VOLUME VIIIFind Quality Contractors, Avoid the Scammers
By Melanie Green
Selecting a contractor can be a pricey and important decision for property owners. If property owners select the right contractor, the project stays within budget and is completed on time without much hassle. With the wrong contractor, especially one who is a scammer, it can cost owners a lot of money and damage to their property.

While it is possible to do due diligence and still get scammed, there are steps that property owners can take to minimize their risk of becoming a victim of a contractor scammer. In this guide, learn more about the licensing and bonding requirements for contractors, red flags to look out for, and what to do after being scammed.
Licensing and Bonding RequirementsThere are many different types of home service providers that can repair or renovate a home. This includes:
  • Handyman
  • Painters
  • General contractors
  • Interior designers
  • Plumbers
  • HVAC technicians
  • Flooring installers

Not all types of services that perform home improvement projects need to be licensed and bonded. The requirements vary heavily from county to county so it is a smart idea to verify the laws where the property is located. For instance, professional painters in Florida must be licensed and bonded. While there aren’t state requirements for painters to have a license in Texas, painters must be insured.

In addition to meeting contractor licensing and bonding requirements, home improvement professionals should still have a business license and liability insurance. Going through the process to become a sole proprietorship, limited liability company (LLC) or corporation provides some credibility for contractors. Plus, it could be dangerous to have contractors without LLC repairs.

Contractor Red Flags
Here are some red flags property owners can look for when interacting with contractors to try to avoid a scam:

No Physical Location

Professional contractors should have a physical location and mailing address, not just a post office box. A contractor that invests in an office, dedicated business line and an email address with a custom domain treats their work as a business. This requires an investment of their capital and time. If the contractor just has a P.O. box and no location, this could be a sign that the contractor might be a scammer.

Door-to-Door Sales

After natural disasters such as hurricanes, contractors may go door-to-door to offer services to those impacted. When first interacting with a contractor that just shows up, it can be difficult to assess whether the contractors are who they claim to be, their insurance coverage, licensure and their physical business address. Never make a final contractor selection based on who is first available. Even when it is more convenient, it is worth the hassle of researching contractors before engaging with them.

Extremely Low Bids

It is always a good idea to request bids from at least three different contractors to have an understanding of how much a project costs and to get input from various companies. If one bid is much lower than the others, this could be a red flag that the contractor should be avoided. Perhaps the contractor cuts corners, doesn’t pay for insurance or uses inferior materials.

Requiring a Large Deposit

There are laws that dictate how much of a deposit contractors can request up front. In several states, contractors can only ask for 30% or less beforehand. If a contractor requests more than this amount as a deposit, this is another red flag. At a minimum, it suggests that the contractor is unaware of state laws. In a worst-case scenario, the contractor might plan on taking the money without completing the work because it was paid upfront.

In Florida, a contractor must apply for necessary permits within 30 days after receiving more than 10% of the total contract price as a deposit. In Texas, there is no limit to how much a contractor can ask for up front; it is up to property owners to set their own boundaries for how much they will allow as a down payment.

They Don’t Require a Contract

A detailed written contract is required for any transaction, especially high-dollar projects involving real estate. If a contractor claims that a contract isn’t necessary or provides a contract with limited details about what work will be done and the materials that will be used, this is a red flag. Always request this contract in writing so that there is some evidence that can be used if the contractor doesn’t come through.

They Don’t Pull a Building Permit

Any significant construction project requires a building permit. This allows a building inspector to check on the site to make sure that the work adheres to applicable safety codes. Requiring contractors to obey the law and get a building permit can weed out some unlicensed contractors, and ensure that there is an objective third-party inspection of the work.

Extra Fees and Unexpected Expenses

It is a common contractor scam to bid low and then demand extra money after the project has already started to finish the job. Unfortunately, it can be difficult to know if contractors will demand extra fees in the middle of a job until they’re hired. Having a detailed scope of work outlined in the contract can help to provide some protection. Calling at least three past clients and asking them how the project went with unexpected expenses can give some insight.

They Waive the Deductible

A common scam involves a contractor willing to waive the deductible for a homeowner’s insurance claim. This is the amount property owners are expected to pay out of pocket before the insurance policy covers the expense. This is an illegal practice in many states, including Florida and Texas, and often leads to contractors that cut corners to reduce their cost for the project.

How To Pull a Contract
As long as there is a written contract, both property owners and contractors must honor the terms and act in accordance with what they’ve agreed to. If the contract outlines if and how the contract can be pulled, this is the process that must be followed to terminate it.

However, not all contracts have a termination clause. In these cases, the process of pulling a contract will depend on state and local laws. In Florida, contracts can be pulled or terminated with cause, based on the terms of the contract. In Texas, owners of a homestead property can cancel within three days of signing the contract for remodeling work.

What To Do if Scammed
In the event that property owners find themselves scammed by a contractor, the property owner should document everything involving the project. This includes taking dated pictures of the job site and keeping accurate notes of work completed and interactions with the contractor. Start by discussing concerns with the contractors to make sure that the contractors are aware of the dissatisfaction.

Next, property owners can report the scam to a local or state body that monitors contractors. This varies based on the location where the work was completed. In Florida, many counties have their own online portals for filing a complaint against a contractor.

It is also possible to file a complaint with the Department of Business & Professional Regulation at MyFloridaLicense.com. In Texas, consumers can report contractor scams to the Texas Department of Licensing and Regulation, as well as the Texas Attorney General.

If these steps do not enforce contract terms, repairs or the return of funds, it might be necessary to contact an attorney whose specialty area is contractor scams. There’s no specific waiting period to do so, even if the contractor has not been reported yet. If a property owner suspects that there’s a scam going on, discussing these concerns with a real estate attorney can help with guidance on what to immediately do next.

Being prepared for the worst-case scenario beforehand, even if the situation doesn’t happen, will make it that much easier to act when necessary. By watching out for common red flags like the ones mentioned above, it is possible to reduce the risk.