Home Contractors: Tip-offs to Potential Rip-offs

Update: This article has been revised as of February, 2011.

Whether you are planning a small repair project, like repaving your driveway, or a more extensive project, like adding a family room to your home, it pays to look beyond the lowest bid when selecting a contractor.

Right from the start, you can eliminate what are likely to be less-than-reputable contractors by considering a list of traits common to rip-off artists. Both the Federal Trade Commission and the Better Business Bureau have found the following to be indications that a contractor may not be interested in satisfying customers:

• Solicits door-to-door: Be suspicious of contractors who attempt to gain business by visiting door-to-door. "Cold calls" can sometimes mean that the contractor is not from a local, established business but is instead just passing through and trying to make a quick buck.
• Has materials left over from a previous job: It is not your lucky day when a contractor shows up on your doorstep offering a cut-rate price on a project because they have materials left over from a recent job at your neighbor’s house or the house “down the street.” This is a common ploy of fly-by-night operators or handymen who are based out-of-state and use their pick-up trucks as their place of business.
• Asks you to get the required building permits: This could be a sign that the contractor is hoping to avoid contact with the local agency that issues such permits. Perhaps he is not licensed or registered, as required by your state or locality. A competent contractor will get all the necessary permits before starting work on your project.
• Does not list a business phone number in the local directory: This can be a red flag indicating that the contractor does not have an established business presence in-state. Or, that he perhaps relies on a home answering machine to “screen” customer calls.
• Pressures you for an immediate decision: A reputable professional will recognize that you need time to consider many factors when deciding which contractor to hire. You will want to check references; look into the contractor’s standard of work and his professional designations and affiliations; verify his insurance; check to see if he needs a license (and if so, that it is valid); get written estimates from several firms based on identical project specifications, and, contact the Better Business Bureau and local consumer protection agency to see if they have information.
• Asks you to pay for the entire job up-front or demands only cash: Payments should be by credit card of check so that your credit card statement or cancelled check can provide proof of payment, if needed. If you are asked to pay for the entire job up-front, this should raise a red flag. Final payment should not be due until the job is done. Do not make the final payment or sign an affidavit of final release until you are satisfied with the work and have proof that the subcontractors and suppliers have been paid.
• Suggests you borrow from a particular lender: Do not agree to financing through your contractor or someone he suggests. Many people have been ripped off when they agreed to use the suggested lender; sign a lot of papers in a rush; and find out later that they had agreed to a home equity loan with a very high rate, points and fees. Secure financing on your own by shopping around and comparing loan terms.

The Better Business Bureau offers tips for finding the right contractor for your next home improvement job.