating the world of home improvements can be challenging, but with the right knowledge and precautions, homeowners can protect themselves from contractor scams. Remain vigilant, research potential contractors, and trust your instincts before signing any contracts. If you suspect you’ve been a scam victim, contact a lawyer immediately to discuss the next steps.
