Starting a new home project is exciting, but it’s also a huge undertaking. Your contractor can make or break the renovation. Hire the wrong person for the job, and you could be living in a construction zone—or sleeping in a hotel or with the in-laws—for much longer than you ever planned. In addition, your budget might double or triple, and you could still end up having to hire a second contractor to finish the project or fix the one that was botched. That’s why you need to know when to walk—or better yet, run—from a contractor who is about to turn your home into a money pit or burn a hole in your wallet. We spoke to five experts to find out what to look for and look out for in a contractor.
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1. The contractor wants a large down payment
No one expects contractors to work for free. On the other hand, your Spidey sense should start tingling if they ask for a large down payment before they’ll start doing any work. “It is typical to collect an advance toward securing large-ticket items such as cabinetry and countertops,” but in certain states it is illegal for a contractor to exceed a certain down payment cap, explains Sarah Gaffney, design manager and project designer at Next Stage Design in San Jose, California. With or without those regulations, you should expect to fork over a down payment of about 10–25 percent of the total project cost.
2. The contract is vague
The contract presented by your contractor should be detailed enough that you need to put on your reading glasses to view it. “Be wary of a contract that is devoid of details—or the language is vague at best—regarding the scope of work for the project, responsibilities, payment schedules, and start and stop times,” says Jody Costello, home renovation planning and contractor fraud expert at Contractors From Hell. In fact, she says the scope of work and every single detail must be included in your written agreements. “This includes materials used, supplies, equipment, vendors, subcontractors—everything that goes into your project.”
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Why is this so important? You don’t want to make assumptions regarding what you thought you signed up for. And every time you say, I thought you were going to…, Costello explains this will become a “change order,” which will cost additional money. For example, you might assume that paint would be included in the cost of painting your house, or debris removal is included in a demo, but if it’s not in the contract, you’ll be paying extra.
3. The contractor had bad or zero reviews
You can give the contractor the benefit of the doubt, but you still need to see if there’s any dirt on them. “These days everything is online, and if you see bad reviews, take them seriously,” advises real estate broker Egypt Sherrod, one of the hosts of HGTV’s new show, Married to Real Estate. She admits the adage that you can’t please everyone is true—but she also points out that multiple bad reviews are usually a smoke signal. And where there’s smoke, there’s fire.
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“If you don’t see any reviews at all about a company, chances are they have dissolved previous companies and reestablished under a new name,” she explains. Sherrod says when contractors can’t clean up their brand or reviews, they often start over.
4. The contractor doesn’t have references
In addition to reviews, contractors should also have references. Also, if this person has great reviews for painting, but they’re offering to build a pool, you need examples of the latter. “Renovations or new builds are significant investments of both time and energy for homeowners,” says Joe Raboine, director of residential hard-scapes with Belgard. “The best way to understand a contractor’s work is to review photos, reviews, and references from their work.” And Raboine says they should be eager to share the contact information of happy customers who can answer questions about their performance.
5. The bid or estimate is extremely low
Usually, consumers are concerned about prices being higher than necessary. However, Costello also warns about a low-ball bid. “Contractors know that homeowners will be fixed on costs and the bottom line, and unethical contractors will leave out some scope of work details just to obtain the job,” she explains. “You need to review bids against your scope of work to ensure it includes everything you expect.”
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6. The contractor doesn’t have proof of insurance
Don’t just ask a potential contractor for insurance—ask to see a copy of it. Raboine says you should also be sure it includes workman’s compensation and general liability. “If the project is large in scope, you may want to also check and see that they are bonded,” he recommends.
Costello agrees, adding, “Contractor surety bonds are required at the state, county, or local level for a licensed contractor.” She explains that these bonds are limited in dollar amount to around $15,000, but since they protect the homeowner you want to ensure that they are active. “Additional insurance such as General Liability and Builder’s Risk is a plus that ethical contractors obtain to protect both parties,” she says.
7. The contractor is a poor communicator
We’re not saying your contractor needs to have a BA in communications. However, if they fail to return phone calls or address your concerns, Costello says this is a preview of what you’ll get if you hire them—and she says they may end up abandoning the project.
Written communication skills are also important. “When a contractor is hesitant to provide information in writing, or engage in proper digital communication, this is a definite red flag that he or she doesn’t want a paper trail of evidence, or isn’t legally licensed to do the work requested,” says builder Mike Jackson, one of the hosts (along with Sherrod) of HGTV’s Married to Real Estate. “A running paper trail is a normal expectation when you’re dealing with a contractor.”
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8. The contractor doesn’t mention permits, or suggests the homeowner obtain them
“Each municipality has different ordinance requirements for various home remodeling projects, including outdoor spaces,” Raboine says. “Many projects—including retaining walls, driveways, fireplaces, and outdoor kitchens—need to be permitted and engineered, and require a substantial amount of expertise to execute properly.” And he says your potential contractor needs to address this as it can affect timelines and costs to pull permits.
Even worse is a contractor who asks you to pull the permits. Costello says this usually means you’re dealing with an unlicensed contractor or someone whose license has been revoked. “Never obtain the permit as a homeowner because whoever obtains and signs for the permit is responsible for everything, including fines and fees when things go wrong,” she explains. “You want the contractor to carry the burden of doing the work.”
9. The contractor doesn’t address materials or lien waivers
If the contractor is executing draws, and the project is large, Raboine says you may want to ask about lien waivers. “This is an extra step that will ensure that nobody, including a contractor’s supplier, can place a lien on your property,” he says. “For example, if a contractor doesn’t pay their dealer, the dealer can issue a lien directly on the homeowner, which must be satisfied to receive if there is ever a sale to receive a clean title or deed.” In other words, you can’t sell your house until this debt is paid.
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10. You’re unable to verify the contractor’s license, or the names do not match
There’s a reason you should always verify the contractor’s license. Costello says this is how you can find out if the contractor is unlicensed and using someone else’s license. It’s possible this individual’s license has been revoked, and they got someone else to apply for one. “It may even be a corporation, but the principals do not match the name of the contractor,” she says.
11. The contractor asks for cash payments
If the contractor asks if you can pay in cash, it’s quite possible this individual is trying to avoid paying taxes on the business or for employees. Costello says this is a sign that you’re dealing with a dishonest person. But there’s yet another reason why you shouldn’t pay in cash. “It’s important to have proof of payment using a canceled check, receipts, and lien releases upon payments made to the contractor in the event he or she claims they weren’t paid,” Costello says.
12. The contractor is under the influence
What people do on their time is their business—but what they do in your home is your business. It might go without saying, but “when it comes to deciding on who you want to work on your home renovation project, a major, waving red flag that says, Don’t hire me, is a contractor who shows up to the job site, and you suspect they are under the influence,” Sherrod says.