10 Contractor Scam Warning Signs

Natural disasters bring out the very best and the worst in people. Sad to say, the disorderly environment they produce is a prime setting for illegitimate builders, sometimes called “storm chasers” or “fly by night” contractors. “That is a vulnerable time for homeowners,” says Rick Lopes, chief of public affairs at the California Contractors State License Board. “Be very careful about giving somebody else too much electricity.”

After something really traumatic, it seems sensible that a homeowner would want things to return to normal as quickly as possible. Nonetheless, it’s important to take the time to find the appropriate person to perform the job correctly. Do additional research if something doesn’t feel appropriate. Be mindful, and you’re going to prevent scams and the builders who get jobs only when people are desperate.

Below are some key warning signs to search for.

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Federal Emergency Management Agency

1. Lack of licensing. Request proof or look online at your state licensing board’s site to be certain a possible contractor has a permit to work on your region if a permit is necessary. (Find out about your state’s contractor licensing requirements here.) Lopes warns that builders coming door to door might not be from a local, based business, and many state licenses don’t allow builders to run in another state.

Of course, there is always a danger even with someone who’s licensed. “Just because someone has a permit and insurance doesn’t necessarily mean they will do the very best job,” says George “Geep” Moore, remodeler chairman at the National Association of Home Builders (NAHB). “But it does mean they are a legitimate contractor and they are doing the right thing.”

2. Unbelievably low bids. Before hiring someone to fix up your home, you’re going to want to get no less than 3 bids on your job. “Have your choices in mind before you get your quotes,” says New Jersey contractor Lucy K.H. Kalian. The more details you can provide a contractor, the more likely it is that you are going to get a precise estimate. The Better Business Bureau (BBB) suggests using the very same specifications, materials and labor for each bid.

“If you buy a bid that is a lot less than others, there is usually a reason for this,” says Lopes. “The cheapest deal is seldom the best deal.” The contractor might be cutting corners, might not have insurance, might use bad substances or might pay employees under the table. Regardless, you do not want to get involved.

3. Requiring a massive deposit. Each state has different regulations regarding the amount a contractor can request an up-front deposit — it ranges from less than 10% to around 30 percent. Check your country’s law regarding contractor deposits before agreeing to pay an especially large amount up front.

4. No permanent place of business.
Not every contractor who might come knocking on your door is going to have scam — a few might have the abilities to repair your home, but they might not know how to deal with all the complications that come with a natural catastrophe and water damange. Be extra cautious and make certain that anybody who helps you following a natural catastrophe is qualified and state licensed. The NAHB advises that any contractor you work with should have a physical office (not only a P.O. box), a mailing address, a legitimate telephone number and an email address. This can help you find out if they are licensed and will ensure that you can contact them constantly.

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Federal Emergency Management Agency

5. No contract. The judgment is unanimous — prevent anyone who says a contract is not necessary, particularly after a natural catastrophe. Make sure your contract summarizes specific work performed, materials used, a cost breakdown and a payment schedule. While a few smaller subcontractors might not work with contracts on a regular basis, the likelihood of a person getting taken advantage of in a crisis situation is high, so don’t take the risk. There are a lot of general contractors that specialize in smaller jobs, too.

6. No insurance. Every general contractor that you work with should have two kinds of insurance. General liability insurance guarantees that your property will be protected in case any damage happens during the job. Employee’s compensation insurance protects a general contractor’s employees in case they are injured on your property. Lopes advises requesting a possible contractor’s insurance policy number, then calling the insurance company to ensure the contractor has each single worker covered.

7. Inadequate references.
Get at least three references for each possible contractor and really check them. Ask about the standard of the job, how the job has stood up over time and also what it was like to work together with the person. “The second you see an inconsistency, you know [they are] a flake,” claims contractor Bill Reid of RemodelWest. Your insurance carrier can provide recommendations, but do not trust someone who shows up on your door stating they were shipped by your own insurance until you obtain confirmation from your claims adjuster. Do your research through external sources as well — local professional associations and the BBB can offer great insight.

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Federal Emergency Management Agency

8. Special deals. Avoid anyone who offers you “special” pricing, particularly if you sign on the dotted line right then and there. You do not want to rush into an agreement until you know precisely what you’re getting yourself into.

9. Cash payments required beforehand.
“Your cash is your very best leverage,” says Lopes. Protect yourself and limit the sum of money that goes into a job prior to completion. The BBB suggests never paying money — notably beforehand. Moore indicates that you carefully record how you hand out your cash and get a receipt for each payment.

10. Mechanic’s liens. Legally, an unpaid contractor, subcontractor or provider can record a mechanic’s lien against your property, which can finally force the sale of the property in lieu of compensation. “it is a means for professionals to guarantee they get paid,” says Reid. Make sure you’ve got a listing of all the subcontractors, laborers and materials suppliers that your primary contractor will be using, and request proof that everyone was paid before releasing your final payment — otherwise you could be held responsible. Homeowners can wind up paying for equipment twice otherwise — both to a subcontractor and to a provider who ended up not being compensated by said subcontractor. “You can also compose a two-party check,” says Reid. “it is a small pain, however, your contractor will need to visit the provider so as to cash it.”

More: What to Look for in a Contractor’s Deal

Resource Guide: Recovering from Sandy

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