Red Flags Before Hiring a Contractor | Real Estate Skills

As we've learned from rehabbing and flipping hundreds of properties, the success of major home improvement projects largely depends on the contractor you hire.

Yet, not all working contractors are qualified to do the job. Some may have a friendly demeanor over the phone and offer you a great deal, but then cut corners on the job site, leaving you in the dark about their progress.

With money and time on the line, it’s imperative to find a highly-qualified, competent professional you can trust with your unique job. Here are nine red flags you shouldn’t ignore when hiring a contractor for your home renovation.

• 1. Lacks Contact Information
• 2. Demands Unreasonable Payment Up Front
• 3. Solicits Your Home
• 4. Lacks Permits
• 5. Can’t Present Proof of Insurance
• 6. Refuses to Sign a Contract
• 7. Has Outdated or Missing References
• 8. Lacks a Website, Portfolio, or Reviews
• 9. Communicates Poorly

1. Lacks Contact Information

At a minimum, a reputable contractor should be able to provide you with a working phone number and an address that can be verified with the Better Business Bureau. No physical address is a common sign of an unlicensed contractor.

Many unlicensed pros can’t afford an official office and often move from area to area in order to stay in business. Beware the contractor who has a PO box or temporary address.

2. Demands Unreasonable Payment Up Front

Most contractors ask for money up front to secure your place on their calendar or begin buying materials. But a contractor who requests more than 15% or the entire sum before starting should set off alarm bells. Chances are, you may be hiring a swindler who will take your money and never return to start or complete the job.

Similarly, some fraudsters will ask to be paid in cash. Without a check or credit card statement to back you, it becomes your word versus the contractor’s in any payment dispute.

A tip for hiring to avoid getting scammed - be sure to determine a payment schedule before the work begins. A typical arrangement used by professional contractors is one-third paid in advance, one-third halfway through the job, and the final third upon completion of the project. Before the final payment, make sure that all permits have been closed, a lien waiver is signed, and all final inspections have been completed.

3. Solicits Your Home

As a general rule of thumb, contractors who make cold calls or go door-to-door do not represent legitimate businesses. Often these are phony contractors who are passing through the area in hopes of making a quick buck. These contractors may use high-pressure sales tactics, such as pushing a temporary low rate.

Another common tactic used by these contractors is claiming to have materials left over from a previous job that they wish to use on your home for a reduced cost. While this may sound like a great way to save money, you are not likely to see any of those materials or the contractor after you make a down payment on the job.

4. Lacks Permits

After accepting your project, the contractor is responsible for securing the necessary permits. If the contractor asks you to obtain the building permits, it may be because he or she is not licensed or registered with the proper state agencies. 

Some fraudsters may even waive permits as an unnecessary expense. However, completing a job without the proper permits can result in unsafe construction and expensive future repairs. Building officials can also shut down an unpermitted job.

5. Can’t Present Proof of Insurance

Workplace accidents can happen at any time during the renovation, and even the best construction crew can make mistakes. For this reason, it’s essential that the contractor holds adequate liability and workers’ compensation insurance to keep the project protected financially. 

Trustworthy contractors take care to invest in their reputation. Therefore, a contractor should have no problem showing you proof of his or her license and insurance. If a builder can’t present any documentation, move on to the next candidate.

This short video explains how contractor's general liability insurance works:

6. Refuses to Sign a Contract 

Pass on the contractor who is unwilling to sign a written contract. Verbal contracts allow shifty builders to wiggle on price, job quality and completion dates. Also, verbal agreements make legal action difficult in the event of fraud or unfinished work. 

Licensed and reputable professionals are willing to sign a contract and may even help you write it in some cases. The contract should include all of the project details in writing, including the scope of the work, types of materials to be used, detailed timeframes, the contractor’s license number, warranties, guarantees, and final costs. Ensure that verbal commitments are written into the contract.

7. Has Outdated or Missing References

Desirable contractors should have a constantly revolving list of new and satisfied customers. Checking with previous customers is one of the best ways to learn about the quality of work and level of professionalism you can expect to receive. 

Ask to speak with recent clients, home builders, subcontractors and suppliers that a contractor has worked with.

Be sure to verify at least three references. If a contractor can’t provide current references from jobs similar to yours, avoid moving forward with that prospect.

 

"Successful investing is about managing risk, not avoiding it." -Benjamin Graham

8. Lacks a Website, Portfolio, or Reviews

Always do your due diligence before hiring a general contractor to work on your home. Professionals should have an online presence, portfolios, and reviews that you can use to vet them. Be suspicious of portfolios with too few projects, no before and after photos, and grainy images.

Here's a clip that reinforces this red flag when hiring a contractor:

9. Communicates Poorly

You’ll want to work with someone who keeps you in the loop during the entire project, so looking for a contractor with great communication skills is key. A good contractor should be willing to tell you about the job’s progress and respond to your phone calls within a reasonable period. 

You’ve found a great contractor when he or she arrives on time and the project is running according to — or ahead of — schedule. If communication is vague, difficult to understand, or delivered with ill temper, the contractor is not doing an essential part of the job, and it may be time to find a new hire.

Ultimately, it comes down to hiring someone you feel good about, both personally and professionally. You want a trustworthy professional whose workmanship will create a beautiful residence to be proud of for years to come. For more red flags you shouldn’t ignore when hiring a home contractor, see the accompanying infographic.

Author bio: Tim McKenna is an account manager at CraftJack, which connects contractors with homeowners who are looking for assistance with home projects. McKenna works with contractors to find the best lead generation solutions for their businesses and offers helpful advice when needed.